ACIT 25(2), MUMBAI V. S & S EXPORTS, MUMBAI

ITA 6863/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9037 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 11-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BEENA SANTOSH
• Assessee Lawyers: R C JAIN
• Keywords: Business income; Depreciation; Double taxation relief
• Section: 143(3)

Judgement Text

, B BB B INCOME TAX APPELLATE TRIBUNAL,MUMBAI - E BENCH , IOU IOUIOU IOU , BEFORE S/SH. RAJENDRA, ACCOUNTANT MEMBER & PAWAN SINGH, JUDICIAL MEMBER /.ITA NO.6863/MUM/2014, /ASSESSMENT YEAR-2010-11 ASST. CIT -25(2), ROOM NO. 108, 1 ST FLOOR, BUILDING NO.C-11, PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA(EAST), MUMBAI-400051. VS. M/S. S & S EXPORTS, MANAS, B WING, EKSAR, DEVIDAS ROAD, EXT., BORIVALI (W), MUMBAI-400103 PAN: AABFS2268P ( / APPELLANT) ( / RESPONDENT) / REVENUE BY : MS. BEENA SANTOSH (DR) ! ! / ASSESSEE BY : SHRI R. C. JAIN (AR) ' ! / DATE OF HEARING : 10 -01-2017 ! '( / DATE OF PRONOUNCEMENT : 13 -01-2017 , 1961 ' 254(1) #!$! ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER PAWAN SINGH, J.M. IOU IOUIOU IOU : 1. THIS APPEAL BY REVENUE U/S 253 OF THE INCOME-TAX AC T IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-35 MUMBAI [FOR SHORT THE CIT(A)] DATED 11.08.2014 FOR ASSESSMENT YEAR(AY) 2010-11. THE REV ENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS. 64,57,316/- MADE BY DISALLOWING OF EXPORT COMMISSION.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS GROSSLY ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE WAS LIABLE TO DEDUCT THE TDS ON THE PAYMENT MADE AS EXPORT COMMISSION.' 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.3,00,000/- MAD E BY DISALLOWING FROM FREIGHT AND INSURANCE CHARGES CLAIMED.' 4. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) HAS GROSSLY ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE WAS LIABLE TO DEDUCT THE TDS ON THE PAYMENT MADE ON ACCOUNT OF FREIGHT AND I NSURANCE CHARGES.' 5. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.11,94,631/- BY DISALLOWING DEDUCTION CLAIMED U/S. 80IA(4)(IV)(A) IGNORING THE PROVISIONS OF SECT ION 80IA(5) WHICH ARE APPLICABLE IN THE CASE OF THE ASSESSEE.' 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-FIRM IS TRADER AND EXPORTERS OF TEXTILE GOODS. THE ASSESSEE IS ALSO ENGAGED IN THE ELECTRICITY GENERAT ION BY WIND MILL. THE RETURN OF INCOME FOR RELEVANT AY WAS FILED ON 08.09.2010 DECLARING TOTAL INCOME OF RS. 4,06,39,695/-. THE 2 ITA NO. 6863/M/2014 M/S. S & S EXPORTS. ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 1 5.03.2013. THE ASSESSING OFFICER (AO) WHILE MAKING THE ASSESSMENT BESIDES OTHER ADDITION/ DISALLOWANCE DISALLOWED EXPORT COMMISSION OF RS. 64,57,316/-, DISALLOWED FREIGHT A ND INSURANCE CHARGES OF RS. 3,00,000/- AND FURTHER MADE AN ADDITION OF RS. 11,94,631/- BY DISALLOWING DEDUCTION U/S 80IA OF THE ACT. ON APPEAL BEFORE THE LD. CIT(A), ALL THE THREE ADDITIONS/DISALLOWANCES WERE ALLOWED. HENCE, AGGRIEVED BY THE ORDER OF THE LD. CIT(A), TH E REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. 3. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIVE ( DR) FOR THE REVENUE AND LD. AUTHORIZED REPRESENTATIVE (AR) FOR THE ASSESSEE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. 4. GROUND NO. 1 & 2 RAISED BY REVENUE RELATES TO DELET ION OF ADDITION OF RS. 64,57,316/- ON ACCOUNT OF DISALLOWANCE OF EXPORT COMMISSION. THE L D. DR FOR THE REVENUE SUPPORTED THE ORDER OF AO AND WOULD ARGUE THAT THE ASSESSEE HAS P AID THE EXPORT COMMISSION TO TWO PARTIES WHICH ARE BASED IN GERMANY & MALTA WITHOUT MAKING ANY DEDUCTION AT SOURCE. AS THE ASSESSEE FAILED TO MAKE THE TDS ON PAYMENT OF COMMISSION TO THE PARTIES BASED IN GERMANY & MALTA. THUS, THE AO CORRECTLY DISALLOWED THE COMMISSION PAYMENT. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE ARGUED THAT THE FOREIGN AGENT TO WHOM THE COMMISSION PAYMENT DID NOT HAVE ANY BUSINESS CONNEC TION IN ANY BUSINESS PLACE IN INDIA. THUS, THE ASSESSEE WAS NOT LIABLE TO MAKE TDS ON TH E COMMISSION PAYMENT WHICH WAS MADE ABROAD. IT WAS FURTHER ARGUED THAT AS PER TTAA WITH GERMANY & FRANCE, THE PAYMENT FOR SERVICES TO BE CONSIDERED AS BUSINESS INCOME OF PAYEE WHICH IS TO BE TAXED IN THE COUNTRY AS THEIR EVIDENCE IN ABSENCE OF ANY PE IN T HE COUNTRY OF PAYMENT. THE LD. AR OF THE ASSESSEE FURTHER RELIED UPON THE DECISION OF HONBL E MADRAS HIGH COURT IN CIT VS. MS. FARIDA LEATHER COMPANY IN ITA NO. 484 OF 2015 DATED 20.01.2016. 5. WE HAVE HEARD THE RIVAL CONTENTION OF THE PARTIES A ND GONE THROUGH THE ORDER OF AUTHORITIES BELOW. THE AO WHILE MAKING THE ASSESSMENT ASKED THE ASSESSEE TO EXPLAIN WHETHER TAX HAS BEEN DEDUCTED AT SOURCE ON THE PAYMENT OF EXPORT CO MMISSION. THE ASSESSEE FILED IS REPLY DATED 20.02.2013 CONTENDING THAT THE ASSESSEE HAS P AID COMMISSION TO THE AGENT BASED IN GERMANY & FRANCE, BOTH OF THE COUNTRY HAS DTAA IN I NDIA. AND AS PER TERM OF DTAA PAYMENT FOR THESE SERVICES ARE TO BE TREATED AS BUS INESS INCOME OF PAYEE WHICH IS TO BE TAXED IN THE COUNTRY OF THEIR RESIDENCE IN ABSENCE OF ANY PE IN THE COUNTRY OF PAYMENT. IT WAS FURTHER CONTENDED THAT ALL OVERSEAS AGENT PROVI DED THEIR SERVICES IN THEIR COUNTRY OF BUSINESS AND HELP IN PROCURING ORDER, GETTING THE S AMPLE APPROVED FROM THE OVERSEAS CUSTOMER, ACQUIRING GOODS AT DESTINATION AND TIMELY REALIZATION OF THE PAYMENTS. NONE OF THE 3 ITA NO. 6863/M/2014 M/S. S & S EXPORTS. ACTIVITIES WERE CARRIED OUT IN INDIA NOR ANY AGENTS HAVE ANY PE IN INDIA. THE REPLY OF ASSESSEE WAS NOT ACCEPTED BY AO HOLDING THAT ASSESS EE WAS LIABLE TO DEDUCT TDS ON PAYMENT OF COMMISSION TO THE PARTIES BASED IN GERMA NY & MALTA AND DISALLOWED AN AMOUNT OF RS. 64,57,360/- U/S 195 R.W.S. 40A(I) OF THE ACT . THE LD. CIT(A) WHILE CONSIDERING THE APPEAL EXAMINED WHETHER THE COMMISSION PAID TO NON- RESIDENT AGENTS FOR THE SERVICES PROVIDED IN FOREIGN COUNTRY IS TAXABLE IN INDIA OR NOT. THE LD. CIT(A) OBSERVED THAT THE FOREIGN AGENT DID NOT HAVE NO BUSINESS CONNECTION O R THEY HAVE BUSINESS PLACE IN INDIA. ALL BUSINESS OF OPERATORS ARE OUTSIDE IN INDIA. THE LD. CIT(A) CONCLUDED THAT THE EXPLANATION TO SECTION 9(2) INSERTED BY FINANCE ACT WITH RETROSPE CTIVE EFFECT FROM 01.01.1976 IS NOT APPLICABLE TO SECTION 9(1)(II) OF THE ACT AND DELET ED THE DISALLOWANCE. THE HONBLE MADRAS HIGH COURT IN RECENT DECISION IN CIT VS. FARIDA LEA THER COMPANY (SUPRA) WHILE CONSIDERING THE SIMILAR GROUND HELD AS UNDER: 8. THE QUESTION NOW IS, WHETHER THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE AS CONTEMPLATED UNDER SECTION 195 OF THE ACT, WHEN THE ASSESSEE PAID COMMISSION TO FOREIGN AGENT. 9. THIS QUESTION HAS BEEN ANSWERED BY THE HON'BLE S UPREME COURT, IN THE CASE OF G.E. INDIA TECHNOLOGY CENTRE PVT. LTD. V. CIT (2010 ) 327 I.T.R. 456, IN WHICH, IT IS VERY CATEGORICALLY HELD THAT THE TAX DEDUCTED AT SO URCE OBLIGATIONS UNDER SECTION 195(1) OF THE ACT ARISES, ONLY IF THE PAYMENT IS CH ARGEABLE TO TAX IN THE HANDS OF THE NON-RESIDENT RECIPIENT. 9.1. THEREFORE, MERELY BECAUSE A PERSON HAS NOT DED UCTED TAX AT SOURCE OR A REMITTANCE ABROAD, IT CANNOT BE INFERRED THAT THE P ERSON MAKING THE REMITTANCE, NAMELY, THE ASSESSEE, IN THE INSTANT CASE, HAS COMM ITTED A DEFAULT IN DISCHARGING HIS TAX WITHHOLDING OBLIGATIONS BECAUSE SUCH OBLIGATION S COME INTO EXISTENCE ONLY WHEN THE RECIPIENT HAS A TAX LIABILITY IN INDIA. 9.2. THE UNDERLYING PRINCIPLE IS THAT, THE TAX WITH HOLDING LIABILITY OF THE PAYER IS INHERENTLY A VICARIOUS LIABILITY ON BEHALF OF THE R ECIPIENT AND THEREFORE, WHEN THE RECIPIENT / FOREIGN AGENT DOES NOT HAVE THE PRIMARY LIABILITY TO BE TAXED IN RESPECT OF INCOME EMBEDDED IN THE RECEIPT, THE VICARIOUS LIABI LITY OF THE PAYER TO DEDUCT TAX DOES NOT ARISE. THIS VICARIOUS TAX WITHHOLDING LIAB ILITY CANNOT BE INVOKED, UNLESS PRIMARY TAX LIABILITY OF THE RECIPENT / FOREIGN AGE NT IS ESTABLISHED. IN THIS CASE, THE PRIMARY TAX LIABILITY OF THE FOREIGN AGENT IS NOT E STABLISHED. THEREFORE, THE VICARIOUS LIABILITY ON THE PART OF THE ASSESSEE TO DEDUCT THE TAX AT SOURCE DOES NOT EXIST. 10. FURTHER, JUST BECAUSE, THE PAYER / ASSESSEE HAS NOT OBTAINED A SPECIFIED DECLARATION FROM THE REVENUE AUTHORITIES TO THE EFF ECT THAT THE RECIPIENT IS NOT LIABLE TO BE TAXED IN INDIA, IN RESPECT OF THE INCOME EMBE DDED IN THE PARTICULAR PAYMENT, THE ASSESSING OFFICER CANNOT PROCEED ON THE BASIS A T THE PAYER HAS AN OBLIGATION TO DEDUCT TAX AT SOURCE. HE STILL HAS TO DEMONSTRATE A ND ESTABLISH THAT THE PAYEE HAS A TAX LIABILITY IN RESPECT OF THE INCOME EMBEDDED IN THE IMPUGNED PAYMENT. 11. IN THE INSTANT CASE, IT IS SEEN, ADMITTEDLY THA T THE NON- RESIDENT AGENTS WERE ONLY PROCURING ORDERS ABROAD AND FOLLOWING UP PAYMENTS W ITH BUYERS. NO OTHER SERVICES ARE RENDERED OTHER THAN THE ABOVE. SOURCING ORDERS ABROAD, FOR WHICH PAYMENTS HAVE BEEN MADE DIRECTLY TO THE NON-RESIDENTS ABROAD , DOES NOT INVOLVE ANY TECHNICAL KNOWLEDGE OR ASSISTANCE IN TECHNICAL OPERATIONS OR OTHER SUPPORT IN RESPECT OF ANY OTHER TECHNICAL MATTERS. IT ALSO DOES NOT REQUIRE A NY CONTRIBUTION OF TECHNICAL KNOWLEDGE, EXPERIENCE, EXPERTISE, SKILL OR TECHNICA L KNOW-HOW OF THE PROCESSES INVOLVED OR CONSIST IN THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR DESIGN. 4 ITA NO. 6863/M/2014 M/S. S & S EXPORTS. THE PARTIES MERELY SOURCE THE PROSPECTIVE BUYERS FO R EFFECTING SALES BY THE ASSESSEE, AND IS ANALOGOUS TO A LAND OR A HOUSE / REAL ESTATE AGENT / BROKER, WHO WILL BE INVOLVED IN MERELY IDENTIFYING THE RIGHT PROPERTY F OR THE PROSPECTIVE BUYER / SELLER AND ONCE HE COMPLETES THE DEAL, HE GETS THE COMMISS ION. THUS, BY NO STRETCH OF IMAGINATION, IT CANNOT BE SAID THAT THE TRANSACTION PARTAKES THE CHARACTER OF 'FEES FOR TECHNICAL SERVICES' AS EXPLAINED IN THE CONTEXT OF SECTION 9 (1) (VII) OF THE ACT. 12. AS THE NON-RESIDENTS WERE NOT PROVIDING ANY TEC HNICAL SERVICES TO THE ASSESSEE, AS HELD ABOVE AND AS HELD BY THE COMMISSIONER OF INCOM E TAX (APPEALS), THE COMMISSION PAYMENT MADE TO THEM DOES NOT FALL INTO THE CATEGORY OF 'FEES OF TECHNICAL SERVICES' AND THEREFORE, EXPLANATION (2) TO SECTION 9 (1) (VII) OF THE ACT, AS INVOKED BY THE ASSESSING OFFICER, HAS NO APPLICATIO N TO THE FACTS OF THE ASSESSEE'S CASE. 6. THUS, CONSIDERING THE FACTS OF THE CASE IN HAND AND THE LATEST DECISION OF HONBLE MADRAS HIGH COURT IN CIT VS. FARIDA LEATHER COMPANY (SUPRA ), WE DO NOT FIND ANY REASONING TO INTERFERE WITH THE FINDING OF THE LD. CIT(A). 7. IN THE RESULT, BOTH THE GROUNDS RAISED BY THE REVEN UE ARE DISMISSED. 8. GROUND NO. 3 & 4 RAISED BY THE REVENUE RELATES TO D ELETION OF ADDITION ON DISALLOWANCE ON FREIGHT AND INSURANCE CHARGES. THE LD. DR FOR THE R EVENUE RELIED UPON THE ORDER OF AO AND PRAYED THAT THE LD. CIT(A) DELETED THE DISALLOWANCE ON WRONG PREMISES. ON THE OTHER HAND, LD. AR OF ASSESSEE ARGUED THAT THE AO MADE THE DISA LLOWANCE ON THE BASIS OF ESTIMATION WHICH WAS NOT SUSTAINABLE AND THE SAME WAS RIGHTLY DELETED BY THE LD. CIT(A). 9. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND NOTICED THAT THE AO WHILE MAKING DISALLOWANCE ON INSURANCE AND FREIGHT CHARGE S MADE THE DISALLOWANCE ON THE BASIS OF ESTIMATION WITHOUT BRINGING ANY MATERIAL ON RECO RD. THE LD. CIT(A) WHILE CONSIDERING THE GROUND OF APPEAL OBSERVED THAT DURING THE COURSE OF ASSESSMENT PROCEEDING, COMPLETE DETAILS OF EXPENSES ON WHICH TDS WAS DEDUCTED, WERE SUBMITTED ALONG WITH COPIES OF TDS RETURN, ACKNOWLEDGEMENT AND THERE WAS NO QUESTION F OR ADHOC DISALLOWANCE. WE HAVE SEEN THAT THE ORDER OF LD. CIT(A) IS REASONED ONE AND BA SED ON THE DOCUMENTARY EVIDENCE FILED IN RESPECT OF TDS COPY OF ACKNOWLEDGEMENT AND THE RETU RNS IN RESPECT THEREOF. HENCE, WE DO NOT FIND ANY ILLEGALITY OR INFIRMITY IN THE ORDER O F THE LD. CIT(A). HENCE, GROUND NO. 3 & 4 RAISED BY THE REVENUE IS DISMISSED. 10. GROUND NO.5 RAISED BY THE REVENUE RELATES TO THE DE LETION OF ADDITION OF RS. 11,94,631/- U/S 80IA. LD. DR FOR THE REVENUE RELIED UPON THE ORDER OF AO. ON THE OTHER HAND, LD. AR OF THE ASSESSEE ARGUED THAT THE WIND MILL WAS INSTALLED BY ASSESSEE DURING THE AY 2007-08. DURING FIRST TWO AY, THE ASSESSEE DID NOT CLAIM ANY DEDUCT ION U/S 80IA BY AVAILING THE OPTION AVAILABLE TO ASSESSEE UNDER SUB-SECTION 2 OF SECTIO N 80IA. HOWEVER, DEPRECIATION OF WIND MILL WAS CLAIMED AND ADJUSTED FROM THE INCOME FROM OTHER BUSINESS OF THE ASSESSEE FOR THESE TWO YEARS, THEREAFTER, FROM THE AY 2009-10, THE ASS ESSEE CLAIMED DEDUCTION U/S 80IA FOR THE 5 ITA NO. 6863/M/2014 M/S. S & S EXPORTS. FIRST TIME AND THE YEAR UNDER CONSIDERATION IS THE SECOND YEAR OF DEDUCTION. 11. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF THE PAR TIES AND PERUSED THE ORDER OF AUTHORITIES BELOW. THE AO WHILE MAKING ASSESSMENT ASKED THE ASS ESSEE TO GIVE THE DETAILS OF PROFIT EARNING BY THE WIND MILL SINCE ITS INCEPTION. THE A SSESSEE FILED ITS REPLY DATED 28.02.2013 AND SUBMITTED PROFIT & LOSS ACCOUNT FROM THE WIND M ILL FOR THE AY 2007-08 & 2008-09. FROM THE DETAILS SUBMITTED BY ASSESSEE, THE AO OBSE RVED THAT ASSESSEE INCURRED LOSS IN AY 2007-08 & 2008-09. AS A RESULT, APPEAL FILED BY TH E REVENUE IS STANDS DISMISSED. *'+ ,-' VF/KDKJH . / ! 01 UK 2 ! ' 3 . ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH JANUARY,2017. 5 ! 6 7 13 ( , 201 7 ! 01 ; SD/- SD/- ( / RAJENDRA ( IOU IOUIOU IOU / PAWAN SINGH)) ( / ACCOUNTANT MEMBER # ( / JUDICIAL MEMBER 1 /MUMBAI, 7 /DATE: 13.01.2017 SK ' )!*+ ,+! / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ ., ( <' , 4. THE CONCERNED CIT / ., <' 5. DR E BENCH, ITAT, MUMBAI / =>0 '?, B BB B , . . . 1 6. GUARD FILE/ 0 *1 =' ' //TRUE COPY// 5 / BY ORDER, / DY./ASST. REGISTRAR ( ?, , 1 /ITAT, MUMBAI