ACIT - 2(2)(1), MUMBAI V. INDO INDUSTRIES LTD, MUMBAI

ITA 7462/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5162 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 29-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K L KANAK
• Keywords: Business income; Services rendered outside India; Permanent establishment; Advance ruling
• Section: 143(3); 195

Judgement Text

1 ITA 7462/MUM/2017 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI G MANJUNATHA (ACCOUNTANT MEMBER) AND SHRI RAVISH SOOD (JUDICIAL MEMBER) ITA NO7462/MUM/2017 (ASSESSMENT YEAR : 2014-15) ACIT-2(2)(10, MUMBAI VS M/S INDO INDUSTRIES LTD A-1, SAMIR APARTMENTS 169, S.V. ROAD, ANDHERI (W), MUMBAI-58 PAN : AAACI8197D APPELLANT RESPONDEDNT APPELLANT BY SHRI K.L. KANAK RESPONDENT BY SHRI BHUPENDRA SHAH DATE OF HEARING 28-01-2019 DATE OF PRONOUNCEMENT 01-02-2019 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST ORDER OF THE CIT(A)-5, MUMBAI DATED 19-12-2017 AND IT PERTAINS TO AY 2014- 15. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF (HE C ASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE U/S 40(A)(I) OF COMMISSION PAID TO FOREIGN AGENTS WITHOUT APPRECIATING THE FACT THAT THE RIGHT TO REC EIVE THE COMMISSION AROSE IN INDIA WHEN THE ORDER WAS EXECUTED BY THE ASSESSEE AND AS SUCH WAS DEEMED TO ACCRUE AND ARISE IN INDIA AND WAS CONSEQUENTLY TAXABLE AS PER PROVISION S OF SEC 5(2)(B) RWS 9(1)(I) OF THE I T ACT AND THE PROVISIONS OF SEC 195' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE U/S 40(A)(I) OF COMMIS SION PAID TO FOREIGN AGENTS WITHOUT 2 ITA 7462/MUM/2017 DEDUCTING TAX AT SOURCE, IGNORING THE DECISION OF T HE AUTHORITY FOR ADVANCE RULING IN THE CASE OF SKF BOILERS *& DRIERS PVT. LTD. REPORTED IN 343 !TR 385'. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF EXPORTING YARN AND CLOTH. THE COMP ANY IS GOVERNMENT RECOGNISED THREE STAR TRADING HOUSE. THE ASSESSEE HAS FILED ITS RETURN OF INCOME FOR AY 2014-15 DECLARING TOTAL INCOME OF RS. 30,97,480. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT HAS BEEN C OMPLETED U/S 143(3) OF THE I.T. ACT, 1961 DETERMINING THE TOTAL INCOME AT RS.1 ,29,82,363 BY MAKING DISALLOWANCE OF RS.98,84,883 TOWARDS EXPORTS COMMIS SION PAID TO FOREIGN AGENTS U/S 40(A)(I) OF THE INCOME-TAX ACT, 1961 FOR FAILURE TO DEDUCT TDS AS APPLICABLE U/S 195 OF THE I.T. ACT, 1961. 3. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREF ERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE SUBMIT TED THAT EXPORT COMMISSION PAID TO FOREIGN AGENTS OUTSIDE INDIA AND HAVING NO PERMANENT ESTABLISHMENT IN INDIA IS NOT LIABLE TO BE TAXED IN INDIA, CONSEQUEN TLY, PROVISIONS OF SECTION 195 HAS NO APPLICATION, THEREBY NO DISALLOWANCE COULD B E MADE U/S 40(A)(I) OF THE I.T. ACT, 1961. THE LD.CIT(A), AFTER CONSIDERING R ELEVANT SUBMISSIONS OF THE ASSESSEE AND ALSO BY FOLLOWING ITATS ORDER IN ASSE SSEES OWN CASE FOR AY 2010- 11 DELETED ADDITION MADE BY THE AO. AGGRIEVED BY T HE ORDER OF LD.CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 3 ITA 7462/MUM/2017 4. THE LD.AR FOR THE ASSESSEE, AT THE TIME OF HEARI NG SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED I N FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI FOR AYS 2010-11 TO 201 2-13, WHERE THE CO- ORDINATE BENCH, AFTER CONSIDERING RELEVANT FACTS AN D ALSO BY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF G VK INDUSTRIES VS CIT 332 ITR 130(SC) HELD THAT EXPORT COMMISSION PAID TO FOR EIGN AGENTS IS NOT LIABLE TO TAX IN INDIA, CONSEQUENTLY, PROVISIONS OF SECTION 1 95 HAVE NO APPLICATION. 5. THE LD.DR, ON THE OTHER HAND, SUBMITTED THAT THE AO HAS RIGHTLY DISALLOWED EXPORT COMMISSION U/S 40(A)(I), BECAUSE THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE EVEN THOUGH THE AMENDED PROVIS IONS OF SECTION 9(1)(VII) IS APPLICABLE EVEN TO EXPORT COMMISSION PAID TO NON RE SIDENTS. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIALS AVAILABLE ON RECORD. THE ISSUE INVOLVED IN THIS APPEAL IS - WHE THER EXPORT COMMISSION PAID TO FOREIGN AGENTS HAVING NO PERMANENT ESTABLISHMENT IN INDIA IS CHARGEABLE TO TAX IN INDIA THEREBY REQUIRING THE ASSESSEE TO DEDU CT TAX AT SOURCE ON SUCH PAYMENT U/S 195 OF THE I.T. ACT, 1961 AND CONSEQUEN T DISALLOWANCE OF EXPENDITURE U/S 40(A)(I) IS NO LONGER A RES INTEGRA . THE CO-ORDINATE BENCH OF ITAT, MUMBAI BENCH J IN ASSESSEES OWN CASE FOR A Y 2012-13 IN ITA NO.4642/MUM/2016 HAS CONSIDERED AN IDENTICAL ISSUE IN LIGHT OF PROVISIONS OF SECTION 9(1)(VII) R.W.S. 195 AND BY FOLLOWING THE D ECISION OF HONBLE SUPREME 4 ITA 7462/MUM/2017 COURT IN THE CASE OF GVK INDUSTRIES VS CIT (SUPRA) HELD THAT EXPORT COMMISSION PAID TO NON RESIDENTS IS NOT LIABLE TO TAX IN INDIA ; CONSEQUENTLY, PROVISIONS OF SECTION 195 AND 40(A)(I) ARE NOT APPLICABLE. THE R ELEVANT OBSERVATIONS OF THE TRIBUNAL ARE AS UNDER:- 9. WE HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND ALSO DELIBERATE D ON THE JUDICIAL PRONOUNCEMENTS CITED BEFORE US IN THE CONTEXT OF FA CTUAL MATRIX OF THE CASE. FROM THE RECORD WE FOUND THAT DURING.THE YEAR ASSESSEE HAS PAID COMMISSION TO VARIOUS NON-RESIDENT FOREIGN BROKERS AMOUNTING TO RS.92,14,5097- FOR RENDERING SERVICE S OUTSIDE INDIA IN RELATION TO EXPORT ORDERS AND RECOVERY OF THE SALE PROCEEDS. NOTHING WAS BROUGHT ON RECORD BY THE AO TO ESTABLISH THAT T HE SAID NON- RESIDENT BROKERS HAVE THEIR PLACE IN INDIA BECAUSE THEY WERE OPERATING IN THEIR RESPECTIVE COUNTRIES. THE SAID N ON-RESIDENT BROKERS ARE NOT LIABLE TO ANY TAX IN INDIA, THEREFORE, NEIT HER THERE WAS ACCRUAL NOR RECEIPT OF INCOME IN INDIA. WE FOUND THAT THE NON-RESIDENT BROKERS HAVE NOT RENDERED ANY SERVICES IN INDIA, TH EREFORE, COMMISSION INCOME NEITHER ACCRUED NOR AROSE IN INDI A IN VIEW OF THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CAS E OF EON ECHNOLOGY PVT. LTD., 343 ITR 366 (DEL). THERE IS NO DISPUTE TO THE WELL SETTLED ROPOSITION THAT PROVISIONS OF SECTION 195 DOES NOT APPLY WHEN NO INCOME IS FOUND TO BE TAXABLE IN INDIA, THE REFORE, THERE WAS NO REASON FOR MAKING ANY DISALLOWANCE UNDER PROVISI ONS OF SECTION 40(A)(I) IN VIEW OF DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF G.E.INDIA TECHNOLOGY CENTRE PVT. LTD., 327 ITR 4 56. THERE ARE ALSO JUDICIAL PRONOUNCEMENTS SUPPORTING THIS PROPOS ITION, WHICH ARE REPORTED IN 10 ITR 501(TRIB), 86 ITD 102 AND 10 ITR 147(TRIB). 10. PAYMENT OF BROKERAGE TO THE SAID NON-RESIDENT BROKE RS FOR NON TECHNICAL SERVICES IS THE BUSINESS INCOME OF THE PA YEE AND THEREFORE, NOT LIABLE TO TAX IN INDIA AS WAS HELD IN THE CASE OF SRI SUBHARAMAN SUBRAMANIAN, 30 TAXMANN.COM 236 (BANG.). WE DO NOT FIND ANY MERIT IN THE CONTENTION OF THE LEARNED DR THAT BROKERAGE SO PAID TO THE NONRESIDENT BROKERS WAS FEE FOR TECHNICAL SERVICES. OUR VIEW IS SUPPORTED BY THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ADIDAS SOURCING LTD., 28 TAXRPANN.COM 267 (DEL). EVEN THE AMENDED SECTION 9 APPLIES ONLY TO TECHNICAL SERVICES AND NOT TO BROKERAGE, AC CORDINGLY, THE PAYMENT OF BROKERAGE TO NON-RESIDENT DID NOT ATTRACT THE PR OVISIONS OF SECTION 9 R.W.S.195 AS WAS HELD BY THE DELHI BENCH IN THE CASE OF ANGELIQUE INTERNATIONAL LTD., 28 TAXMANN.COM 219 (DEL) AND ALLAHABAD BENCH OF THE TRIBUNAL IN THE CASE OF MODEL EXIMS, 42 TAXMANN.COM 446 (ALL). 5 ITA 7462/MUM/2017 11. IN VIEW OF THE ABOVE , WE CAN SAFELY CONCLUDE THAT MERELY BECAUSE PAYMENTS HAVE BEEN MADE FROM INDIA, THE SAME CANNOT BE MADE LIABLE TO BE TAXED IN INDIA INSOFAR AS PAYMENT WAS MADE TO NO N-RESIDENT FOR THE SERVICES RENDERED OUTSIDE INDIA AS WAS HELD IN THE CASE OF DR.REDDYS LABORATORY, 58 ITD 104(HYD). 7. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH T HE VIEW TAKEN BY THE CO-ORDINATE BENCH, WE ARE OF THE CONSIDERED VIEW THAT THE PROVI SIONS OF SECTION 195 HAS NO APPLICATION TO EXPORT COMMISSION PAID TO NON RESIDE NTS HAVING NO PERMANENT ESTABLISHMENT IN INDIA. THE LD.CIT(A), AFTER CONSI DERING RELEVANT FACTS HAS RIGHTLY DELETED ADDITION MADE BY THE AO. WE DO NOT FIND AN Y ERROR IN THE FINDINGS OF THE LD.CIT(A) AND HENCE, WE ARE INCLINED TO UPHOLD FIND INGS OF LD.CIT(A) AND DISMISS APPEAL FILED BY THE REVENUE. 8. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01 -02-201 9. SD/- SD/- (RAVISH SOOD) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 01 ST FEBRUARY, 2019 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI