ACIT, Kanpur V. M/s. Model Exims, Kanpur

ITA 754/LKW/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48340 (ITAT-LUCKNOW)
• Duration Of Justice: 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2011
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 28-04-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 16-12-2010
• Court: TRIBUNAL
• Department Lawyers: JAGDISH
• Keywords: Services rendered outside India; Retrospective amendment; Non-deduction of tax
• Section: 5(2); 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, B - BENCH, LUCKNOW. BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT AND SHRI N.K.SAINI, ACCOUNTANT MEMBER I.T.A.NO.754(LKW.)/2010 A.Y.: 2007-08 THE ACIT-I, VS. M/S. MODEL EXIMS, KANPUR. JAJMAU, KANPUR. PAN AADFM6163H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI JAGDISH, D.R. RESPONDENT BY : SHRI RAKESH GARG, ADVOCATE O R D E R PER N.K.SAINI, ACCOUNTANT MEMBER THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD.CIT(A)-II, KANPUR DATED 30.9.2010 RELATING TO THE ASSESSMENT YEAR 2007- 08. 2. THE ONLY EFFECTIVE GROUND RAISED IN THIS APPEAL READS AS UNDER : THE LD.CIT(APPEALS)-II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.57,49,489 ON ACCOUNT OF NON-DEDUCTION OF TDS UNDER SECTION 40A(IA) WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE AND MATERIAL BROUGHT ON RECORD BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 3. THE FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A PARTNERSHIP AND WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF FINISHED 2 LEATHER, SHOE-UPPERS AND LEATHER PRODUCTS. THE ASSESSEE WAS RUNNING TWO UNITS- ONE AT JAJMAU AND OTHER AT BANTHAR AND FILED THE RETURN ON 30.10.2007 DECLARING AN INCOME OF RS.80,16,170, WHICH WAS PROCESSED UNDER SECTION 143(1) OF THE I.T.ACT. LATER ON, THE CASE WAS SELECTED FOR COMPULSORY SCRUTINY. DURING THE ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAD PAID A SUM OF RS.57,49,489 TO THE CLAIMED OVERSEAS ENTITIES WITHOUT DEDUCTION OF INCOME-TAX AT SOURCE UNDER SECTION 195 OF THE INCOME- TAX ACT, 1961(IN SHORT THE ACT). THE AO CONFRONTED THE ASSESSEE WITH THE PROVISIONS CONTAINED UNDER SECTION 195 AND SECTION 9 OF THE ACT AND CALLED UPON TO SHOW CAUSE AS TO WHY THE AFORESAID SUM BE NOT DISALLOWED UNDER SECTION 40(A)(IA) OF THE ACT. THE ASSESSEE OBJECTED TO THE PROPOSED DISALLOWANCE AND SUBMITTED THAT THE EXPENSES HAD BEEN INCURRED IN VIEW OF THE BUSINESS EXPEDIENCIES TO FURTHER THE BUSINESS INTEREST OF THE ASSESSEE OVERSEAS BY THE RECIPIENTS HAVING EXPERTISE IN SUCH MATTERS, WHO WERE NON- RESIDENTS WITHIN THE MEANING OF THE RELEVANT PROVISIONS OF THE ACT, AS SUCH, THERE WAS NO STATUTORY LIABILITY ON THE PART OF THE ASSESSEE TO DEDUCT AT SOURCE UNDER SECTION 195 OF THE ACT. THE SUBMISSIONS OF THE ASSESSEE HAVE BEEN HIGHLIGHTED BY THE AO AT PAGE 25 OF THE ASSESSMENT ORDER DATED 15.12.2009 WHICH READ AS UNDER : (A) PAYMENT OF COMMISSION HAS BEEN' MADE TO FOREIGN NATIONALS OPERATING FROM FOREIGN TERRITORIES, (B) THE RECIPIENTS HAVE NO OFFICE, BRANCH OR ANY OTHER ESTABLISHMENTS IN INDIA, (C) THE COMMISSION HAS BEEN PAID IN RESPECT OF THE SERVICES RENDERED BY THE RECIPIENTS, OUTSIDE INDIAN TERRITORY, (D) THE PAYMENT HAS BEEN RECEIVED BY THE RECIPIENTS OUT OF INDIA, 3 (E) THESE PAYMENTS ARE SQUARELY COVERED BY THE DIRECTIONS ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES THROUGH CIRCULAR NO.23 OF 1969, 163 OF 1975 AND 786 OF 2000, (F) THE AFORESAID INCOME TERMED AS COMMISSION IS NOT TAXABLE UNDER THE SCHEME OF INCOME TAX ACT, 1961, (G) THERE WAS NO LIABILITY ON THE PART OF THE ASSESSEE TO DEDUCT INCOME TAX AT SOURCE U/S 195 OR ANY OTHER PROVISIONS OF THE ACT, AND (H) THEREFORE, THE SAME CANNOT BE DISALLOWED U/S 40(A)(IA) OF THE INCOME TAX ACT, 1961. 3.1 THE AO WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND MADE THE DISALLOWANCE OF RS.57,49,489 FOR THE REASON STATED AT PAGES 25 TO 34 OF THE ASSESSMENT ORDER DATED 15.12.2009. FOR THE SAKE OF REPETITION, THE SAME ARE NOT REPEATED HERE. THE AO, WHILE MAKING THE DISALLOWANCE, HELD AS UNDER : .THAT THERE WAS MANDATORY LIABILITY ON THE PART OF THE ASSESSEE UNDER SECTION 195 OF THE INCOME TAX ACT, 1961 READ WITH SECTION 9(1) (VII) THEREOF TO DEDUCT INCOME TAX AT SOURCE FROM THE SUM OF RS.35,41,082/- WHICH HE HAS DEBITED IN HIS BOOKS OF ACCOUNTS AS COMMISSION TO HIS CLAIMS OVERSEAS AGENTS. SINCE HE HAS FAILED TO DEDUCT INCOME TAX AT SOURCE, THE CONSEQUENT PROVISION CONTAINED UNDER SECTION 40A(IA) OF THE ACT ARE SQUARELY APPLICABLE TO THE FACTS OF THE CASE AND ACCORDINGLY, A SUM OF RS.57,49,489/- IS DISALLOWED. 4. THE ASSESSEE CARRIED THE MATTER TO THE LD.CIT(A) AND SUBMITTED THAT THE COMMISSION WAS PAID TO THE FOREIGN AGENT FOR PROCUREMENT OF EXPORT ORDER. THE SAID COMMISSION INCOME OF FOREIGN AGENT WAS NOT TAXABLE UNDER SECTION 9(1) OF THE ACT. SINCE THE SUM PAYABLE (COMMISSION) WAS NOT TAXABLE UNDER THE PROVISIONS OF THE INCOME-TAX ACT,1961, HENCE THE TAX WAS 4 NOT REQUIRED TO BE DEDUCTED UNDER SECTION 195 OF THE ACT. IT WAS ALSO SUBMITTED THAT THE VIEW OF THE AO REGARDING DEDUCTION OF TAX AT SOURCE UNDER SECTION 195 ON PAYMENT OF COMMISSION TO FOREIGN AGENT WAS BASED ON THE DECISION OF THE I.T.A.T., DELHI BENCH IN THE CASE OF VAN OORD ACZ INDIA (P) LTD. VS. ACIT (2008) REPORTED IN 112 ITD 79(DELHI). THE SAID DECISION HAD BEEN OVERRULED BY THE HON'BLE DELHI HIGH COURT OF DELHI VIDE ORDER DATED 15.3.2010. IT WAS ALSO SUBMITTED THAT TAX WAS NOT REQUIRED TO BE DEDUCTED IN VIEW OF THE CBDT CLARIFICATION VIDE CIRCULAR NO.23 DATED 23.7.1969 AND CIRCULAR NO.786 DATED 7.2.2000 FOR NON-DEDUCTION OF TAX AT SOURCE U/S 195 WITH REGARD TO PAYMENT OF COMMISSION TO FOREIGN AGENT. IT WAS CONTENDED THAT THE AFORESAID CIRCULAR WAS CLARIFICATORY IN NATURE, HENCE THEIR WITHDRAWAL VIDE CIRCULAR NO.7OF 2009 DATED 22.10.2009 DID NOT ALTER THE LEGAL POSITION AND THAT WHEN THE ASSESSEE MADE THE COMMISSION PAYMENTS TO THE FOREIGN PARTY, THE AFORESAID BOARDS CIRCULAR WAS VERY MUCH IN EXISTENCE AND BECAUSE OF WHICH NO TDS WAS MADE. THEREFORE, THE POSITION EXISTING AT THAT TIME COULD NOT BE ALTERED BY WITHDRAWING THAT CIRCULAR SUBSEQUENTLY. RELIANCE WAS PLACED ON THE DECISION OF THE I.T.A.T., MUMBAI BENCH IN THE CASE OF DY.CIT VS. SIEMENS (2010 TIOL-102-ITAT- MUM). ACCORDINGLY, IT WAS REQUESTED THAT THE DISALLOWANCE MADE BY THE AO UNDER SECTION 40(A)(I) FOR NON-DEDUCTION OF TAX AT SOURCE UNDER SECTION 195 OF THE ACT BE DELETED. 5. THE LD.CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, DELETED THE DISALLOWANCE BY OBSERVING AS UNDER : 5.3.1 I HAVE CAREFULLY CONSIDERED THE VIEWS EXPRESSED BY THE AO (WHILE MAKING THE DISALLOWANCE U/S 40(A)(I) FOR NON DEDUCTION OF TAX AT SOURCE ON PAYMENT OF COMMISSION TO FOREIGN AGENT) AS WELL AS SUBMISSIONS MADE BY THE APPELLANT. IN VIEW OF THE CATEGORICAL FINDING 5 OF THE HON. ITAT IN THIS REGARD, I AGREE WITH THE SUBMISSIONS OF APPELLANT THAT THE ISSUANCE OF CIRCULAR NO.7 OF 2009 DATED 22-10-2009 WITHDRAWING THE CIRCULAR NO.23 OF 1969, 163 OF 1975 AND 786 OF 2000 WILL BE OPERATIVE ONLY FROM 22.10.2009 AND NOT PRIOR TO THAT DATE . THUS, THE WITHDRAWAL OF EARLIER CIRCULARS WITH EFFECT FROM 22.10.2009 HAS NO BEARING IN THE INSTANT ASSESSMENT YEAR. MOREOVER, THE RELIANCE BY THE AO ON THE DECISION IN THE CASE OF VAN OORD ACZ INDIA (P) LTD VS. ACIT (2008) REPORTED IN 112 ITD 79 (DELHI) HAS NO MEANING SINCE THE SAME HAS BEEN OVERRULED BY THE HON'BLE DELHI HIGH COURT ON 15 TH MARCH, 2010. 5.3.2 THE AO HAS ALSO INVOKED THE PROVISIONS OF SECTION 9(1)(VII) ON THE PREMISE THAT SUCH PAYMENTS ALSO FALL UNDER FTS. IN THIS REGARD HE HAS OBSERVED THAT NORMALLY THE EXPORTER APPOINTS THE AGENTS AS HIS SELLING AGENT, DESIGNER & TECHNICAL ADVISOR FOR HIS PRODUCTS. HE HAS FURTHER OBSERVED THAT BEING COMMISSION AGENT REQUIRED MANAGERIAL ACUMEN & EXPERTISE AND THEREFORE, WOULD BE COVERED UNDER SECTION 9(1)(VII) OF THE ACT AS MANAGERIAL SERVICES. ON PERUSAL OF THE ASSESSMENT ORDER AND ASSESSMENT FOLDER, I FIND THAT THE AO HAS NOT BROUGHT ANYTHING ON RECORD WHICH COULD DEMONSTRATE THAT THERE AGENTS HAD BEEN APPOINTED AS SELLING AGENTS, DESIGNERS & TECHNICAL ADVISORS. IN ABSENCE OF ANY SUCH EVIDENCE, THIS OBSERVATION OF THE AO IS MERE CONJECTURE AND THEREFORE, NO COGNIZANCE OF THE SAME CAN BE TAKEN. IT IS A TRITE LAW THAT SUSPICION, NO MATTER HOW GRAVE, CAN NOT TAKE PLACE OF EVIDENCE. IN THIS CASE, THERE IS EVEN NO CASE OF SUSPICION, LEAVE ASIDE ANY EVIDENCE TO THE EFFECT THAT THE AGENTS WERE NOT ONLY SELLING AGENTS BUT ALSO DESIGNERS AND TECHNICAL ADVISORS. 5.3.3 THE AO. OBSERVATION THAT AS A SELLING AGENT, THE AGENT TO HAVE MANAGERIAL ACUMEN AND, THEREFORE, HIT BY THE PROVISIONS OF SECTION 9(1)(VII), IS BASELESS. THE PROVISION OF SECTION 9(1)(VII) DEALS WITH FEES FOR TECHNICAL SERVICES AND IT HAS TO BE READ IN THAT CONTEXT. FOR THAT MATTER, EVERYTHING IN LIFE REQUIRES MANAGERIAL SKILLS, LIKE RUNNING THE HOUSEHOLD, BEING AN ASSESSING OFFICER, RUNNING A SHOP ETC. WILL THAT TANTAMOUNT TO PROVIDING MANAGERIAL SERVICES IN THE CONTEXT OF SECTION 9(1)(VII) ? THE ANSWER IS CLEAR NO. THUS, THE AFORESAID PAYMENTS DO NOT FALL WITHIN THE MEANING OF FTS AS DESCRIBED IN SECTION 9(1)(VII) OF THE ACT. 5.3.4 THE INCOME OF THE NON-RESIDENT WAS NOT CHARGEABLE TO TAX IN 6 INDIA SINCE THE SAME WAS NEITHER RECEIVED IN INDIA NOR HAD IT ACCRUED ON DEEMED TO ACCRUE IN INDIA. ACCORDINGLY, THE APPELLANT WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE U/S 195 IN RESPECT OF COMMISSION PAID TO THE FOREIGN AGENT. DISALLOWANCE U/S 40(A)(I) IS, THEREFORE, DELETED. 6. NOW, THE DEPARTMENT IS IN APPEAL. 7. THE LD.D.R. REITERATED THE OBSERVATIONS MADE BY THE AO AND STRONGLY SUPPORTED THE ASSESSMENT ORDER PASSED ON 15.12.2009. 8. IN HIS RIVAL SUBMISSIONS, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THIS BENCH OF THE TRIBUNAL IN ITA NO.587(LUC.)/2010 FOR THE ASSESSMENT YEAR 2007-08 IN THE CASE OF DY.CIT-II, KANPUR VS. SHRI SANJIV GUPTA, KANPUR REPORTED AT (2011) 50 DTR (LUCKNOW)(TRIB.) 225. 9. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND THE MATERIAL ON RECORD. IT IS NOTICED THAT A SIMILAR ISSUE HAVING IDENTICAL FACTS HAD ALREADY BEEN ADJUDICATED BY THIS BENCH OF THE TRIBUNAL IN THE AFORESAID REFERRED TO CASE OF DY.CIT-II, KANPUR VS. SHRI SANJIV GUPTA, KANPUR (SUPRA) WHEREIN THE RELEVANT FINDINGS HAVE BEEN GIVEN AT PARAS 7,7.1 & 7.2 OF THE ORDER DATED 7.1.2011,WHICH READ AS UNDER : 7. WE HAVE HEARD THE RIVAL SUBMISSIONS. SHRI P.K.BAJAJ, LD.D.R. HEAVILY RELIED ON THE ORDER OF THE AO. ON THE OTHER HAND, SHRI VIKAS GARG, C.A. AND SHRI SWARN SINGH, C.A.,LD. COUNSELS FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. IT WAS FURTHER SUBMITTED THAT THE ISSUANCE OF CIRCULAR NO.7OF 2009 DATED 22.10.2009 WITHDRAWING THE CIRCULAR NO.23 OF 1969, 163 OF 1975 AND 786 OF 2000 WILL BE OPERATIVE ONLY FROM 22.10.2009 AND NOT PRIOR TO THAT DATE. RELIANCE WAS PLACED ON THE DECISION OF THE I.T.A.T., 7 MUMBAI BENCH IN THE CASE OF DY.CIT VS. M/S.SIEMENS AKTIENGESELSCHAFT (2010)-TIOL-102-ITAT- MUM. WE FIND THAT AS PER THE CBDT CIRCULAR NO.23 DATED 23.7.1969 AND CIRCULAR NO.786 DATED 7.2.2000, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT THE TAX AT SOURCE UNDER SECTION 195 WITH REGARD TO PAYMENT OF COMMISSION TO FOREIGN AGENT. RELEVANT PART OF THE CIRCULAR NO.23 DATED 23.7.1969 READS AS UNDER : 4. FOREIGN AGENTS OF INDIAN EXPORTERS A FOREIGN AGENT OF INDIAN EXPORTER OPERATES IN HIS OWN COUNTRY AND NO PART OF HIS INCOME ARISES IN INDIA. HIS COMMISSION IS USUALLY REMITTED DIRECTLY TO HIM AND IS, THEREFORE, NOT RECEIVED BY HIM OR ON HIS BEHALF IN INDIA. SUCH AN AGENT IS NOT LIABLE TO INCOME-TAX IN INDIA ON THE COMMISSION. CIRCULAR NO.786 DATED 7.2.2000 READS AS UNDER : CIRCULAER NO.786, DATED 7.2.2000(CLARI) TAX DEDUCTION AT SOURCE UNDER SECTION 195 AND THE TAXABILITY OF EXPORT COMMISSION PAYABLE TO NON-RESIDENT AGENTS RENDERING SERVICES ABROAD--CLARIFICATION REGARDING IN THEIR AUDIT REPORT FOR 1997-98 (D. P. NO. 79 (I.T.)), THE COMPTROLLER AND AUDITOR-GENERAL (C & AG) RAISED AN OBJECTION THAT THE ASSESSING OFFICER IN COMPUTING THE PROFITS AND GAINS OF BUSINESS OR PROFESSION, IN A CASE IN MUMBAI CHARGE, HAD WRONGLY ALLOWED A DEDUCTION IN RESPECT OF A PAYMENT TO A NON-RESIDENT WHERE TAX HAD NOT BEEN DEDUCTED AT SOURCE. THE NATURE OF THE PAYMENT IN THIS CASE WAS EXPORT COMMISSION AND CHARGES PAYABLE FOR SERVICES RENDERED OUTSIDE INDIA. IN THE VIEW OF C & AG THE EXPENDITURE SHOULD HAVE BEEN DISALLOWED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 40(A)(I) OF . THE INCOME TAX ACT, 1961. IT HAS COME TO THE NOTICE OF THE BOARD THAT A SIMILAR VIEW, ON THE SAME SET OF FACTS HAS BEEN TAKEN BY SOME ASSESSING OFFICERS IN OTHER CHARGES. 2. THE DEDUCTION OF TAX AT SOURCE UNDER SECTION 195 WOULD ARISE IF THE PAYMENT OF COMMISSION TO THE NON-RESIDENT AGENT IS 8 CHARGEABLE TO TAX IN INDIA. IN THIS REGARD ATTENTION TO CBDT CIRCULAR NO. 23, DATED 23-7-1969, IS DRAWN, WHERE THE TAXABILITY OF 'FOREIGN AGENTS OF INDIAN EXPORTERS' WAS CONSIDERED ALONGWITH CERTAIN OTHER SPECIFIC SITUATIONS. IT HAD BEEN CLARIFIED THEN THAT WHERE THE NON-RESIDENT AGENT OPERATES OUTSIDE THE COUNTRY, NO PART OF HIS INCOME ARISES IN INDIA. FURTHER, SINCE THE PAYMENT IS USUALLY REMITTED DIRECTLY ABROAD IT CANNOT BE HELD TO HAVE BEEN RECEIVED BY OR ON BEHALF OF THE AGENT IN INDIA. SUCH PAYMENTS WERE, THEREFORE HELD TO BE NOT TAXABLE IN INDIA. THE RELEVANT SECTIONS, NAMELY, SECTION 5(2) AND SECTION 9 OF THE INCOME TAX ACT, 1961, NOT HAVING UNDERGONE ANY CHANGE IN THIS REGARD, THE CLARIFICATION IN CIRCULAR NO. 23 STILL PREVAILS. NO TAX IS, THEREFORE DEDUCTIBLE UNDER SECTION 195 AND CONSEQUENTLY, THE EXPENDITURE ON EXPORT COMMISSION AND OTHER RELATED CHARGES PAYABLE TO A NON- RESIDENT FOR SERVICES RENDERED OUTSIDE INDIA BECOMES ALLOWABLE EXPENDITURE. ON BEING APPRAISED FOR THIS POSITION, THE COMPTROLLER AND AUDITOR GENERAL HAVE AGREED O DROP THE OBJECTION REFERRED TO ABOVE. 7.1 IN THE INSTANT CASE, THE ASSESSMENT YEAR INVOLVED IS 2007-08 AND THE RELEVANT PREVIOUS YEAR IS 2006-07. ADMITTEDLY, RETURN OF INCOME WAS FILED ON 30.10.2007. AT THE TIME OF FILING OF THE RETURN, CIRCULAR NO.7 OF 2009 DATED 22.10.2009 WAS NOT IN FORCE BY WHICH THE CBDT WITHDREW CIRCULAR NO.23 DATED 23.7.1969 WITH IMMEDIATE EFFECT. IN OUR CONSIDERED VIEW, WHERE A CIRCULAR ISSUED EARLIER CREATED A VESTED RIGHT IN THE TAX-PAYER AND SUCH RIGHT IS SOUGHT TO BE CURTAILED OR WITHDRAWN BY A SUBSEQUENT CIRCULAR, THEN SUCH SUBSEQUENT CIRCULAR WILL NOT HAVE A RETROSPECTIVE EFFECT. WHILE TAKING SUCH A VIEW , WE ARE FORTIFIED BY THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF BASF (INDIA) LTD. AND ANOTHER VS. W.HASAN,CIT, (2006) 280 ITR 136 (BOM.) WHEREIN IT HAS BEEN HELD THAT CIRCULARS WHICH ARE IN FORCE DURING THE RELEVANT ASSESSMENT YEARS ARE THE CIRCULARS THAT HAVE TO BE APPLIED AND SUBSEQUENT CIRCULARS EITHER WITHDRAWING OR MODIFYING THE EARLIER CIRCULARS HAVE NO APPLICATION. SIMILAR VIEW HAS BEEN TAKEN IN CIT VS. GEEVA FILMS, (1983) 141 ITR 632(KER.) AND CIT VS. B.M.EDWARD INDIA SEA FOODS, (1979), 119 ITR 334 (KER.)(F.B.). 9 7.2 IN THE CASE OF M/S. SIEMENS AKTIENGESELLSCHAFT (SUPRA), WHILE DECIDING A SIMILAR ISSUE, THE TRIBUNAL HELD THAT IT IS AXIOMATIC THAT A CIRCULAR IN OPERATION THROUGH THE RELEVANT ASSESSMENT YEAR CANNOT BE HELD TO BE IN-OPERATIONAL SIMPLY BY REASON OF THE FACT THAT IT HAS BEEN WITHDRAWN IN THE YEAR 2009. THE WITHDRAWAL OF SUCH CIRCULARS WILL BE EFFECTIVE ONLY AFTER THE SAID DATE OF 22 ND OCTOBER,2009 BY WHICH THESE CIRCULARS HAVE BEEN WITHDRAWN WITH IMMEDIATE EFFECT. ACCORDINGLY, THE MUMBAI BENCH OF THE TRIBUNAL HELD THAT ISSUANCE OF CIRCULAR NO.7 OF 2009 WITHDRAWING THE CIRCULAR NO.23 OF 1969, 163 OF 1975 AND 786 OF 2000 WILL BE OPERATIVE ONLY FROM 22.10.2009 AND NOT PRIOR TO THAT DATE. THUS, THE WITHDRAWAL OF EARLIER CIRCULARS WITH EFFECT FROM 22.10.2009 HAS NO BEARING IN THE INSTANT CASE. IN OUR VIEW , THE ABOVE- SAID DECISION IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. IT IS WORTH MENTIONING THAT THE PREVIOUS YEAR INVOLVED IN 2006-07 RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. AT THE RELEVANT TIME, IN VIEW OF THE C.B.D.T. CIRCULAR NO.23 DATED 23.7.1969 AND CIRCULAR NO.786 DATED 7.2.2000, THE ASSESSEE WAS NOT OBLIGED TO DEDUCT THE TAX UNDER SECTION 195 OF THE ACT AND THE CIRCULAR NO.7 OF 2009 DATED 22.10.2009 WITHDRAWING THE CIRCULAR NO.23 OF 1969 AND CIRCULAR NO.786 OF 2000 WILL BE OPERATIVE ONLY FROM 22 ND OCTOBER, 2009 AND NOT PRIOR TO THAT DATE. WE MAY ALSO MENTION THAT THE DECISION RELIED UPON BY THE AO IN THE CASE OF VAN OORD ACZ INDIA (P.) LTD. VS. ADDL.CIT (SUPRA) HAS BEEN OVERRULED BY THE HON'BLE DELHI HIGH COURT WHICH IS REPORTED IN (2010) 230 CTR (DEL.) 365, WHEREIN THE HON'BLE HIGH COURT HAS CONCLUDED AS UNDER : OBLIGATION TO DEDUCT TAX AT SOURCE UNDER S. 195 IS ATTRACTED ONLY WHEN THE PAYMENT IS CHARGEABLE TO TAX IN INDIA; IT AUTHORITIES HAVING ACCEPTED: THAT THE NON- RESIDENT RECIPIENT IS NOT LIABLE TO PAY ANY TAX IN INDIA, THE ASSESSEE- PAYER WAS NOT LIABLE TO DEDUCT TAX AT SOURCE UNDER S. 195(1) IN RESPECT OF THE MOBILIZATION AND DEMOBILIZATION COSTS REIMBURSED BY IT TO THE SAID NON- RESIDENT COMPANY. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) ON THIS ISSUE AND ACCORDINGLY WE UPHOLD THE SAME. 10 9.1 SO RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF DY.CIT-II,KANPUR VS. SHRI SANJIV GUPTA, KANPUR IN I.T.A.NO.587(LKW)/2010 FOR THE ASSESSMENT YEAR 2007-08,WE DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FINDINGS OF THE LD.CIT(A) ON THIS ISSUE. 10. IN THE RESULT, THE APPEAL IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 28.4.2011. SD. SD. (H.L.KARWA) (N.K.SAINI) VICE PRESIDENT ACCOUNTANT MEMBER APRIL 28TH ,2011. COPY TO THE : 1. APPELLANT 2. RESPONDENT 3. CIT(A) (4) CIT 5.DR. A.R.,ITAT, LUCKNOW. SRIVASTAVA.