The DCIT, Circle-1(1)(2), Baroda V. Inox India Private Ltd., Vadodara

ITA 756/AHD/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 8951 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2015-2016
• Appeal Filed On: 29-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Residential status; TDS
• Section: 263; 143(3); 195; 20

Judgement Text

, A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD ( CONVENED THROUGH VIRTUAL COURT ) BEFORE HONBLE MR. JUSTICE P. P. BHATT, PRESIDENT & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO. 756/AHD/2019 ( ASSESSMENT YEAR : 2015-16) DY. COMMISSIONER OF INCOME-TAX CIRCLE-1(1)(2), VADODARA / VS. INOX INDIA PRIVATE LIMITED 9 TH FLOOR, K. P. PLATINA, RACE COURSE, BARODA- 390007 ./ ./ PAN/GIR NO. : AAACI4416P ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI S. S. SHUKLA, SR.D.R. / RESPONDENT BY : SHRI BHAVIN MARFATIA & SHRI NIRMIT MEHTA, A.RS. DATE OF HEARING 29/12/2020 !'# / DATE OF PRONOUNCEMENT 11/01/2021 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF IN COME TAX (APPEALS)-1, VADODARA (CIT(A) IN SHORT), DATED 11 .02.2019 ARISING IN THE ASSESSMENT ORDER DATED 22.12.2017 PASSED BY THE ASSESSING OFFICER (AO) UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) CONCERNING AY 2015-16. ITA NO. 756/AHD/19 [DCIT VS. INOX INDIA PVT. LTD.] A.Y. 2015-16 - 2 - 2. THE GROUNDS OF APPEAL RAISED BY REVENUE READ HER EUNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN LAW AND FACT IN DELETING THE ADDITI ON MADE ON ACCOUNT OF NON DEDUCTION OF TDS ON THE AMOUNT OF RS .78,90,570/- WITHOUT APPRECIATING THE FINDINGS OF ASSESSING OFFI CER IN THE ASSESSMENT ORDER AND IN VIEW OF CIRCULAR NO.7 OF 20 09 OF THE BOARD. 3. THE AO IN THE INSTANT CASE DISALLOWED CLAIM TOW ARDS COMMISSION EXPENSES ON EXPORT SALES TO THE EXTENT O F RS.78,90,570/- (BEING 30% OF TOTAL COMMISSION CLAIMED AMOUNTING TO RS.2,63,01,900/-) IN THE COURSE OF THE ASSESSMENT C ARRIED OUT UNDER S.143(3) OF THE ACT ON THE GROUND THAT THE ASSESSEE HAS DEFAULTED IN DEDUCTION OF TAX AT SOURCE UNDER S.195(1) OF THE AC T. AS A CONSEQUENCE OF ALLEGED DEFAULT, PROVISIONS OF SECTI ON 40(A)(I) OF THE ACT WAS INVOKED AND EXPENSES INCURRED WERE DISALLOW ED TO THE EXTENT OF 30% OF SUCH EXPENSES. WHILE DOING SO, TH E AO ALSO OBSERVED THAT THE EXPENSES INCURRED ARE IN THE NATU RE OF FEE FOR TECHNICAL SERVICES AND THUS FALLS WITHIN THE SWEEP OF SECTION 9(1)(VII) R.W. EXPLANATION (2) THERETO AS AGAINST T HE CLAIM OF THE ASSESSEE THAT COMMISSION PAYMENTS ARE BUSINESS EXPE NSES WITHOUT INVOLVEMENT OF ANY MANAGERIAL, TECHNICAL OR CONSULT ANCY SERVICES. 4. AGGRIEVED BY THE DISALLOWANCE, THE ASSESSEE PREF ERRED APPEAL BEFORE THE CIT(A). 5. THE CIT(A) TOOK NOTE OF THE DECISION OF THE TRIB UNAL IN ASSESSEES OWN CASE CONCERNING AY 2010-11 IN ITA NO.1391/AHD/2015 ORDER DATED 25.09.2017 AND REVERSE D THE ACTION OF THE AO. THE RELEVANT OPERATIVE PARA OF THE ORDE R OF CIT(A) IS REPRODUCED HEREUNDER: ITA NO. 756/AHD/19 [DCIT VS. INOX INDIA PVT. LTD.] A.Y. 2015-16 - 3 - 5. I HAVE CAREFULLY CONSIDERED THE FACTS ON RECORD , OBSERVATIONS OF THE AO AND THE WRITTEN SUBMISSION OF THE APPELLANT. 5.1 GROUND NO. 1 AND 2 RELATE TO DISALLOWANCE U/S 4 0(A)(I) OF THE ACT AMOUNTING TO RS. 78,90,570/- ON THE GROUND OF NON-D EDUCTION OF TAX U/S 195 AGAINST COMMISSION PAYMENT MADE TO NON-RESIDENT OUTSIDE INDIA. AT THE OUTSET, THE LD. AR INFORMED THAT THE SAME IS SUE AROSE IN AY 2010-11 WHEREIN AN ORDER U/S 263 WAS PASSED BY THE HON'BLE PR. CIT DISALLOWING ENTIRE FOREIGN COMMISSION PAYMENT MADE WITHOUT COMPLYING THE PROVISIONS OF SECTION 40(A)(IA). THE TRIBUNAL I N ITA NO. 1391/AHD/2015 DID NOT CONCUR THE VIEW OF THE LD. CI T AND QUASHED THE ORDER PASSED U/S 263 OF THE ACT. KEY FINDINGS ARE A S UNDER: I) COMMISSION PAYMENTS MADE TO NON-RESIDENT AGENTS DID NOT HAVE ANY TAXABILITY IN INDIA, EVEN UNDER THE-PR OVISION OF DOMESTIC LAW I.E. SECTION 9. II) ONCE CONCLUDED THAT INCOME EMBEDDED IN THESE PAYMENTS DID NOT HAVE TAX IMPLICATION IN INDIA, NO FAULT CAN BE FOUND IN NOT DEDUCTING TAX AT SOURCE FROM THESE PAY MENTS OR FOR THE PURPOSE, EVEN NOT APPROACHING THE AO FOR ORDER U/S 195. 5.2. THE ORDER OF THE JURISDICTIONAL TRIBUNAL IS BI NDING ON ME AND FACTS ARE SIMILAR IN ASSESSMENT YEAR UNDER CONSIDER ATION. THE LD. AR ALSO INFORMED THAT A COPY OF ORDER IS HELD WITH THE AO. HENCE, ADDITION OF RS.78,90,570/- MADE BY THE AO IS UNSUSTAINABLE A ND ACCORDINGLY DELETED. THE APPELLANT SUCCEEDS ON BOTH THE GROUNDS . 6. AGGRIEVED BY THE ACTION OF THE CIT(A) IN RESTORI NG THE CLAIM OF THE ASSESSEE, THE REVENUE PREFERRED THE APPEAL B EFORE THE TRIBUNAL. 7. WHEN THE MATTER WAS CALLED FOR HEARING, THE LEAR NED REPRESENTATIVE FROM THE DEPARTMENT RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THE DECISION RENDERED BY THE TRI BUNAL IN AY 2010-11 IS DISTINGUISHABLE ON FACTS. IT WAS SUBMIT TED THAT THE RELIEF WAS GRANTED TO THE ASSESSEE BY THE TRIBUNAL HAVING REGARD TO THE NATURE OF EXPENDITURE BEING COMMISSION PAYMENTS WHE REAS IN AY 2015-16 IN REFERENCE, THE EXPENDITURE WAS FOUND TO BE IN THE NATURE OF FEE FOR TECHNICAL SERVICES BY THE AO AND THERE FORE THE IMPUGNED COMMISSION PAYMENT IS GOVERNED BY PROVISIONS OF SEC TION 9(1)(VII) OF THE DOMESTIC ACT. CONSEQUENTLY, THE RECEIPT IN THE HANDS OF NON- ITA NO. 756/AHD/19 [DCIT VS. INOX INDIA PVT. LTD.] A.Y. 2015-16 - 4 - RESIDENT AGENTS ARE TAXABLE AT SOURCE BASED TAXAT ION UNDER S.9 OF THE ACT REGARDLESS OF RESIDENTIAL STATUS OF THE NON -RESIDENT. THE LEARNED DR ACCORDINGLY SUBMITTED THAT THE CIT(A) HA S MISCONSTRUED AND MISAPPLIED THE DECISION RENDERED BY THE TRIBUNA L IN PAST. 8. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTH ER HAND, DEFENDED THE ORDER OF THE CIT(A) AND SUBMITTED THAT THESE AGENTS ARE RESPONSIBLE FOR LIAISON BETWEEN COMPANY AND ITS CUSTOMERS IN SPECIFIC REGIONS AND SERVICES RENDERED ARE IN THE N ATURE OF PURE AGENCY SERVICES ONLY. HENCE, THE PAYMENTS MADE TO NON-RESIDENT AGENTS ARE IN THE NATURE OF COMMISSION PAYMENT ONLY AND THEREFORE PROVISIONS OF SECTION 9(1)(VII) OF THE ACT WILL NOT COME INTO PLAY AT ALL. IT WAS SUBMITTED THAT THE MAJORITY OF NON-RES IDENT AGENTS ARE THE SAME AS EXISTING IN AY 2010-11 AND THE MODEL OF BUSINESS HAS NOT CHANGED MUCH IN THIS REGARD. A TABULATED PARTY -WISE COMPARATIVE STATEMENT TOWARDS COMMISSION PAYMENTS F OR AY 2010- 11 AND 2015-16 WERE PLACED ON RECORD AFTER THE CLOS URE OF HEARING AS DIRECTED BY THE TRIBUNAL TO SUPPORT ITS CLAIM TH AT THE PAYMENTS WERE CONTINUED TO BE MADE TOWARDS COMMISSION EXPENS ES. IT WAS FURTHER POINTED OUT THAT THE AGENTS ENGAGED FOR SEC URING ORDERS OVERSEAS DO NOT HAVE BUSINESS CONNECTION OR ANY PER MANENT ESTABLISHMENT IN INDIA. IT WAS THUS SUBMITTED THAT NO INTERFERENCE WITH THE APPELLATE ORDER OF CIT(A) IS CALLED FOR. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND THE ASSESSMENT ORDER AS WELL AS THE FIRST APPELLATE ORD ER. THE MATERIALS REFERRED AND RELIED UPON WERE CAREFULLY CONSIDERED. THE SOLITARY ISSUE INVOLVED IN THE INSTANT CASE IS, WHETHER IN T HE FACTS OF THE CASE, THE REMITTANCE MADE BY THE ASSESSEE ABROAD TO WARDS COMMISSION EXPENSES IS CHARGEABLE TO TAX IN INDIA O R NOT AND CONSEQUENTLY, WHETHER THE COMMISSION PAYMENT IS SUS CEPTIBLE TO ITA NO. 756/AHD/19 [DCIT VS. INOX INDIA PVT. LTD.] A.Y. 2015-16 - 5 - PROVISIONS OF S.195 OF THE ACT OR NOT. AN INCIDENT AL ISSUE THAT ARISES FOR CONSIDERATION IS WHETHER THE SERVICES RENDERED BY THE NON- RESIDENTS ARE IN THE NATURE OF FEE FOR TECHNICAL S ERVICES AS WIDELY DEFINED IN EXPLANATION (2) TO S.9(1)(VII) OF THE AC T. IT IS THE CASE OF THE ASSESSEE THAT THE REMITTANCE HAVE BEEN MADE TOW ARDS COMMISSION PAYMENTS ALMOST TO THE SAME PARTIES AS I N THE EARLIER YEARS FOR WHICH FAVOURABLE VIEW HAS BEEN TAKEN BY T HE TRIBUNAL ON FACTS. IT IS THE CASE OF THE ASSESSEE THAT THE COM MISSION AGENTS HAVE RENDERED THE SERVICES ABROAD AND THE SITUS OF ACCRUAL OR RECEIPT OF THEIR COMMISSION INCOME IS OUTSIDE INDIA. IT IS FU RTHER CLAIMED THAT SERVICES RENDERED BY AGENTS HAVE BEEN UTILIZED BY T HE ASSESSEE OUTSIDE INDIA IN PROCURING THE EXPORT ORDERS. 10. WE STRAIGHTWAY FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF CO-ORDINA TE BENCH FOR AY 2010-11 AS RIGHTLY ACKNOWLEDGED BY THE CIT(A). THE COMMISSION PAYMENTS ARE SEEN TO BE MADE TO THE SIMILAR SET OF PARTIES AS IN AY 2010-11. THE ALLEGATION ON BEHALF OF THE REVENUE T HAT EXPENSES INCURRED ARE COVERED IN THE WIDER DEFINITION OF FE ES FOR TECHNICAL SERVICES AS DEFINED IN EXPLANATION (2) TO SECTION 9(1)(VII) OF THE ACT IS DEVOID OF ANY RATIONALE. EXCEPT FOR BALD AL LEGATION OF THE SERVICES BEING AKIN TO MANAGERIAL OR CONSULTANCY SE RVICES, THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO DISCARD T HE STAND OF ASSESSEE. THE CO-ORDINATE BENCH OF TRIBUNAL HAS DU LY ANALYZED THIS ASPECT IN LENGTH IN ITA NO.1391/AHD/2015 FOR AY 2010-11 IN THE CASE OF ASSESSEE ITSELF AND HAS DELIVERED A SPEAKIN G ORDER IN FAVOUR OF THE ASSESSEE ON ALL ASPECTS OF SUBJECT MATTER ON FACTS. THE SERVICES IN RESPECT OF COMMISSION EXPENSES ARE STAT ED TO BE RENDERED OUTSIDE INDIA AS WELL AS UTILIZED OUTSIDE INDIA AND THEREFORE THE INCOME ARISING BY WAY OF COMMISSION AGAINST RENDITI ON OF AGENCY SERVICES CANNOT BE DEEMED TO ACCRUE OR ARISE IN IND IA IN THE HANDS OF ITA NO. 756/AHD/19 [DCIT VS. INOX INDIA PVT. LTD.] A.Y. 2015-16 - 6 - THE RECIPIENTS OF SUCH COMMISSION PAYMENTS. IN THE CIRCUMSTANCES, WHERE THE INCOME ARISING TO NON-RESIDENT COMMISSION AGENTS IS NOT FOUND TO BE CHARGEABLE IN INDIA UNDER S.4 R.W.S. 5( 2) OF THE ACT, THE OBLIGATION UNDER S.195 OF THE ACT FOR DEDUCTION OF TAX AT SOURCE CANNOT BE FASTENED UPON THE REMITTER ASSESSEE. IN THE ABSENCE OF STATUTORY OBLIGATION ARISING UNDER SECTION 195 OF T HE ACT FOR DEDUCTION OF TAX IN THE ABSENCE OF CHARGEABILITY OF REMITTANCES, THE CORRESPONDING DISALLOWANCE UNDER S.40(A)(I) IS WITH OUT ANY MERIT AND THUS UNCALLED FOR. WE THUS SEE NO ERROR IN THE ACTION OF THE CIT(A) WHO HAS RIGHTLY APPLIED THE DECISION OF THE TRIBUNAL IN THE FACTS OF THE CASE. WE THUS DECLINE TO INTERFERE. 11. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. SD/- SD/- (JUSTICE P. P. BHATT) (PRADIP KUMAR KEDIA) PRESIDENT ACCOUNT ANT MEMBER AHMEDABAD: DATED 11/01/2021 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED ON 11/01/2021