Asstt. Commissioner of Income Tax-1, Kanpur V. M/s S.K International, Kanpur

ITA 757/LKW/2014

• Counselvise Citation: 75723714 RSA 2014
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-01-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 30-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Deemed to accrue or arise in india
• Section: 12

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.757/LKW/2014 ASSESSMENT YEAR:2011 - 12 M/S S. K. INTERNATIONAL, 13/397, CIVIL LINES, KANPUR. PAN:AAFFS4777B VS A.C.I.T. - 1, KANPUR. (RESPONDENT) (APPELLANT) SHRI K. K. UPADHYAY, D. R. APPELLANT BY NONE RESPONDENT BY 07/01/2015 DATE OF HEARING 13 /02/2015 DATE OF PRONOUNCEMENT O R D E R PER A. K. GARODIA, A.M. THIS IS REVENUES APPEAL DIRECTED AGAINST THE ORDER PASSED BY LEARNED CIT(A) - II, KANPUR DATED 10/06/2014 FOR THE ASSESSMENT YEAR 2011 - 2012. 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.14,00,593/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF NON - DEDUCTION OF TDS ON PAYMENT OF COMMISSION TO FOREIGN AGENT WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORD BY THE ASS ESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 2. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - II, KANPUR HAS E RRE D IN LAW AND ON FACTS IN NOT APPRECIATING THE FACT THAT THE PAYMENT BY THE RESIDENT ASSESSEE IN CONNECTION WITH ITS BUSINES S IN INDIA TO A PERSON OUTSIDE COUNTRY IS NOTHING BUT A FEE WHICH HAS BEEN PAID BY THE RESIDENT ASSESSEE TO THE NON - RESIDENT FOR THE TECHNICAL SERVICES RENDERED BY HIM. 2 3. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - II, KANPUR HAS ERRED IN LAW AND O N FACTS IN NOT APPRECIATING THE FACT THAT IN THE ASSESSMENT ORDER THE AO HAS POINTED OUT THAT THE SERVICES RENDERED BY THE AGENTS ARE OF TECHNICAL NATURE IN SENSE THAT THESE WERE CONNECTED WITH THE USE OF EXPERTISE, SKILL AND TECHNICAL KNOWLEDGE IN RUNNING OF BUSINESS OF THE ASSESSEE WHICH FALLS UNDER THE NARROW DEFINITION OF FEE FOR TECHNICAL SERVICES. 4. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE FACT THAT THE AGENTS HAVE THE SKILL A ND EXPERTISE ABOUT THE LEATHER PRODUCTS AND LEATHER MARKETS, SO THESE SERVICES COME UNDER FTS U/S 9 OF THE INCOME TAX ACT, 1961 BECAUSE THESE ADVISORY SERVICES GIVEN BY THE AGENT ARE NOT ORDINARY ADVICE BUT IT IS CONSULTANCY REGARDING PRODUCTS AND THE MARK ET ON WHICH ALMOST THE ENTIRE EXPORTS OF THE ASSESSEE RELIES, ATTRACTING THE PROVISION OF SECTION 9( 1 )(VII) OF THE INCOME TAX ACT, 1961. 5. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN IGNORING THE FACT THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS REVEALED THAT THE AGENTS PROVIDING TECHNICAL SERVICES TO THE ASSESSEE FREQUENTLY CAME TO INDIA FOR CONSULTATION AND DISCUSSION ABOUT PRODUCT OF THE ASSESSEE. 6. THAT THE LD. COMMISSIONER OF INCOME TA X (APPEALS) - II. KANPUR HAS ERRED IN LAW AND ON FACTS IN IGNORING THE EXPLANATION INSERTED BY FINANCE ACT, 2010 RETROSPECTIVELY W .E.F. 01.06. 1 976 IN SUB - SECTION(2) OF SECTION 9 OF INCOME TAX ACT, 1961. 7. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - I I, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ABOVE ADDITION WITHOUT CONSIDERING THE BOARD'S CIRCULAR NO.7/2009 DATED 22.10.2009. 8. THAT THE ORDER OF THE LD. CIT (A) - II, KANPUR DATED 10.06.2014 NEEDS TO BE QUASHED AND THE ORDER PASSED BY THE AS SESSING OFFICER DATED 26.11.2013 TO BE RESTORED. 3 3. NONE APPEARED ON BEHALF OF THE ASSESSEE ON THE APPOINTED DATE OF HEARING IN SPITE OF NOTICE AND HENCE, WE PROCEED TO DECIDE THIS APPEAL OF THE ASSESSEE EX - PARTE QUA THE ASSESSEE. 4. LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER. 5. WE HAVE CONSIDERED THE SUBMISSIONS OF LEARNED D.R. OF THE REVENUE, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE ALSO FIND THAT THE PAPER BO OK OF 71 PAGES WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE AND HENCE, WE CONSIDER THE PAPER BOOK ALSO FOR THE PURPOSE OF DECIDING THE ISSUE. THE SAID PAPER BOOK ALSO CONTAINS A JUDGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GRASIM INDUSTR IES LTD. VS. CIT [2011] 199 TAXMAN 184. IN THIS CASE , IT WAS HELD BY HON'BLE BOMBAY HIGH COURT THAT AN INCOME RECEIVED BY A NON - RESIDENT BY WAY OF PAYMENT FROM A RESIDENT INDIAN FOR TECHNICAL SERVICES RENDERED TO HIM WOULD BE SUBJECTED TO THE INDIAN INCOM E - TAX ONLY IF IT SATISFIES THE TWIN TEST, NAMELY, THAT THE INCOME WAS RECEIVED IN RESPECT OF SERVICES RENDERED IN INDIA AND (II) UTILIZED IN INDIA OR HAS SUCH A LIVE LINK WITH INDIA THAT IT CAN BE TREATED AS ACCRUED OR ARISEN IN INDIA. IN THAT CASE , IT WA S HELD THAT EVEN IF ONE OF THESE TWO CONDITIONS ARE LACKING THEN IT CANNOT BE SAID THAT THE INCOME WAS RECEIVED BY THE NON - RESIDENT IN INDIA AND THEREFORE, THE SAME CANNOT BE TAXED IN INDIA. IN THE PRESENT CASE, THE DISPUTE IS REGARDING COMMISSION ON SALE S PAID TO FOREIGN NATIONALS. THE SERVICES RENDERED BY THEM IS SAID TO BE ORDERS PROCURED BY THESE FOREIGN AGENTS ON BEHALF OF THE ASSESSEE FROM VARIOUS CUSTOMERS OUTSIDE THE COUNTRY. HENCE, IT IS SEEN THAT THE SERVICES WERE RENDERED BY THEM OUTSIDE THE C OUNTRY AND THEREFORE, AS PER THIS JUDGMENT OF HON'BLE BOMBAY HIGH COURT, THESE AMOUNTS ARE NOT TAXABLE IN THE HANDS OF NON - RESIDENT RECIPIENTS AND HENCE NO TDS WAS REQUIRED TO BE DEDUCTED FROM THESE PAYMENTS AND AS A CONSEQUENCE, NO 4 DISALLOWANCE CAN BE MAD E U/S 40(A)(I) OF THE ACT AS HAS BEEN MADE BY THE ASSESSING OFFICER. 6. NOW, WE EXAMINE OTHER CONTENTIONS RAISED BY THE REVENUE IN ITS GROUNDS. IN GROUND NO. 6, THE REVENUE HAS RAISED THE ISSUE REGARDING APPLICABILITY OF THE EXPLANATION IN SUB SECTION ( 2) OF SECTION 9 INSERTED BY FINANCE ACT, 2010 WITH EFFECT FROM 01/06/96. WE HAVE CONSIDERED THIS EXPLANATION AND WE FIND THAT AS PER THIS EXPLANATION, INCOME OF NON - RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CLAUSE (V) OR CLAUSE (VI) OR CL AUSE (VII) OF SUB - SECTION (1) OF SECTION 9 OF THE ACT EVEN IF THE NON - RESIDENT DOES NOT HAVE A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA AND NON - RESIDENT HAS NOT RENDERED SERVICES IN INDIA. AS PER THIS EXPLANATION IN SUB SECTION (2) O F SECTION 9, ONLY THOSE INCOMES WHICH ARE COVERED BY CLAUSE (V), (VI) AND (VII) OF SECTION 9 (1) ARE AFFECTED. CLAUSE (V) OF SECTION 9(1) IS REGARDING INTEREST INCOME AND THEREFORE, THIS CLAUSE IS NOT APPLICABLE. CLAUSE (VI) IS REGARDING INCOME BY WAY OF ROYALTY AND CLAUSE (VII) IS REGARDING INCOME BY WAY OF FEES FOR TECHNICAL SERVICES (FTS). IN THE PRESENT CASE, THE DISPUTE IS NOT REGARDING PAYMENT OF ROYALTY OR FTS BUT THE DISPUTE IS REGARDING PAYMENT OF COMMISSION AND THEREFORE, THESE CLAUSES ARE NOT APPLICABLE AND AS A CONSEQUENCE, EXPLANATION TO SECTION 9(2) HAS NO RELEVANCE. 7. AS PER GROUND NO. 7, THE REVENUE HAS RAISED THE ISSUE REGARDING BOARDS CIRCULAR NO. 7/2009 DATED 22/10/2009. WE FIND THAT AS PER THIS CIRCULAR, CBDT HAS WITHDRAWN SOME EAR LIER CIRCULARS PARTICULARLY CIRCULAR NO. 786 DATED 07/02/2000, WHICH PROVIDED CERTAIN CLARIFICATIONS WITH RESPECT TO CIRCULAR NO. 23 DATED 23/07/69. THIS CIRCULAR NO. 786 PROVIDED THAT TAX IS NOT DEDUCTIBLE AT SOURCE FROM PAYMENTS MADE TO NONRESIDENT AGEN TS. IN OUR CONSIDERED OPINION, THE IMPACT OF THE WITHDRAWAL OF CIRCULAR NO. 786 DATED 07/02/2000 IS THIS MUCH ONLY THAT NOW INDIAN EXPORTERS MAKING PAYMENTS TO AGENTS OUTSIDE INDIA WILL NEED TO EXAMINE WHETHER SUCH AN AGENT IS LIABLE TO 5 TAX IN INDIA AND F OLLOW THE PROCEDURE AS PRESCRIBED IN THE PROVISIONS OF THE ACT. SINCE IN THE PRESENT CASE, IT IS NOT SHOWN BY THE REVENUE THAT THE NON - RESIDENT COMMISSION AGENTS HAVE RENDERED SERVICES IN INDIA OR HAVE RECEIVED THE PAYMENT IN INDIA WITHOUT THE HELP OF CIR CULAR NO. 786 DATED 07/02/2000, INCOME IS NOT TAXABLE IN INDIA IN THE HANDS OF THOSE NON - RESIDENT COMMISSION AGENTS AND THEREFORE, TDS WAS NOT REQUIRED TO BE DEDUCTED AND AS A CONSEQUENCE , NO DISALLOWANCE CAN BE MADE U/S 40(A)(I) IN RESPECT OF THOSE PAYMEN TS. 8. THE CIT(A) HAS DECIDED THE ISSUE BY FOLLOWING VARIOUS JUDGMENTS INCLUDING A JUDGMENT OF HON'BLE DELHI HIGH COURT RENDERED IN THE CASE OF DIRECTOR OF INCOME - TAX VS. SHERATON INTERNATIONAL INC. [2009] 313 ITR 267 (DEL). THE CIT(A) HAS ALSO FOLLOWED TRIBUNAL DECISION IN THE CASE OF FAIZAN SHOES (P.) LTD. [213] 58 SOT 245 (CHENNAI). IN THAT CASE , THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF SHOE UPPERS AND LEATHER SHOES AND PAID CERTAIN COMMISSION TO NON - RESIDENTS FOR PRO CURING EXPORT ORDERS. SINCE THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE WHILE MAKING SAID PAYMENTS, ASSESSING OFFICER DISALLOWED THE SAME U/S 40(A)(I) OF THE ACT. UNDER THESE FACTS, IT WAS HELD BY THE TRIBUNAL THAT NON - RESIDENTS WERE ONLY PROCURING ORDERS FOR THE ASSESSEE AND FOLLOWING UP PAYMENTS AND APART FROM THAT , NO OTHER SERVICES WERE BEING RENDERED. IT WAS HELD THAT SINCE NON - RESIDENTS WERE NOT PROVIDING ANY TECHNICAL SERVICES TO ASSESSEE, PAYMENTS MADE TO THEM DID NOT FALL UNDER CATEGORY OF ROYALT Y OR FEE FOR TECHNICAL SERVICES U/S 9(1)(VII) OF THE ACT. THE TRIBUNAL FURTHER HELD THAT EVEN OTHERWISE, SINCE COMMISSION PAID TO NON - RESIDENT WAS NOT TAXABLE IN INDIA, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE WHILE MAKING SAID PAYMENTS. TH E FACTS IN THE PRESENT CASE ARE IDENTICAL BECAUSE IN THE PRESENT CASE ALSO, COMMISSION WAS PAID TO NON - RESIDENT FOR PROCURING ORDERS WITHOUT DEDUCTING TAX. 6 9 . AS PER ABOVE DISCUSSION, WE HAVE SEEN THAT EVEN AFTER CONSIDERING CIRCULAR NO.7/2009 DATED 22/10/2009 AS PER WHICH CIRCULAR NO. 786 DATED 07/02/2000 WAS WITHDRAWN , IT COMES OUT THAT IN THE FACTS OF THE PRESENT CASE, NO TDS WAS REQUIRED TO BE DEDUCTED BECAUSE AS PER THIS CIRCULAR IN THE CASE OF PAYMENT OF COMMISSION TO FOREIGN AGENTS, NOTHING WAS REQUIRED TO BE SEEN AND EXAMINED AND IT COULD BE CONCLUDED THAT NO TDS WAS REQUIRED TO BE DEDUCTED. NOW IN THE ABSENCE OF THIS CIRCULAR, SUCH DECISION HAS TO BE TAKEN AFTER EXAMINING THESE ASPECTS AS TO WHETHER THE SERVICES WERE RENDERED IN INDIA OR OUTSI DE INDIA AND WHETHER THE PAYMENT WAS MADE IN INDIA OR OUTSIDE ETC. SINCE, IN THE PRESENT CASE, THIS IS NOT A CASE OF THE REVENUE THAT THE SERVICES WERE RENDERED IN INDIA OR THE PAYMENT WAS MADE IN INDIA AND THE INCOMES IN THE HANDS OF THE NON RESIDENT AGEN T CAN BE CONSIDERED AS DEEMED TO ACCRUE OR ARISE IN INDIA BY WAY OF OPERATION OF SECTION 9 (1), NO DISALLOWANCE CAN BE MADE U/S 40(A)(I) OF THE ACT. WE HAVE ALSO CONSIDERED THE EXPLANATION TO SECTION 9(2) AND HAVE SEEN THAT THIS EXPLANATION ALSO HAS NO RE LEVANCE IN THE PRESENT CASE AND THEREFORE, WE DECLINE TO INTERFERE IN THE ORDER OF CIT(A). 10 . IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 13 /02/2015. *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1.THE APPELLANT 2.THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 5.D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR