Smt. Ruchi Gupta Prop., Panipat V. ACIT, Panipat

ITA 77/DEL/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 6847 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2012-2013
• Appeal Filed On: 04-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Keywords: Business income; Double taxation relief; TDS
• Section: 40(a)(ia); 195; 9(1); 9(1); 9(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI G.S. PANNU, VICE PRESIDENT & SHRI AMIT SHUKLA, JUDICIAL MEMBER I.T.A. NO.77/DEL/2017 ASSESSMENT YEAR 2012-13 SMT. RUCHI GUPTA, PROP M/S. JAINSONS EXPORTS, UNIT-1, BARSAT ROAD, PANIPAT. V. ACIT, PANIPAT CIRCLE, PANIPAT. TAN/PAN: ABAPG 8629H (APPELLANT) (RESPONDENT) APPELLANT BY: NONE RESPONDENT BY: SHRI SURENDER PAL, SR.D.R. DATE OF HEARING: 17 10 2019 DATE OF PRONOUNCEMENT: 14 01 2020 O R D E R PER AMIT SHUKLA, J.M.: THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE IMPUGNED ORDER DATED 21.10.2016 PASSED BY LD. CIT (APPEALS), KARNAL FOR THE QUANTUM OF ASSESSMENT PASSED U/S.143(3) FOR THE ASSESSMENT YEAR 2012-13. IN VARI OUS GROUNDS OF APPEAL, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE U/S. 40(A)(I) ON ACCOUNT OF PAYMENT MA DE TO NON-RESIDENT FOR TRAVELLING, PROFESSIONAL/MANAGERIA L SERVICES AMOUNTING TO RS.12,62,632/- AND THAT THE LD. CIT(A) HAS ERRED ON FACTS IN NOT ALLOWING TELESCOPING OF THE A DDITION OF RS.11 LACS OFFERED AND ADDED BACK IN RESPECT OF MANUFACTURING AND OTHER EXPENSES. I.T.A. NO.77/DEL/2017 2 2. THE FACTS IN BRIEF QUA THE ISSUE OF DISALLOWANCE U/S. 40(I)(A) ARE THAT, THE ASSESSEE IS ENGAGED IN THE B USINESS OF MANUFACTURING AND EXPORTING OF CARPET, BATH MAT, DU RRIES, ETC. AS SOLE PROPRIETOR OF M/S. JAINSONS EXPORT UNI T-1. THE ASSESSEE HAS DECLARED PROFIT OF RS.6,48,85,332/- ON TOTAL TURNOVER OF RS.50,31,33,325/-, SHOWING GP RATE OF 1 2.90%. THE ASSESSING OFFICER ON PERUSAL OF THE EXPENSES CL AIMED UNDER THE HEAD TRADE FAIR AND EXHIBITION TO THE T UNE OF RS.1,15,72,071/-, REQUIRED THE ASSESSEE TO FURNISH DETAILS AND JUSTIFY THE EXPENSES. IN RESPONSE TO THE SHOW C AUSE NOTICE, THE DETAILS OF EXPENSES WERE FILED BY THE A SSESSEE AND SUBMITTED THAT SHE HAS PARTICIPATED IN DOMOTEX AND HELMTEX FAIRS HELD IN GERMANY WHICH ORGANIZES TEXTILE FAIRS IN GERMANY EVERY YEAR WHEREIN BUYERS FROM ALL ACROSS T HE WORLD ATTEND AND ASSESSEE HAS A GREAT OPPORTUNITY TO SHOW CASE THE PRODUCT AND PROCURE ORDERS. THE DETAILS OF EXPENSES WERE AS UNDER: SR. NO. PARTICULARS PURPOSE AMOUNT 1 . MESSEE FRANKFURIT EXHIBITION GMBH FAIR FEE FOR HEIMTEXTIL FAIR HELD IN GERMANY 9,61,810 2. DEUTSHEE MESSEE HANNOVER, GERMANY HALL SPACE FEES FOR DOMOTEX FAIR HELD IN GERMANY 13,78,284 3. DESIGN 4U PROFESSIONAL ADVICE FOR HEIMTEXTIL FAIR HELD IN GERMANY 36,88,075 4. DESIGN 4U PROFESSIONAL ADVICE FOR DOMOEX FAIR HELD IN GERMANY 35,78,366 5. MESSE FRANKFURT EXHIBITION GMBH FAIR FEES FOR FAIR HELD IN GERMANY 1,26,914 | 6. MESSE FRANKFURT EXHIBITION GMBH FAIR FEES FOR FAIR HELD IN GERMANY 39,288 7. STORACON STORAGE AND HANDLING FOR TRANSPORTATION 1,34,078 8. SPACE TRAVEL AND CARGO FOR TRANSPORTATION 51,729 9. MCSSE FRANFURT EXHIBITION GMBIL FAIR FEES FOR FAIR HELD IN GERMANY 51.444 | 10 . STORACON STORAGE AND HANDLING FOR TRANSPORTATION 1,33,222 I.T.A. NO.77/DEL/2017 3 11. MESSE FRANKFURT EXHIBITION GMBH FAIR FEES FOR FAIR HELD IN GERMANY 1,47,066 12. HOTEL CENTRAL HOTEL BILL & OTHER CHARGES. HANNOVER 1,62,881 13. BEST ROADWAYS FOR TRANSPORTATION 38,000 14. LOADING SERVICE S UG FOR TRANSPORTATION 56.414 15. FOREX FOREIGN CURRENCY 10,24,500 TOTAL 1,15,72,071 3. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS NOT DEDUCTED TDS ON THE PAYMENT MADE TO NON-RESIDENT PA RTIES AND AFTER DETAIL OBSERVATION AND FINDING HE HELD TH AT ASSESSEE WAS LIABLE TO DEDUCT TDS U/S.195(2) AND THEREBY MAD E DISALLOWANCE OF RS.78,41,993/-. THE DETAILS OF EXPE NSES ALLOWED AND DISALLOWED BY THE ASSESSING OFFICER U/S . 40(A)(I) ARE AS UNDER: SR. NO. PARTICULARS TOTAL AMOUNT PAID ALLOWED BY ASSESSING OFFICER DISALLOWED BY ASSESSING OFFICER 1. MESSEE FRANKFURT EXHIBITION GMBH, GERMANY 961810.00 921070.00 40740.00 2. DOMOTEX DEUTSCHE MESSEE HANNOVER, GERMANY 1378284.00 1208184.00 170100.00 3. DESIGN 4U SRL ITALY 7266441.00 0 7266441.00 4. MESSEE FRANKFURT EXHIBITION GMBH, GERMANY 126914.00 0.00 126914.00 5. MESSEE FRANKFURT EXHIBITION GMBH, GERMANY 39288.00 0.00 39288.00 6. STARCON STORAGE & HANDLING 134078.00 134078.00 0.00 7. SPACE TRAVEL & CARGO 5172.00 51729.00 0.00 8. MESSEE FRANKFURT EXIBITIONGMBH, 51444.00 0.00 51444.00 9. STORACORI STORAGE & HANDING 133222.00 133222.00 0.00 10. MESSEE FRANKFURT EXIBITION GMBH, GERMANY 147066.00 0.00 147066.00 I.T.A. NO.77/DEL/2017 4 11. HOTEL CENTRAL 162881.00 162881.00 0.00 12. BEST ROADWAYS 38000.00 38000.00 0.00 13. LOADING SERVICES UG 56414.00 56414.00 0.00 14. FOREX 1024500.00 1024500.00 0.00 TOTAL 11572071.00 3730078.00 7841993.00 4. BEFORE THE LD. CIT (A), THE ASSESSEE HAS GIVEN T HE BREAK- UP OF VARIOUS PAYMENTS FOR THE EXHIBITION WHICH HAS BEEN DISALLOWED BY THE ASSESSING OFFICER AND SUBMITTED T HAT NONE OF THESE EXPENSES ARE IN THE NATURE OF FEE FOR TEC HNICAL SERVICES AND AT THE MOST THESE WERE THE PAYMENTS M ADE TO THE ENTITIES FOR THEM IT WAS BUSINESS INCOME AND NO NE OF ENTITIES HAD ANY PE IN INDIA, THEREFORE, NO INCOME OF THE NON- RESIDENTS WERE TAXABLE IN INDIA. HENCE, THERE WAS N O SCOPE OF ANY DEDUCTION OF TDS. IN SUMS AND SUBSTANCE, THE CO NTENTION OF THE ASSESSEE WHICH HAS BEEN SUMMARIZED BEFORE TH E LD. CIT (A) READS AS UNDER: A) THE AR HAS ARGUED THAT THE NATURE OF PAYMENTS M ADE TOWARDS THE FAIR AT DOMOTEX AND MESSEE FRANKFURT WE RE ORGANIZING AUTHORITY FOR FAIR HELD IN GERMANY EVERY YEAR AND THE COMPOSITE PAYMENTS MADE TO THESE PARTIES INCLUDED C HARGES FOR LIGHTNING, WATER ELECTRICITY, NEON BOARDS PAMPHLETS AND BOOKLETS WHICH WERE NOT IN ANY PAYMENT FOR TECHNICAL SERVICE S. B) IT WAS FURTHER SUBMITTED BY THE AR THAT THE PAYM ENTS MADE TO DESGN4U WAS ALSO A COMPOSITE PAYMENT FOR SERVICES I NCLUDING CONSTRUCTION OF STAND, MUSIC SYSTEM, TRANSPORTATION OF MATERIAL, ASSEMBLING AND DIS-ASSEMBLING OF STAND AS WELL AS C OFFEE MACHINE, TEA MACHINE, VACUUM CLEAN ETC. I.T.A. NO.77/DEL/2017 5 THE AR EMPHASIZED THAT MERELY BY WRITING 'PROFESSIO NAL ADVICE ON THE INVOICES SHOULD NOT BE CONSIDERED TO BE ANY INDICATION OF THESE PAYMENTS TO BE CONSIDERED AS FEES FOR TECHNIC AL SERVICES. C) THE AR FURTHER ARGUED THAT THE AO HAD NOT CONSID ERED THE DETAILS AS PER THE AGREEMENTS AS WELL AS THE NATURE OF SERVICES FOR WHICH THESE PAYMENTS HAD BEEN MADE. IT WAS EMPH ASIZED BY THE AR THAT THE AO HAD TOTALLY IGNORED THE FACT THAT THE PAYMENT FOR COMPOSITE EXHIBITION EXPENSES COULD NOT BE IN THE NATURE OF TECHNICAL SERVICES AND THEREFORE PROVISIO NS OF SECTION 195 AND 40(A)(IA) WERE NOT ATTRACTED. D) THE AR HAS ALSO HIGHLIGHTED THAT THE FACTS OF T HE CASE WERE SIMILAR TO THE DECISION OF THE IT AT, DELHI IN THE CASE OF BRAHMOS AEROSPACE PVT. LTD. (SUPRA) AND THEREFORE THIS ADDI TION MADE BY THE AO WAS NOT JUSTIFIED. IN THIS REGARD, IT WAS AL SO HIGHLIGHTED THAT THE AO HAD HIMSELF EXCLUDED THE RENT PORTION P AID BY THE ASSESSEE WHICH INDICATES THAT THE OBSERVATION OF TH E AO REGARDING THE COMPOSITE PAYMENT TOWARDS EXHIBITION EXPENSES INCLUDED MULTIPLE ITEMS AND WERE NOT COVERED UNDER FEES FOR TECHNICAL SERVICES. 5. LD. CIT (A) AFTER DETAILED DISCUSSION HELD THAT LOOKING TO THE NATURE OF SERVICES, HE OBSERVED IT WAS A CONSOL IDATED PAYMENT TOWARDS EXHIBITION EXPENSES AND MOST OF THE SE CANNOT BE HELD TO BE TECHNICAL SERVICES. HOWEVER, W ITH REGARD TO THE PROJECT OF THE STAND INCLUSIVE OF PLAN, PROS PECTIVE, FRONTAL/LATERAL PROSPECTUS AND SECTIONS AND CONSTRU CTION OF THE STAND, HE HELD THAT THERE COULD BE SOME ELEMENT OF TECHNICAL INPUT AND HELD THAT 15% DISALLOWANCE SHOU LD BE I.T.A. NO.77/DEL/2017 6 MADE ON AD HOC BASIS. ACCORDINGLY, HE CONFIRMED THE DISALLOWANCE OF RS.10,89,966/-. 6. APART FROM THAT, WITH REGARD TO PAYMENT TO ONE P ARTY, MESSEE FRANKFURT. THE DETAILS OF DISALLOWANCE MADE BY THE ASSESSING OFFICER ARE AS UNDER:- 1. MESSEE FRANKFURT EXHIBITION RS.40,740/- (FOR ME DIA PACKAGE) 2. DOMOTEX DEUTSCHE HANOVER, GERMANY RS.1,70,100/- (FOR MARKETING FEES) 3. MESSEE FRANKFURT EXHIBITION RS.1,47,066/- (FOR O THER SERVICES) 4. MESSEE FRANKFURT EXHIBITION RS.51,444/- (FOR OTH ER SERVICES) 5. MESSEE FRANKFURT EXHIBITION RS.39,288/- (FOR OTH ER SERVICES) 6. MESSEE FRANKFURT EXHIBITION RS.1,26,914/- (FOR O THER SERVICES) 7. OUT OF WHICH LD. CIT(A) HAS HELD THAT 30% OF THE SE EXPENSES ARE BEING ESTIMATED FOR TECHNICAL SERVICES AND ACCORDINGLY, HE DISALLOWED SUM OF RS.1,72,666/-. HE NCE, OVER ALL DISALLOWANCE WAS RESTRICTED TO RS.12,62,632/-. 8. NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE SERVICE OF NOTICE, AND THEREFORE, THE APPEAL IS BEING DECID ED ON THE BASIS OF MATERIAL PLACED ON RECORD AND AFTER CONSID ERING THE SUBMISSIONS MADE BY THE DR, WHO HAS MAINLY SUPPORTE D THE FINDINGS OF THE LD. CIT (A). 9. AFTER CONSIDERING THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDERS AS WELL AS THE SUBMISSION OF THE AS SESSEE AS INCORPORATED IN THE ORDER OF THE LD. CIT (A), WE FI ND THAT IT IS I.T.A. NO.77/DEL/2017 7 NOT IN DISPUTE THAT THE PAYMENT HAS BEEN MADE BY TH E ASSESSEE TO NON-RESIDENT ENTITIES BASED IN GERMANY IN CONNECTION WITH R EXHIBITION PURPOSES, TRADE AND FA IR EXPENSES, FOR MEDIA PACKAGE AND OTHER MARKETING FEE S. ANOTHER ADMITTED FACT THAT NONE OF THESE NON-RESIDE NT ENTITIES HAVE ANY BUSINESS CONNECTION IN INDIA, AND THEREFOR E, EVEN IF IT IS A BUSINESS INCOME FOR THE NON-RESIDENTS, THEN SAME IS NOT TAXABLE IN INDIA U/S.9(1)(I) R.W.S. 5 OF THE AC T. FURTHER, FROM THE PERUSAL OF THE NATURE OF SERVICES, WE FIND THAT NONE OF THESE SERVICES ARE IN THE NATURE OF MANAGERIAL, TECHNICAL AND CONSULTANCY SERVICES AS DEFINED IN SECTION 9(1) (VII) NOR EVEN UNDER ARTICLE 12 OF INDIA-GERMANY DTAA. EVEN W ITH REGARD TO PAYMENT MADE TO DOMOTEX AND HELMTEX FOR F AIRS HELD IN GERMANY, THE NATURE OF SERVICES IS PURELY F OR FAIR PAID CHARGES AND FOR OTHER SERVICES LIKE ELECTRICAL POWE R, MARKETING, ELECTRICAL SERVICES, INTERNET SERVICES, WATER, ETC. NONE OF THESE SERVICES CAN BE HELD TO BE IN THE NAT URE OF FTS. IN SO FAR AS PROFESSIONAL ADVICE AS MENTIONED IN DE SIGN 4U EXPENSES, INCLUDES PROJECT OF THE STAND, CONSTRUCTI ON OF THE STAND, TRANSPORT OF ALL MATERIALS TO THE FAIR, ASSE MBLING OF THE STAND BEFORE THE OPENING OF FAIR AND DISASSEMBLING OF THE STAND AFTER THE FAIR CLOSURE. EVEN THE LD. CIT (A) HAS FOUND THAT MOST OF THESE SERVICES ARE NOT IN THE NATURE O F FEE FOR TECHNICAL SERVICES. HOWEVER ON ADHOC BASIS, HE HAS HELD THAT 15% OF THE PAYMENT CAN BE HELD TO BE FEE FOR TECHNI CAL SERVICES ON ACCOUNT OF PAYMENT MADE FOR TECHNICAL COMPONENTS IN THE CONSTRUCTION OF THE STAND AND IN THE I.T.A. NO.77/DEL/2017 8 PROSPECTIVE OF THE CONSTRUCTION AND STRATEGIES AND HE HAS ALSO MADE ADHOC DISALLOWANCE OF 30% ON OTHER VARIOUS EXP ENSES INCORPORATED ABOVE. FIRST OF ALL, NONE OF THESE SER VICES FALLS WITHIN THE AMBIT AND SCOPE OF FEE FOR TECHNICAL SER VICES AS DEFINED IN ARTICLE 12 OF INDIA-GERMANY DTAA AND SEC ONDLY, SUCH PRESUMPTION WITHOUT ANY BASIS AND IN ADHOC MAN NER CANNOT BE UPHELD. SUCH ADHOC DISALLOWANCE CANNOT BE SUBJECTED TO DISALLOWANCE U/S 40(A)(I). ACCORDINGLY , THE DISALLOWANCES AS CONFIRMED BY THE LD. CIT (A) ARE D ELETED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH JANUARY, 2020. SD/- SD/- [G.S. PANNU] [AMIT SHUKLA] VICE PRESIDENT JUDICIAL MEMBER DATED: 14 TH JANUARY, 2020 PKK: