ADDL CIT 19(3), MUMBAI V. AL-QURESH EXPORTS, MUMBAI

ITA 803/MUM/2013

• Counselvise Citation: 80319914 RSA 2013
• Duration Of Justice: 2 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2015
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 20-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 30-01-2013
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN V P
• Assessee Lawyers: M P MAKHIJA
• Keywords: Business expenditure; Permanent establishment
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI , . . , BEFORE SHRI JOGINDER SINGH, JM & SHRI R.C.SHARMA, AM ./ ITA N O. 803 / MUM /20 1 3 ( / ASSESSMENT YEAR : 2009 - 10 ) ADCIT - 19(3), MUMBAI - 12 VS. M/S AL - QURESH EXPORTS, ROOM NO.310, 3 RD FLOOR A WING, RAZVI CHAMBERS, HILL ROAD, BANDRA (WEST), MUMBAI - 400050 ./ ./ PAN/GIR NO. : A A DFA 1272 M ( / APPELLANT ) .. ( / RESPONDENT ) /REVENUE BY : MR. ASGHAR ZAIN VP /ASSESSEE BY : MR. M.P.MAKHIJA / DATE OF HEARING : 20 TH APRIL , 201 5 / DATE OF PRONOUNCEMENT 20 TH APRIL , 201 5 / O R D E R PER R.C.SHARMA (A.M) : TH IS IS AN APPEAL FILED BY REVENUE AGAINST THE ORDER OF CIT(A) - 30 MUMBAI , FOR THE ASSESSMENT YEAR 2009 - 2010 , IN THE MATTER OF ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT. 2 . IN THIS APPEAL THE REVENUE IS BASICALLY AGGRIEVED FOR ACTION OF THE CIT(A) IN DIRECTING THE AO TO DELETE THE ADDITION OF RS.35 , 34, 825/ - MADE U/S.40(A)(IA) OF THE ACT. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF EXPORTING BONELESS BUFFALO MEAT AND EGGS. FROM THE PERUSAL OF THE PROFIT AND LOSS ACCOUNT IT WAS SEEN THAT THE ASSESSEE HAS CLAIMED COMMISSION ON EXPORT OF RS.35,34,825/ - . FROM THE ITA NO S . 6757& 6424 /1 1 2 PERUSAL OF DETAILS THE A O ALSO NOTICED THAT NO TDS WAS DEDUCTED ON SUCH PAYMENT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO ASKED THE ASSESSEE AS TO WHY THE EXPENSES CLAIMED ON ACCOUNT OF COMMISSION SHOULD NOT BE DISALLOWED U/S. 40(A)(I A ) OF THE I T. ACT. IN REPLY, THE ASSE SSEE VIDE LETTER DATED 20.10.2011 SUBMITTED AS UNDER: 'THE DETAILS OF FOREIGN COMMISSION PAID IS ENCLOSED HEREWITH. ALL THE PARTIES ARE SITUATED ABROAD AND ALL THE PAYMENTS ARE IN DOLLARS. NONE OF THE PARTIES HAS PROVIDED ANY SERVICES IN INDIA AND AS SUCH NO TDS IS APPLICABLE FOR THE' COMMISSION PAID TO THEM. 4. HOWEVER, THE AO DID NOT AGREE WITH THE ASSESSEES CONTENTION AND MADE DISALLOWANCE U/S.40(A)(IA). BY THE IMPUGNED ORDER, THE CIT(A) DELETED THE DISALLOWANCE BY OBSERVING AS UNDER : - 4. I HAVE CA REFULLY GONE THROUGH THE ASSESSMENT ORDER AND THE SUBMISSIONS MADE ON BEHALF OF THE APPELLANT. FROM THE PERUSAL OF P&L A/C. THE AO OBSERVED THAT THE APPELLANT HAS CLAIMED FOREIGN COMMISSION OF RS.35,34,825 / - , THE DETAILS OF WHICH ARE GIVEN ON PAGE NO. 2 OF THE ASSESSMENT ORDER. THE AO ALSO OBSERVED THAT THE APPELLANT HAS NOT DEDUCTED TDS ON THE PAYMENTS OF RS. 35,34,825/ - . THIS BEING SO THE AO ASKED THE AR OF THE APPELLANT TO EXPLAIN AS TO WHY THE EXPENSES SHOULD NOT BE DISALLOWED U/S .40 (A)(I) OF THE I T. A CT, 1961. IN RESPONSE, THE APPELLANT SUBMITTED REPLY VIDE LETTER DATED 20.10.2011 WHICH WAS CONSIDERED BY THE AO BUT HE FOUND THAT THE SAME IS NOT ACCEPTABLE. THE AO FURTHER NOTED THAT SECTION 30 - 38 DEALS WITH ALLOWABILITY OF BUSINESS EXPENDITURE. HOWEVER, SECTION 40 PUT CERTAIN RESTRICTIONS ON ALLOWABILITY SUBJECT TO FULFILLMENT OF CERTAIN CONDITIONS. BECAUSE OF THE OVER RIDING EFFECT OF SECTION 40,. THE EXPENDITURES ARE ALLOWABLE ONLY WHEN THE CONDITIONS GIVEN IN SECTION 40 ARE FULFILLED. IN THIS REGARD T HE LEARNED AR OF THE APPELLANT HAS DRAWN MY 'ATTENTION TO BOARD'S CIRCULAR NO. 786 DATED 7.02.2000 IN WHICH BOARD HAS CLARIFIED THAT IN THE CASE OF A NON RESIDENT INDIAN WHOSE INCOME IS NOT LIABLE TO TAX IN INDIA AS PER PROVISIONS OF THE ACT ON THE PAYMENT OF COMMISSION MADE TO THEN WHICH IS EITHER REMITTED THROUGH BANKING CHANNELS WITH DUE PERMISSION OR AS DIRECTLY DEDUCTED FROM THE SALE PROCEEDS RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE, NO TAX IS REQUIRED TO BE DEDUCTED. FURTHER, IT IS PLEADED IN THE CASE OF THE APPELLANT THAT NO TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVIIB ON ACCOUNT OF THE FACT THAT INCOME OF THE PAYEE OF COMMISSION IS NOT TAXABLE IN INDIA AND HENCE NO TAX IS REQUIRED TO BE DEDUCTED. THE PAYEE DOES NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA NOR HIS INCOME ACCRUING OR ARISING IN INDIA AND HENCE TAX IS NOT DEDUCTIBLE AT SOURCE. ITA NO S . 6757& 6424 /1 1 3 3.4. THE AO IN PARA 5.19 OF THE ASSESSMENT ORDER HAS ALSO STATED THAT THE BOARD'S CIRCULAR NO.786 DATED 7.02.2000 HAS BEEN WITHDRAWN BY THE BOARD W.E.F. 22.10 .2009. BY WITHDRAWING THE CIRCULAR THE BOARD MADE IT CLEAR THAT THE TDS PROVISIONS ARE APPLICABLE TO COMMISSION PAYMENT TO NON RESIDENTS. IN THIS REGARD THE LEARNED AR HAS MENTIONED THAT THE PREVIOUS YEAR IN THE CASE OF THE APPELLANT IS FROM 1.4.2008 TO 31 .03.2009 AND DURING THIS PERIOD THE CIRCULAR WAS VERY MUCH IN EXISTENCE. THE CIRCULAR HAS NOT BEEN WITHDRAWN RETROSPECTIVELY. THEREFORE, THE CASE OF THE APPELLANT IS COVERED BY THE AFORESAID CIRCULAR OF THE BOARD. HOWEVER, THE AO HAS MENTIONED IN THE ASSES SMENT ORDER THAT UNDER DELEGATED LEGISLATIVE POWERS CONFERRED BY THE PARLIAMENT, THE CBDT IS GIVEN THE POWER TO MAKE SUBORDINATE LEGISLATIONS SUCH AS MAKING OF RULES, ISSUING OF CIRCULARS AND NOTIFICATIONS ETC. THE OPERATION OF SUCH SUBORDINATE LEGISLATION IS ALWAYS RETROSPECTIVE IN NATURE. IN THIS REGARD THE AO HAS RELIED UPON THE DECISION OF SUPREME COURT IN THE CASE OF PROHIBITION & EXCISE SUPERINTENDENT, AP VS. TODDY TAPPERS COOPERATIVE SOCIETY, MADERAPALLY (AIR 204 (SC) 658. TO THE EFFECT THAT THE SUB ORDINATE LEGISLATION IS ALWAYS RETROSPECTIVE IN NATURE. HOWEVER, IN THIS REGARD, IT IS SEEN THAT THERE IS A RATHER DIRECT JUDGEMENT ON THE ISSUE OF HON. ITAT MUMBAI BENCH 'L' IN THE CASE OF DDIT {INTERNATIONAL TAXATION}, MUMBAI VS. SIEMENS AKTIENGESELLSCHA FT DAT.ED 7.12.2009 IN ITA NO. 6I33/MUM/2002 FOR A.Y. 1998 - 99 IN WHICH IT IS HELD AS UNDER: - 'ACCORDINGLY WE HOLD THAT ISSUANCE OF CIRCULAR NO.7 OF 2009 WITHDRAWING THE CIRCULAR NO.23 OF 1969 NO. 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' CIRCULAR W.E.F. 22.10.2009 HAS NO BEARING IN A. Y. 1998 - 99.' 3.5 IN VIEW OF THE CATEGORICAL FINDINGS GIVEN BY THE HON.BLE ITAT MUMBAI CL' BENCH IN THE AFORESAID DECISION COUPLED WITH T HE FACT THAT NO TAX WAS DEDUCTIBLE IN THE CASE OF THE APPELLANT, I DIRECT THE AO TO DELETE THE ADDITION OF RS.35,34,825 / - . THE GROUND OF APPEAL IS ALLOWED. 5. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT DISALLOWANCE HAS BEEN MADE ON ACCOUNT OF COMMISSION PAID TO NON - RESIDENT FOR RENDERING SERVICES ABROAD TO WHICH NO TAX WAS DEDUCTED BY THE ASSESSEE AT SOURCE. IN THIS REGARD BOARD CIRCULAR NO.786 DATED 7 - 2 - 2000 ISSUED BY THE DBDT IS VERY CLEAR THAT IN THE CASE OF A NON - RESIDENT INDIAN WHOSE INCOM E IS NOT LIABLE TO TAX IN INDIA AS PER PROVISION S OF THE ACT ON THE PAYMENT OF COMMISSION MADE T O THEM WHICH IS EITHER REMITTED THROUGH BANKING CHANNELS WITH DUE PERMISSION OR AS DIRECTLY DEDUCTED F R O M THE ITA NO S . 6757& 6424 /1 1 4 SALE PROCEED S RECEIVED IN CONVERTIBLE FOREIGN EXCH ANGE, NO TAX IS REQUIRED TO BE DEDUCTED. WE ALSO FOUND THAT INCOME OF PAYEE I.E. RECIPIENT OF THE COMMISSION WAS NOT LIABLE TO TAX IN INDIA, HENCE, NO TAX IS LIABLE TO BE DEDUCTED AT SOURCE ON SUCH PAYMENT . THE CIT(A) HAS GIVEN DETAILED FINDING S AT PARA 4 .1 OF HIS ORDER AND DEALT WITH THE ISSUE AND ULTIMATELY AFTER CONSIDERING THE CBDT CIRCULAR NO. 786 , DATED 7 - 2 - 2000 DELETED THE DISALLOWANCE . THE FINDING RECORDED BY THE CIT(A) HAS NOT BEEN CONTROVERTED. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE I N THE ORDER OF CIT(A) FOR DELETING DISALLOWANCE MADE ON ACCOUNT OF COMMISSION PAYMENT TO NON - RESIDENT INDIAN. 6 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 20/04 / 201 5 . 20/04 / 201 5 SD / - SD / - ( ) ( JOGINDER SINGH ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMB ER MUMBAI ; DATED 20/04/2015 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//