DCIT, CHENNAI V. EL Forge Ltd., CHENNAI

ITA 819/CHNY/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7121 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 26-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 03-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C V PAVANA KUMAR IRS
• Assessee Lawyers: S SRIDHAR
• Keywords: Deemed to accrue or arise in india; Permanent establishment
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . , . . ! , '# BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER& SHRI S.S. GODARA, JUDICIAL MEMBER ./ I.T.A. NO.819/MDS/2014 ( / ASSESSMENT YEAR : 2008-2009) THE DEPUTY COMMISSIONER OF INCOME TAX COMPANY CIRCLE II(1), CHENNAI ( $% /APPELLANT ) VS M/S. EL FORGE LTD, NO.338, AMBUJAMMAL STREET, ALWARPET, CHENNAI 600 018. [PAN :AAACE 1706C] ( &'$% /RESPONDENT) / APPELLANT BY : SHRI. C.V. PAVANA KUMAR, IRS, JCIT. / RESPONDENT BY : SHRI. S. SRIDHAR, ADVOCATE /DATE OF HEARING : 26.08.2014. /DATE OF PRONOUNCEMENT : 27.08.2004 ( / O R D E R PER S.S.GODARA, JUDICIAL MEMBER THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2008-09; EMANATES FROM ORDER DATED 27.11.2013 PASSED BY THE COMMISSIO NER OF INCOME TAX (APPEALS)-II, CHENNAI IN ITA NO.441/2013-14 IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 [IN SHORT THE ACT]. ITA NO.8 19/MDS/2014. :- 2 -: 2. THE REVENUES SOLE SUBSTANTIVE GROUND IN THE PR ESENT APPEAL CHALLENGES THE CIT(A) ORDER DELETING DISALLOWANCE U /S. 40 (A)(I) OF ` .23,58,679/- MADE BY THE ASSESSING OFFICER IN ASSES SMENT ORDER DATED 27.12.2010 FOR WANT OF NON DEDUCTION OF TDS O N COMMISSION PAID TO NON RESIDENT AGENTS. 3. THE ASSESSEE A COMPANY. IT MANUFACTURES ROUGH STEEL FORGINGS. THE ASSESSEE HAD FILED ITS RETURN ON 2 6.09.2008 ADMITTING LOSS OF ` .1,51,95,197/-. THE SAME WAS SUMMARILY PROCESSED . IN SCRUTINY, THE ASSESSING OFFICER FOUND THE ASSESSE E TO HAVE REMITTED A SUM OF `. 23,58,679/- TO BUSHAN UK AS COMMISSION ON EXPORT S ALES WITHOUT DEDUCTING TDS. THE ASSESSEE JUSTIFIED NON- DEDUCTION OF TDS BY RELYING ON THE DECISION IN THE CASE OF GE INDIA TECHNOLOGY CENTRE P. LTD 327 ITR 456 THAT AS THE SAID AMOUNT PAID TO NON-RESIDENTS IS NOT CHARGEABLE TO TAX, THERE WAS NO NEED TO COMPLY PROVISIONS U/S. 195 OF THE ACT. THE ASSESSING OFFICER DISTINGUISHED THE SAID CASE LAW BY OBSERVING THAT THEREIN, ISSUE OF ROYALTY WAS I NVOLVED AND THE MATTER HAD ONLY BEEN REMANDED U/S. 201. THEREAFTER , THE ASSESSING OFFICER INVOKED SECTION 9 AND TREATED THE AFORESAID COMMISSION PAYMENTS A DEEMED INCOME TO HAVE ARISEN IN INDIA. HE ALSO QUOTED ITA NO.8 19/MDS/2014. :- 3 -: CASE LAW OF M/S. TRANSMISSION CORPORATION OF ANDHR A PRADESH 239 ITR 589 TO HOLD THAT THE ASSESSEE HAD TO FILE NECE SSARY APPLICATION U/S. 195 (2) OF THE ACT. THIS RESULTED IN IMPUGNED DISALLOWANCE/ADDITION OF ` 23,58,679/-. 4. IN ASSESSEE S APPEAL, THE CIT(A) HAS ACCEPTED ITS CONTENTIONS AS FOLLOWS:- 4.2 . 2 I HAVE CONSIDERED THE ASSESSEE'S SUBMISSIONS AS WELL AS THE ORDERS OF T HE HON'BLE ITAT IN THE CASES OF M/S. FARIDA SHOES P LTD (ITA NO.159/MDS/2013 D A TED 11 . 04 . 2013 FOR A.Y. 2008-09) AND M/S . DELTA SHOES P LTD (ITA NO.909/MDS/201 3 DATED 31 . 07.2013) . THE FACTS INVOLVED IN THE CASES OF M/S. FARIDA SHOES P LTD A ND M/S . DELTA SHOES P LTD, ARE EXACTLY SIMILAR TO THOSE INVOLVED IN THE PRESENTASSESSE E . IN THE SAID CASES (I . E . F A RIDA SHOES P LTD AND DELTA SHOES P LTD) THE PA Y M E NTS MAD E T O THE NON-RESIDENTS, WITHOUT MAKING TDS, WERE SIMILAR TO THOSE MADE BY TH E PRES E NT ASSESSEE CORN ANY. THE ASSESSING OFFICER DISALLOWED THE SAID PAYMENTS II] S . 40 (A ) (I ) FOR NON -DEDUCTION OF TDS U / S . 195 OF THE ACT. THE CIT(A) ALLOWED THE APPE A LS OF THE S A I D COMPANIES. THE REVENUE PREFERRED AN APPEALS TO THE ITAT AGAINST THE ORDERS OF TH E CIT(A) . THE HON'BLE INCOME TAX APPELLATE TRIBUNAL OF CHENNAI , VIDE IT S ORD E RS MENTIONED ABOVE, HAS HELD THAT THE SERVICES PROVIDED BY THE CONCERNED NON- ITA NO.8 19/MDS/2014. :- 4 -: R E SID E NTS NEITHER AMOUNTS TO MANAGERIAL/ TECHNICAL SERVICES NOR THE PAYMENTS ARE ASSESSABL E T O TA X IN INDIA AND HENCE THE PRO V ISIONS OF SEC . 195 OF THE ACT ARE NOT APPL IC ABL E T O TH E FACTS OF THE SAID COMPANIES. THE RELEVANT PORTION OF THE ORDER OF THE ITAT (IN ITA NO.159/MDS/2013 DATED 11 . 04 . 2013 FOR A . Y . 2008-09 IN THE CASE OF M/S . F ARI D A SHOES P LTD) IS REPRODUCED AS UNDER : 10 . WE HAVE HEARD BOTH SIDES , PERUS E D THE MATERIALS A V AIL A BL E ON R E CORD AND CASE LAW CI T ED. IN T HIS CAS E, THE ASSE S S E E HAS MAD E CE R T A IN PAYMENTS TO OVERSEAS AGENTS AS C OMMISSION AND NO TDS D E DU CTED. ACCORDING TO THE ASS ES SING OFF I CER , THE ASSESSEES' BUSIN E SS I S SITUATED IN INDIA AND THE PAYMENTS WERE ALSO MADE FROM INDIA AND A C CORD I NG T O S E CTION 195 , TH E ASSESSEE IS UNDER OBLIGATION TO DEDUCT TDS. THER EF OR E, B Y INVOKING SECTION 40(A)(I) , H E HAS DISALLOWED AN AMOUNT OF RS . 5, 6 2, 1 3, 8 26 / - . ON APPEAL, THE CIT(APPEALS) DELETED THE DISALLOWANCE ON THE GROUND THA T THE COMMISSION WAS PAID TO NON-RESIDENT AGENT AND IT CANNOT B E S AID T O HAVE B E EN ACCRUED IN INDIA AND SE C TION 195 HAVE NO APPLICAT I ON . THE ON LY ISSUE FOR OUR CONSIDERATION IS AS TO WHETHER THE ASS E SS EE I S UND E R OBLIGATION TO DEDUCT THE TDS UNDER SECTION 195 OR NOT . TH E CIT( A PP E ALS) , BY CONSID E RING TH E ENTIR E FA C TS AND CIRCUMSTANCES OF THE CA S E PA SSE D A DETAIL E D ORDER BY OB S ERVING T HAT S ECTION 1 95 HA V E NO APPLI C A T I O N TO ASSESSEE ' S CASE. IN TH E CASE OF M / S . PRAKASH IMP EX V . ACIT (SUPR A ) , T HE COORDINATE BENCH OF ITAT CHENNAI HAS CONSIDER E D THE V E RY SAM E I SS U E AND OBSERVED THAT THE COMMISSION PAID TO NON - R E SID E NT AGENT FOR TH E S E RVICES R E NDER E D OUTSID E IND I A AND SUCH PAYMENT S AR E NOT C HAR GEA BL E TO TAX INDIA AND T H E REFOR E, TH E PR OV ISION S OF S EC T I ON 1 9 5 ARE NOT APPLI CAB L E VIEW OF TH E DECISION OF ITA NO.8 19/MDS/2014. :- 5 -: TH E HON ' BLE S UPR E ME C OURT IN TH E C AS E OF G E IN DIA TECHNOLOGY CENTRE P . LTD. V . CIT (SUPRA) . 11 . IN T H E CASE OF C IT V . E ON TE CH NO LOG Y (P) L T D . , T H E HON' B L E D ELHI HIGH C OUR T HAS AL SO H E L D THAT T HE C OMMIS S ION PAYM E NT T O I TS B RIT IS H PARENT/ HOLDING COMPANY ETUK COULD NOT SAID TO HAVE BEEN ACCRUED TO ETUK IN INDIA AND THEREFORE, THE ASSESSEE WAS NOT LIABLE TO DEDUCT TA X AT SOURCE FROM PAYMENT OF COMMISSION TO ETUK . THE HEAD NOTE OF ODDER IS REPRODUCED HEREUNDER: 'SECTION 9 OF THE INCOME-TAX ACT , 1961 - INCOME - DEEMED TO ACCRUE OR ARISE IN INDIA ASSESSMENT YEAR 200 7 -08 - ASSESSEE-COMPANY WAS ENGAGED IN BUSINESS OF DEVELOPMENT AND EXPORT OF SOFTWARE - DURING RELEVANT ASSESSMENT YEAR, IT HAD PAID COMMISSION TO ITS BRITISH PARENT / HOLDING COMPANY ETUK ON SALES AND AMOUNTS REALIZED ON EXPORT CONTRACTS PROCURED BY ET U K FOR ASSESSEE - ASSESSING OFFICER HELD THAT COMMISSION INCOME EARNED B Y ETUK HAD ACCRUED IN INDIA OR WAS DEEMED TO ACCRUE IN INDIA AND , THEREFORE, ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE THERE FROM AND AS THERE WAS FAILURE, SAID EXPENDITURE SHOULD BE DISALLOWED UNDER SECTION 40(A)(IA) - WHETHER WHEN ETUK WAS NOT RENDERING AN Y SER V ICE OR PERFORMING ANY ACTIVIT Y IN INDIA ITSELF COMMISSION INCOME COULD BE SAID TO HAVE AC C RU E DARISEN TO OR RECEIVED BY ETUK IN INDIA MERELY BECAUSE IT WAS RECORD E D IN BOOK S OF ASSESSEE IN INDIA OR WAS PAID BY ASSESSEE SITUATED IN INDIA - HELD , NO - WHETHER FOR APPLYING SECTION 9 ASSESSING OFFICER WAS REQUIRED TO EXAMINE WHETHER SAID COMMISSION INCOME WAS ACCRUING OR ARISING DIRECTLY OR INDIR E CTLY FROM ANY BUSINESS CONNECTION IN INDIA - HELD , Y ES - WH E THER SINC E FACTS FOUND B Y ASSESSING OFFIC E R DID NOT MAKE OUR A CASE OF BUSINESS CONN E CTION AS STIPULATED IN SECTION 9 ( L ) ( I ), COMMIS S ION INCOM E COULD NOT B E SAID TO HAVE A CC RUED TO ET U K IN INDIA AND , THEREFORE , ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOUR CE FROM PAYMENT OF COMMISSION TO ET U K - HELD , YES [IN FAVOUR OF ASSESSEE] . ' 12 . THE HON'BLE DELHI HIGH COURT HAS CONSIDERED THE DECISION OF TH E HON'BLE SUPREME COURT IN THE CASE OF M / S . TRANSMISSION CORPORATION OF ANDHRA PRADESH ITA NO.8 19/MDS/2014. :- 6 -: REPORTED IN 239 ITR 587 AND DECIDED THE ISSU E IN FAVOUR OF THE ASSESSEE. 13. IN THE CASE OF ARMAYESH GLOBAL V. ACIT (SUPRA) , THE MUMBAI BENCH OF ITAT HAS OBSERVED THAT THE COMMISSION PAYMENT WAS MADE TO TH E OVERSEAS AGENT FOR PROCURING EXPORT ORDERS. THE AGENTS HAVE NOT B EE N PROVIDED ANY MANAGERIAL / TECHNICAL SERVICES . THE RELATIONSHIP BETWE E N TH E ASSESSEE AND THE NON-RESIDENT (AGENT) WAS ONLY FOR RENDERING NON - TECHNICAL SERVICES. MOREOVER , THERE WAS NO PERMANENT ESTABLISHMENT OF TH E SAID NON-RESIDENT IN INDIA . THEREFORE , THE COMMISSION PAID TO THE NON- RESIDENT AGENT DID NOT ACCRUE OR ARISE IN INDIA AND THUS, THERE WAS NO NE E D FOR DEDUCTING TDS UNDER SECTION 195 OF THE ACT . 14 . IN THE PRESENT CASE, THE ASSESSEE PAID CERTAIN AMOUNTS TO OV E RSEA S AGENTS FOR PROCUREMENT OF EXPORT ORDERS. THE AGENTS HAVE NOT PROVID E D ANY MANAGERIAL / TECHNICAL SERVICES. THE PAYMENTS RECEIVED BY TH E NON - R ES ID E NT INDIAN ARE NOT TAXABLE IN INDIA . TAKING INTO CONSIDERATION OF ENTIRE FA C T S AND CIRCUMSTANCES AND BY FOLLOWING AFORESAID DECISIONS, WE ARE OF THE O PINION THAT THE ISSUE INVOLVED IN THIS APPEAL IS COVERED IN FAVOUR OF TH E ASSESSEE AND SECTION 195 HAVE NO APPLICATION TO ASS E SSEE'S CA SE. ACC ORDINGLY , THE APPEAL OF THE REVENUE IS DISMISSED. THEREFORE THE REVENUE IS IN APPEAL. 5. WE HAVE HEARD BOTH PARTIES AND PERUSED THE CASE FILE. THE ONLY DISPUTE IN THE PRESENT CASE PERTAINS TO EXPORT COMM ISSION OF `. 23,58,679/-. THE REVENUE CONTENDS THAT THE ASSESSI NG OFFICER HAD RIGHTLY DISALLOWED THIS EXPENDITURE FOR WANT OF TD S DEDUCTION. HOWEVER, THERE IS NO EVIDENCE TO PROVE THAT THE PAY EE IN QUESTION HAD ENTERED AN AGREEMENT IN INDIA, RENDERED ANY SERVICE IN INDIA OR ITA NO.8 19/MDS/2014. :- 7 -: RECEIVED PAYMENT IN INDIA. THE PAYMENT APPEARS TO HAVE BEEN REMITTED ABROAD. IN THESE CIRCUMSTANCES, A CO-ORDI NATE BENCH OF THE TRIBUNAL IN M/S. FARIDA SHOES P. LTD (SUPRA) HAS AL READY HELD THAT SUCH A DISALLOWANCE U/S.40(A)(I) CANT BE INVOKED. THE REVENUE PLEADS THAT IT HAS PREFERRED AN APPEAL BEFORE THE HONBLE JURISDICTIONAL HIGH COURT. IN OUR VIEW, WITHOUT THERE BEING ANY DISTIN CTION ON FACTS, THIS PLEA OF THE REVENUE DOES NOT FORM A VALID GROUND TO ADOPT A DIFFERENT APPROACH IN THE PRESENT CASE. THE CIT(A)S ORDER IS UPHELD. 6. THE REVENUE APPEAL IS DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 27TH OF AUGUST,2 014, AT CHENNAI SD/- SD/- ( . ) (A.MOHAN ALANKAMONY) / ACCOUNTANT MEMBER ( . . ! ) (S.S. GODARA) ' / JUDICIAL MEMBER !' /DATED:27.08.2014. K.V '# $%&% /COPY TO: 1. / APPELLANT 2. /RESPONDENT3. ( ( )/CIT(A)4. ( /CIT5. %)* + /DR 6. *,- /GF. ITA NO.8 19/MDS/2014. :- 8 -: