ACIT, TDS, Jabalpur V. M/S. Prism Cement Unit, SATNA

ITA 85/JAB/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5615 (ITAT-JABALPUR)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 28-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K K UPADHYAY
• Section: 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, JABALPUR BENCH, JABALPUR BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER ITA NOS.85, 86, 87 & 88/JAB/2012 ASSESSMENT YEARS: 2007-08, 2008-09, 2009-10 & 2010 -11 ASSTT. COMMISSIONER OF INCOME TAX, VS. M/S. PRISM C EMENT UNIT VILLAGE TDS, JABALPUR. MANKAHARI, P.O. BATHIA, RAMPUR, DISTT. SATNA. (PAN JBPPO 0852 F). (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.K. UPADHYAY, D.R. REVENUE BY : SHRI SUMIT NEMA, DATE OF HEARING : 26.03.2014 DATE OF PRONOUNCEMENT : 28.03.2014 ORDER PER T.S. KAPOOR, ACCOUNTANT MEMBER: THESE ARE 4 APPEALS RELATING TO ASSESSMENT YEARS 20 07-08 TO 2010-11 FILED BY THE REVENUE AGAINST COMMON ORDER OF LD. CIT(A) D ATED 19.12.2011. 2. THE ISSUE INVOLVED IN THESE APPEALS IS SIMILAR A ND WHICH IS THAT THE REVENUE IS AGGRIEVED WITH THE DELETION OF DEMAND WHICH WAS CREATED VIDE ORDER UNDER 2 ITA NOS.85, 86, 87 & 88/JAB/2012 A.YS. 2007-08 TO 2010-11 SECTION 201(1) AND 201(1A) OF THE INCOME TAX ACT, 1 961 FOR NON-DEDUCTION OF TDS UNDER SECTION 195 OF THE ACT. THE ASSESSING OF FICER HELD THAT THE ASSESSEE HAD MADE PAYMENTS TO NON-RESIDENTS AND AS PER SECTI ON 195 OF THE ACT, IT WAS LIABLE TO DEDUCT TDS ON SUCH PAYMENTS WHICH HE OBSERVED TH AT THE ASSESSEE HAD NOT DEDUCTED AND, THEREFORE, ORDER WAS PASSED UNDER SEC TION 201(1) AND 201(1A). AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) AFTER REPRODUCING THE SUBMISSIONS FILED BY THE ASSESSEE A RRIVED AT THE CONCLUSION THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TDS AND, THEREFOR E, HE DELETED THE ADDITIONS. THE LD. CIT(A) HAD DEALT THE ISSUE AS UNDER:- THE APPELLANT IN ITS WRITTEN REPLY STATED THAT CHA RTS WERE ENCLOSED SHOWING DETAILS OF FOREIGN PAYMENTS MADE I N THE ASSESSMENT YEARS UNDER APPEAL ALONG WITH SUBMISSIONS FOR EACH YEAR. THE COUNSEL FURTHER CONTENDED THAT THE AGREEMENT WOULD SHOW ALL PAYMENTS RELATES TOPURCHASES IN THE FORM OF IMPORTS AND THERE IS NO ELEMENT OF WORKS CONTRACT OR COMPOSITE CONTRACT FOR WORK. THE CLAUSE IN RESPECT OF IMPORT DUTIES, INSURANCE, PAYMENTS IN ADVANCE, DELIVERY ALL SHOW THAT THE SALE STOOD CONCLUDED OUTSIDE INDI A. FURTHER, THE ASSESSEE IN RESPECT OF PAYMENT FOR IMP ORT OF GOODS (TRADING OPERATION) HAS REPRODUCED THE CONTENTS OF CIRCULAR 23 DATED 23.07.69 AS UNDER: 4.2 'IN A VERY CLASSIC MANNER DESCRIBED THE TRANSAC TIONS, WHICH WOULD RESULT INTO 'INCOME TO ACCURE OR DEEMED TO ACCURE' IN INDIA. IT HAS ELABORATED THE MEANING OF THE TERM 'BUSINESS CONNEC TION' IN DEPTH. IT HAS STATED THAT IN THE CASE OF PAYMENT MADE TO ANY NON-RESIDENT EXPORTER SELLING GOODS TO INDIAN IMPORTER, NO LIABI LITY WILL ARISE ON ACCRUAL BASIS TO THE NON-RESIDENT ON THE PROFITS MA DE BY HIM WHERE THE TRANSACTIONS OF SALE BETWEEN THE TWO PARTIES ARE ON A PRINCIPAL-TO- 3 ITA NOS.85, 86, 87 & 88/JAB/2012 A.YS. 2007-08 TO 2010-11 PRINCIPAL BASIS.' THUS, IT IS CONTENTED THAT THERE WILL BE NO LIABILITY OF TDS. 3 THE AO IN HIS REMAND REPORT STATED THAT THE AS SESSEE CLAIMS THAT AGREEMENT WOULD SHOW THAT ALL PAYMENTS RELATE TO PU RCHASES IN FORM OF IMPORTS AND THERE IS NO ELEMENT OF WORK CONTRACT OR COMPOSITE CONTRACT FOR WORK AND ALSO CLAIMS THAT THERE IS NO LIABILITY FOR TDS IN VIEW OF CIRCULAR NO.23 DATED 23.07.1969. 4.4 THE EVIDENCES PRODUCED BEFORE THE LD. CIT (A ) ARE NOT COMPLETE. THE DETAILED COPIES OF AGREEMENT AVAILABL E ON RECORD CLEARLY BRINGS OUT THAT THE CONTRACTS MADE BETWE EN THE ASSESSEE AND SAID FOREIGN COMPANIES ARE WORK CONTRACT WITH NON-RESIDENT. 4.5 THE COMPANY ENTERED INTO CONTRACT AGREEMENT WIT H VARIOUS FOREIGN COMPANIES FOR NOT ONLY JUST PURCHASE OF THE EQUIPMENTS BUT ALSO FOR THE ASSEMBLY, ERECTION & TESTING'S, & COMM ISSIONING OF THE AFORESAID EQUIPMENTS, THIS IS QUITE OBVIOUS FROM TH E DETAILED STUDY OF CONTRACT AGREEMENT PLACED ON RECORD. THE ISSUE HAS BEEN DISCUSSED IN DETAIL IN THE ORDER OF ACIT (TDS), JABALPUR. 4.6 IT IS ALSO WORTHWHILE TO MENTION HERE THAT ACIT (TDS) HAS CREATED TDS LIABILITIES ONLY ON THOSE FOREIGN COMPANIES WHI CH HAVE AGREEMENT /CONTRACTS WHEREIN SOME ELEMENTS OF COMPO SITE CONTRACT/ WORK CONTRACT EXITS, RATHER THAN CREATING LIABILITY ON ALL THE PAYMENTS MADE ALL FOREIGN COMPANIES IN ALL RELEVANT ASSESSME NT YEARS. 4.7 ONE SET OF PHOTOCOPIES OF THE DETAILED CONT RACT BETWEEN THE ASSESSEE (M/S PRISM CEMENT LTD.) & M/S KOPPERN AUFBEREITUNGSTECHNIK MBH & CO. KG, GERMANY WAS ENCL OSED PERUSAL [THIS DETAILED CONTRACT NOT SUBMITTED BEFORE THE ID . CIT(A) BY THE ASSESSEE]. IN VIEW OF SE FACTS, THE ACIT (TDS) SU BMITTED THAT THE APPEAL OF THE APPELLANT BE EJECTED. 4.8 THE COUNSEL IN THE REJOINDER TO THE REMAND REPO RT FILED BY THE AO CONTENDED THAT THE AO HAD RELIED ON AGREEMENTS WHIC H RELATE TO UNIT NO.2 OF THE APPELLANT WHICH IS FILING SEPARATE TDS RETURN AND HAS A SEPARATE TAN NUMBER. THE ASSESSMENT OF RETURN FILED BY UNIT NO. 2 WAS PENDING BEFORE THE AO AND THE SAID AGREEMENTS R ELIEDUPON BY THE 4 ITA NOS.85, 86, 87 & 88/JAB/2012 A.YS. 2007-08 TO 2010-11 AO WERE NOT RELEVANT FOR THE PURPOSE OF THE PRESENT APPEALS. IT IS FURTHER STATED THAT THE AGREEMENT ENCLOSED WITH THE WRITTEN SUBMISSION WERE FOR UNIT NO.L WHICH WAS CLEARLY IN NATURE OF P URCHASES. 4.9 THE AO IN REPLY TO THE APPELLANT'S REJOINDER ST ATED THAT THE COMMENTS WERE SUBMITTED ON THE BASIS OF DOCUMENTS A VAILABLE ON RECORD AND AGAIN GOING THROUGH THE RECORDS, IT IS F OUND THAT THE AGREEMENT RELATED TO UNIT NO. 2. DECISION (GROUND NO. 5 TO 8 AND 10) (A.YRS. 07-08 TO 10-11): I HAVE GONE THROUGH THE SUBMISSIONS OF THE COUNSEL AND THE MATERIAL ON RECORD CAREFULLY. AGREEMENTS RELATING TO MARINE POW ER INTERNATIONAL, M/S F.L SMITH , KOPPERN GERMANY ETC. HAVE BEEN SUBM ITTED BEFORE ME. THESE AGREEMENTS ALONG WITH THEIR ANNEXURES DET AIL THE PRICE SCHEDULE, DELIVERY SCHEDULE AND IMPORTANT COMMERCIA L TERMS AND CONDITIONS ARE CLEARLY PURCHASE CONTRACTS. APART FR OM THE ANNEXURES THE IMPORTANT COMMERCIAL TERMS AND CONDITIONS CLAUS ES MENTION THE EFFECTIVE DATE OF ORDER (CLAUSE-1), DELIVERY (CLAUS E-2), PRICE (CLAUSE-3), TERMS OF PAYMENT AUSE-4), DUTIES AND CHARGES (CLAUS E-5), INSURANCE (CLAUSE-7), PACKING AUSE-8), DISPATCH INSTRUCTION ( CLAUSE-9), INSPECTION (CLAUSE-10), APPROVAL (CLAUSE-11) AND RE JECTION (CLAUSE- 12). THEY DO NOT HAVE ANY ELEMENT OF WORK CONTRACT I.E. OF ASSEMBLING, ERECTING, TESTING AND COMMISSIONING. THOUGH THE AO HAS MENTIONED IN THE REMAND REPORT THAT THE CONTRACT OF KOPPERN GERM ANY WAS NOT SUBMITTED, THE SAME HAS BEEN ENCLOSED IN THE WRITTE N SUBMISSION MADE BY THE COUNSEL. THIS CONTRACT IS A PURCHASE CONTRAC T OF UNIT-1. THE CONTRACTS ON THE BASIS OF WHICH THE AO MADE THE ADD ITIONS BY TREATING THE APPELLANT COMPANY IN DEFAULT ARE OF UNIT-11. TH E SAID CONTRACT OF M/S KOPPERN GERMANY IS A SUPPLY AND PURCHASE CONTRA CT WHICH IS A COMPOSITE CONTRACT OF UNIT II HAS BEEN ENCLOSED BY THE AO IN HIS REMAND REPORT. THIS, HE HAS ACKNOWLEDGED TO BE OF U NIT-11 IN HIS COUNTER COMMENTS TO THE REJOINDER DATED 19-12-2011. THE ADDITIONS MADE BY THE ACIT (TDS) ARE ON A WRONG PREMISE I.E. ON THE COMPOSITE CONTRACTS OF UNIT II. ALSO THE SECTION APPLIED I.E. 195 (6) IS OPERATIVE ONLY FROM 01-04-08 AND HENCE WOULD NOT BE APPLICABL E FOR A. YR. 06- 07 AND 07-08. IN VIEW OF THE ABOVE, THE ACTION OF T HE AO IN TREATING THE APPELLANT AS AN ASSESSEE IN DEFAULT BY APPLYING PROVISIONS OF SECTION 195 IS ERRONEOUS. THE ADDITION MADE @ 42.28 % OF RS.2,86,34,848/- A.Y. (07-08), RS.6.69.44.840/- FOR A.Y. 08-09, 5 ITA NOS.85, 86, 87 & 88/JAB/2012 A.YS. 2007-08 TO 2010-11 RS.9,17,88,237/- FOR 09-10, RS.7,90,75,229/- FOR 10 -11 ARE HEREBY DELETED. 3. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 4. AT THE OUTSET, THE LD. DEPARTMENTAL REPRESENTATI VE INVITED OUR ATTENTION TO PARAGRAPH 14 OF THE ASSESSMENT ORDER AND INVITED OU R ATTENTION TO THE PROVISIONS OF SECTION 195(1) OF THE ACT AND SUBMITTED THAT AS PER SECTION 195(2) THE ASSESSEE COULD HAVE MADE APPLICATION TO THE ASSESSING OFFICE R TO DETERMINE THE APPROPRIATE PORTION OF SUCH SUM WHICH WERE CHARGEABLE TO TAX IN INDIA AND THEN THE ASSESSEE SHOULD HAVE DEDUCTED TAX THEREFROM AND IN THE ABSEN CE OF ANY SUCH APPLICATION BY THE ASSESSEE IT IS PRESUMED THAT WHOLE OF THE CONTR ACT WAS A COMPOSITE CONTRACT AND THE ASSESSEE WAS LIABLE TO DEDUCT TDS. 5. LD. AUTHORISED REPRESENTATIVE, ON THE OTHER HAND , SUBMITTED THAT THERE WERE TWO UNITS OF THE ASSESSEE. UNIT-2 WAS UNDER CONSTR UCTION. THE CONTRACTS WERE FOR IMPORT OF ITEMS AND NO WORK CONTRACT WAS THERE IN T HE PURCHASE ORDER. HE SUBMITTED THAT THE ASSESSING OFFICER HAD RELIED UPO N THE WORK CONTRACT RELATING TO UNIT NO.2 AND IN THIS RESPECT HE INVITED OUR ATTENT ION TO PAPER BOOK PAGE NO.153 ONWARDS WHEREIN COPY OF REMAND REPORT WAS PLACED. INVITING OUR SPECIFIC ATTENTION TO PAPER BOOK PAGE NO.156 THE LD. AUTHORISED REPRES ENTATIVE INVITED OUR ATTENTION 6 ITA NOS.85, 86, 87 & 88/JAB/2012 A.YS. 2007-08 TO 2010-11 TO THE AGREEMENT FOR SUPPLY OF ITEMS FOR UNIT NO.2 WHICH WAS MENTIONED ON THE AGREEMENT ITSELF. FURTHER, HE INVITED OUR ATTENTIO N TO PAPER BOOK PAGE NO.160 WHEREIN IN THE SAME AGREEMENT SITE OF THE UNIT WAS MENTIONED AND WHEREIN ALSO THE FACT OF IT BEING UNIT NO.2 WAS MENTIONED. HE ALSO TOOK US TO PAPER BOOK PAGE NO.6, 7 & 8 TO HIGHLIGHT THAT THE CONTRACT WORKS FO R SUPPLY OF MACHINERY WHEREIN PRICE SCHEDULE, DELIVERY SCHEDULE AND IMPORTANT TER MS AND CONDITIONS WERE ALSO MENTIONED. THEREFORE, FROM THE ABOVE, HE ARGUED TH AT THESE WERE FOR IMPORTS AND THE A.O. IN FACT HAS ADMITTED THIS DURING REMAND PR OCEEDINGS. 6. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHE R HAND, HEAVILY RELIED ON THE PROVISIONS OF SECTION 195(1) AND ARGUED THAT IN CASE OF PAYMENTS TO NON- RESIDENTS, TAX HAS TO BE DEDUCTED AS PER PROVISIONS . 7. WE HAVE HEARD THE RIVAL PARTIES AND GONE THROUGH THE MATERIAL PLACED ON RECORD. THE PROVISIONS OF SECTION 195(1) AND 195(2 )READ AS UNDER :- 195(1) ANY PERSON RESPONSIBLE FOR PAYING TO A NON- RESIDENT, NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY INTER EST (NOT BEING INTEREST REFERRED TO IN SECTION 194LB OR SECTION 19 4LC (OR SECTION 194LD) OR ANY OTHER SUM CHARGEABLE UNDER THE PROVIS IONS OF THIS ACT (NOT BEING INCOME CHARGEABLE UNDER THE HEAD SALARI ES SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHE QUE OR DRAFT OR BY 7 ITA NOS.85, 86, 87 & 88/JAB/2012 A.YS. 2007-08 TO 2010-11 ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME -TAX THEREON AT THE RATES IN FORCE. 195(2) WHERE THE PERSON RESPONSIBLE FOR PAYING ANY SUCH SUM CHARGEABLE UNDER THIS ACT (OTHER THAN SALARY) TO A NON-RESIDENT CONSIDERS THAT THE WHOLE OF SUCH SUM WOULD NOT BE I NCOME CHARGEABLE IN THE CASE OF THE RECIPIENT, HE MAY MAKE AN APPLIC ATION TO THE ASSESSING OFFICER TO DETERMINE, (BY GENERAL OR SPEC IAL ORDER), THE APPROPRIATE PROPORTION OF SUCH SUM SO CHARGEABLE, A ND SUPON SUCH DETERMINATION, TAX SHALL BE DEDUCTED UNDER SUB-SECT ION (1)ONLY ON THAT PROPORTION OF THE SUM WHICH IS SO CHARGEABLE. 8. FROM THE COMBINED READING OF THESE TWO SECTIONS WE CAN ANALYZE THAT TAX NEEDS TO BE DEDUCTED ON PAYMENTS TO NON-RESIDENT ON LY IF THE PAYMENT MADE TO SUCH NON-RESIDENT IS CHARGEABLE UNDER THE PROVISION S OF THIS ACT AND IF ON THE CONTRARY THE PAYMENT SO MADE ARE NOT CHARGEABLE TO TAX IN INDIA, NO TAX NEEDS TO BE DEDUCTED. THIS POSITION OF LAW HAS BEEN FURTHER FO RTIFIED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GE INDIA TECHN OLOGY CENTRE P. LIMITED VS. CIT, 327 ITR 456 (SC) WHEREIN THE HONBLE SUPREME C OURT HAS HELD AS UNDER :- THE EXPRESSION CHARGEABLE UNDER THE PROVISIONS OF THE ACT IN SECTION 195(1) SHOWS THAT THE REMITTANCE HAS GOT TO BE OF A TRADING RECEIPT, THE WHOLE OR PART OF WHICH IS LIABLE TO TA X IN INDIA. IF TAX IS NOT SO ASSESSABLE, THERE IS NO QUESTION OF TAX AT S OURCE BEING DEDUCTED 9. FROM THE FACTS AND CIRCUMSTANCES OF THESE APPEAL S, WE FIND THAT THE PAYMENTS WERE MADE FOR IMPORT OF GOODS AND SUCH PAYMENTS ARE NOT LIABLE TO BE TAXED IN 8 ITA NOS.85, 86, 87 & 88/JAB/2012 A.YS. 2007-08 TO 2010-11 INDIA. THEREFORE, PROVISIONS OF SECTION 195 WERE NO T APPLICABLE. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A). 10. IN THE RESULT, APPEALS FILED BY THE REVENUE ARE DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 28.03.2014) SD/- SD/- (BHAVNESH SAINI) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 28 TH MARCH, 2014 PBN/* COPY OF THE ORDER FORWARDED TO :- 1) APPELLANT 2) RESPONDENT 3) CIT (APPEALS) CONCERNED 4) CIT CONCERNED 5) D.R., ITAT, JABALPUR BENCH, JABALPUR 6) GUARD FILE. BY ORDER, SR. PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL, CAMP AT JABALPUR