DCIT, CIR-11, KOLKATA, Kolkata V. M/s Bonie Apparels (P) Ltd., Kolkata

ITA 896/KOL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1634 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 19-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Services rendered outside India; Permanent establishment; Non-deduction of tax
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SHRI ABY. T. VARKEY, JM & SHRI M. BALAGANESH, AM ] I.T.A NO. 896/KOL/201 5 ASSESSMENT YEAR : 2011-1 2 DCIT, CIRCLE-11, KOLKATA -VS- M/S BONIE APPARELS (P) LTD. [PAN: AABCB 0778 N] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : NONE, SR. DR FOR THE RESPONDENT : SHRI S.M. SURANA, ADVOCA TE DATE OF HEARING : 23.08.2017 DATE OF PRONOUNCEMENT : 06.09.2017 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE REVENUE ARISES OUT OF THE ORD ER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-4, KOLKATA [IN SHORT THE LD CI TA] IN APPEAL NO.275 FOR 2014-15 DATED 29.04.2015 AGAINST THE ORDER PASSED BY THE J CIT, RANGE-11, KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 28.02.2014 FOR THE ASSESSMENT YEAR 2011-12. 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE IN THE SUM OF RS. 1,35,56,901/- ON ACCOUNT OF NON-DEDUCTION TAX AT SOURCE ON COMMISSION PAYMEN T MERE TO FOREIGN PARTIES IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2.1. BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE PAID COMMISSION TO THE FOLLOWING OVERSEAS PARTIES FOR PROCURING EXPORT SALES ORDERS: 2 ITA NO.896/KOL/2015 M/S BONIE APPARELS PVT. LTD. A.YR.2011-12 2 SL. NO. PARTY NAME AND COUNTRY EXPORT INVOICE[RS.] COMMISSION THEREON [RS.] 1 AL RASHIDY TRADING EST, JEDDAH, SAUDI ARABIA 15,49,68,664/- 1,23,97,570/- 2 DHARMESH BELANI, DUBAI, UAE 1,44,91,778/- 11,59,3 31/- TOTAL 1,35,56,901/- 2.2. THE LD. AO SHOW CAUSED THE ASSESSEE AS TO WHY THE SAID PAYMENT NOT BE DISALLOWED U/S 40(A)(I) FOR NON-DEDUCTION OF TAX AT SOURCE. IN RESPONSE, THE ASSESSEE RESPONDED THAT THE PAYMENT OF COMMISSION WAS MADE IN CONVERTIBLE F OREIGN EXCHANGE OUTSIDE INDIA TO PARTIES SITUATED OUTSIDE INDIA AND NO PART OF THE S ERVICES HAVE BEEN RENDERED IN INDIA AND THERE WAS NO PERMANENT ESTABLISHMENT OF THOSE FOREI GN AGENTS IN INDIA. ACCORDINGLY, IT WAS STATED THAT THE AMOUNT PAID TO THE SAID FOREIGN AGENTS IS NOT CHARGEABLE TO TAX IN INDIA IN TERMS OF SECTION 195(1) OF THE ACT AND HEN CE, THERE IS NO OBLIGATION CAST ON THE ASSESSEE TO DEDUCT TAX AT SOURCE ON THE SAID PAYMEN TS. THE LD. AO HOWEVER DID NOT HEED TO THE CONTENTIONS OF THE ASSESSEE AND DISALLO WED THE SAME U/S 40(A)(I) OF THE ACT FOR NON-DEDUCTION OF TAX AT SOURCE. 2.3. THE LD. CIT(A) OBSERVED THAT THE COMMISSION IS PAID TO FOREIGN AGENTS FOR MARKETING SERVICES RENDERED OUTSIDE INDIA BY PROCUR ING EXPORT ORDERS. HE STATED THAT THE ENTIRE EVENTS CULMINATING INTO THE EXPORT SALES WER E OUTSIDE THE TERRITORY OF INDIA. HE OBSERVED THAT THE SAID PAYMENT IS NOT CHARGEABLE TO TAX IN INDIA IN TERMS OF SECTION 195(1) OF THE ACT. HE PLACED RELIANCE ON THE DECISI ON OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. TOSHOKU LIMITED REPORTED IN 125 ITR 525 (SC). HE ALSO OBSERVED THAT NO SUCH DISALLOWANCE WAS MADE IN ASSESSEES OW N CASE IN THE EARLIER ASSESSMENT YEARS. BASED ON THIS OBSERVATION HE DELETED THE DIS ALLOWANCE. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS: 3 ITA NO.896/KOL/2015 M/S BONIE APPARELS PVT. LTD. A.YR.2011-12 3 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS PER LAW LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 1,35,56,9 01/- FOR NON-DEDUCTION OF TDS ON COMMISSION PAYMENT TO FOREIGN PARTIES WITHOUT TA KING INTO CONSIDERATION THAT THE ASSESSEE COULD NOT ESTABLISH THAT THE COMMISSIO NS WERE PAID DIRECTLY TO FOREIGN PARTIES AND NOT THROUGH PE IN INDIA. 2.4. NONE APPEARED ON BEHALF OF THE REVENUE. THE AD JOURNMENT PETITION PREFERRED BY THE REVENUE IS REJECTED AS THE ISSUES INVOLVED IN THE A PPEAL ARE COVERED. 2.5. WE HAVE HEARD THE LD. AR. WE FIND THAT THE ISS UE IS SQUARELY COVERED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F G.E. INDIA TECHNOLOGY CENTRE P. LTD. VS. CIT REPORTED IN (2010) 327 ITR 456 (SC) W HEREIN IT WAS HELD THAT THE PROVISIONS OF SECTION 195(1) OF THE ACT IN ORDER TO GET ATTRACTED , THE INCOME OF THE NON- RESIDENT SHOULD BE CHARGEABLE TO TAX IN INDIA SO AS TO WARRANT DEDUCTION OF TAX AT SOURCE BY THE DEDUCTOR. IN THE INSTANT CASE, THE ASSESSEE HAS PAID COMMISSION TO FOREIGN AGENTS FOR RENDERING SIMPLE MARKETING SERVICES OUTSIDE IND IA BY WAY OF PROCURING EXPORT ORDERS. THIS FACT IS NOT IN DISPUTE BEFORE US. HENC E WE HOLD THAT THE COMMISSION PAID THEREON IS NOT CHARGEABLE TO TAX IN INDIA BY ANY ME ANS IN THE HANDS OF THE NON-RESIDENT. ADMITTEDLY, IN THE INSTANT CASE, THE NON-RESIDENT A GENTS RENDERED SERVICES OUTSIDE INDIA. THE COMMISSION PAID TO NON-RESIDENT AGENTS WOULD ON LY BE TAXABLE AS BUSINESS INCOME IN THE HANDS OF NON-RESIDENT AND ADMITTEDLY THE NO N-RESIDENT AGENTS DO NOT HAVE PERMANENT ESTABLISHMENT IN INDIA AND HENCE THE SAME IS NOT CHARGEABLE TO TAX IN INDIA U/S 195(1) OF THE ACT SO AS TO WARRANT DEDUCTION OF TAX AT SOURCE. THE SERVICES RENDERED BY THE NON-RESIDENT AGENTS TO THE ASSESSEE ARE NOT UTILIZED IN INDIA. IN VIEW OF AFORESAID FINDINGS AND RESPECTFULLY FOLLOWING THE JUDICIAL PR ECEDENTS, WE HOLD THAT THE ASSESSEE PAYER IS NOT LIABLE FOR DEDUCTION OF TAX AT SOURCE FOR THE COMMISSION PAYMENTS MADE TO NON-RESIDENT AGENTS OUTSIDE INDIA FOR SERVICES REND ERED OUTSIDE INDIA. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. C IT(A) IN THIS REGARD. ACCORDINGLY, THE GROUND NO. 1 RAISED BY THE REVENUE IS DISMISSED. 4 ITA NO.896/KOL/2015 M/S BONIE APPARELS PVT. LTD. A.YR.2011-12 4 3. THE NEXT INTER-CONNECTED ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE M ADE U/S 40(A)(IA) OF THE ACT IN RESPECT OF CERTAIN EXPENSES IN THE FACTS AND CIRCUM STANCES OF THE CASE. 3.1. BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE PAID A SUM OF RS. 49,250/- TOWARDS AGENCY COMMISSION TO M/S P.N. CLEARING & FORWARDING AFTER DEDUCTING TAX AT SOURCE @ 2% U/S 194C OF THE ACT. THE LD. AO HOWEVER OBSERVED THAT THE SAID PAYMENT WOULD FALL UNDER THE AMBIT OF SECTION 194H OF THE ACT WARRANTI NG DEDUCTION OF TAX AT SOURCE @ 10%. ACCORDINGLY, HE DISALLOWED THE SAID AMOUNT OF 49,250/- U/S 40(A)(IA) OF THE ACT ON ACCOUNT OF SHORT DEDUCTION OF TAX AT SOURCE. THE ASSESSEE EXPLAINED THAT THE ASSESSEE HAS ENGAGED THE SERVICES OF THE AFORESAID PARTY WHO ACTED AS CLEARING & FORWARDING AGENT FOR THE ASSESSEE AND THE SAID SUM REPRESENTS SERVICE CHARGES PAYABLE TO THE SAID CLEARING AND FORWARDING AGENTS HENCE IT FALLS UNDER THE AMBIT OF SECTION 194C AND ACCORDINGLY THE ASSESSEE HAD DEDUCTED THE TAX RIGHT LY AT 2%. THIS SUBMISSION WAS APPRECIATED BY THE LD. CIT(A) AND HE DELETED THE DI SALLOWANCE MADE THEREON. 3.2. THE LD. AO OBSERVED THAT THE ASSESSEE HAS MAD E PAYMENTS TO CLEARING AND FORWARDING AGENTS AS UNDER: P.N. CLEARING & FORWARDING RS. 22,08,330/- OCL CONTAINER LINES (INDIA) LTD. RS. 1,66,269/- MGH LOGISTICS (P) LTD. RS. 4,10,146/- THE LD. AO OBSERVED THAT THESE PAYMENTS WERE MADE BY THE ASSESSEE WITHOUT DEDUCTION OF TAX AT SOURCE AND ACCORDINGLY, SOUGHT TO INVOKE THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE ASSESSEE SUBMITTED THAT C LEARING AND FORWARDING (C&F) AGENTS ARE APPOINTED FOR SHIPPING THE GOODS OF THE ASSESSE E AND THE ASSESSEE WOULD REIMBURSE THE EXPENSES INCURRED BY THEM FOR THE SHIPMENT OF C ONSIGNMENT WITH THE SERVICE CHARGES BUT NO TAX WAS DEDUCTED ON ACTUAL REIMBURSEMENT OF EXPENSES MADE TO THEM [I.E. WITHOUT ANY PROFIT ELEMENT EMBEDDED THEREON]. ACCOR DINGLY, IT IS STATED THAT IT IS NOT 5 ITA NO.896/KOL/2015 M/S BONIE APPARELS PVT. LTD. A.YR.2011-12 5 LIABLE FOR DEDUCTION OF TAX AT SOURCE ON THE AMOUNT REIMBURSED TO THE C & F AGENTS ON ACTUAL BASIS. THE ASSESSEE ALSO PRODUCED THE COPIE S OF BILLS OF P.N.CLEARING & FORWARDING (C & F) AGENTS WHO ACTED AS CLEARING, SH IPPING AND FORWARDING WAREHOUSING AND TRANSPORTING CONTRACTORS. THE LD. A O ALSO VERIFIED THE BILLS AND MENTIONED IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAD PRODUCED THE COPY OF THE BILLS GIVEN BY THE OTHER PARTY AS EVIDENCE FOR MAKING PAY MENT TOWARDS FREIGHT CHARGES FOR SHIPMENT OF GARMENTS. THIS CLEARLY PROVES THAT THER E IS NO PROFIT ELEMENT LOADED BY THE SAID C&F AGENT ON THE ASSESSEE WHILE RAISING THE BI LL. THE LD. AO HOWEVER DID NOT AGREE TO THE EXPLANATION GIVEN BY THE ASSESSEE AND OBSERVED THAT THESE C & F AGENTS ACTED AS INDEPENDENT CONTRACTORS TO THE ASSESSEE AN D HENCE, THE TOTAL PAYMENT MADE TO THEM WOULD FALL UNDER THE AMBIT OF DEDUCTION OF TAX AT SOURCE IN TERMS OF SECTION 194C OF THE ACT AND ACCORDINGLY, DISALLOWED THE SAME U/S 40(A)(IA) OF THE ACT. THE LD. CIT(A) APPRECIATED THE CONTENTION OF THE ASSESSEE T HAT THE SAID PAYMENT REPRESENTED ONLY ACTUAL REIMBURSEMENT. ACCORDINGLY, HE OBSERVED THAT THE ASSESSEE IS NOT LIABLE FOR DEDUCTION OF TAX AT SOURCE IN RESPECT OF REIMBURSEM ENT OF EXPENSES AND ACCORDINGLY DELETED THE DISALLOWANCE MADE IN THE SUMS OF RS. 22 ,08,330/-, RS. 1,66,269/-, AND RS. 4,10,146/-. 3.3. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US O N THE FOLLOWING GROUNDS: 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS PER LAW LD. CIT(A) DELETED THE DISALLOWANCE OF RS. 49,250/- U/S 40A(IA ) WITHOUT GIVING ANY CLEAR FINDINGS SINCE THE ASSESSEE VIOLATED THE PROVISION OF SECTION 194H TO DEDUCT TAX @ 10% INSTEAD OF 2% PAID BY THE ASSESSEE. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS PER LAW LD. CIT(A) DELETED THE ADDITION OF RS. 22,08,330/- , RS. 1,66, 269/- AND RS. 4,10,146/- U/S 40A(IA) WITHOUT TAKING INTO ACCOUNT THAT THE ASSESS EE HAD FAILED TO DISCHARGE THE LIABILITY BY NOT DEDUCTING TDS. 3.4. WE HAVE HEARD THE LD. AR IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS INDEED DEDUCTED OF TAX AT SOURCE @ 2% U/S 194C OF THE ACT IN RESPEC T OF AGENCY COMMISSION PAID TO C & 6 ITA NO.896/KOL/2015 M/S BONIE APPARELS PVT. LTD. A.YR.2011-12 6 F AGENTS IN THE SUM OF RS. 49,250/-. THE SHORT POIN T THAT ARISES FOR OUR CONSIDERATION IN THIS REGARD IS WHETHER THE SAID PAYMENT WOULD FALL UNDER THE AMBIT OF 194C OR 194H WARRANTING DEDUCTION OF TAX AT THE HIGHER PERCENTAG E OF 10%. WE FIND THAT NOMENCLATURE USED BY THE ASSESSEE AS AGENCY COMMISSION HAD CREA TED CONFUSION IN THE ENTIRE GAMUT OF TRANSACTION CARRIED OUT BY THE ASSESSEE. ACTUAL LY THIS SUM OF RS. 49,250/- REPRESENTS THE SERVICE CHARGES PAID TO THE C & F AGENTS FOR RE NDERING C & F SERVICES TO THE ASSESSEE FOR SHIPMENT OF GOODS. THIS WOULD CLEARLY FALL ONLY UNDER THE AMBIT OF SECTION 194C OF THE ACT AND ACCORDINGLY, WE HOLD THAT THE ASSESSEE HAS RIGHTLY DEDUCTED TAX @ 2% THEREON. IN ANY CASE, WE FIND THAT THE DISALLOWANCE U/S 40A(IA) OF THE ACT CANNOT BE INVOKED FOR SHORT DEDUCTION OF TAX AT SOURCE AS HEL D BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. S.K. TIBREWAL IN I.T.A .T. NO. 183 OF 2012 G.A. NO. 2069 OF 2012 DATED 03.12.2012. ACCORDINGLY, WE FIND THAT THE LD. CIT(A) HAD RIGHTLY DELETED THE DISALLOWANCE MADE IN THE SUM OF RS. 49,250/- U/ S 40A(IA) OF THE ACT. 3.5. WITH REGARD TO APPLICABILITY OF TDS PROVISIONS ON REIMBURSEMENT OF EXPENSES MADE BY THE ASSESSEE TO C & F AGENTS, WE FIND THAT THE LD. AO AS WELL AS LD. CIT(A) HAD DULY PERUSED THE BILLS AND FROM THE PERUSAL OF THE SAME, THEY HAD GIVEN A FINDING THAT THERE IS NO PROFIT ELEMENT EMBEDDED IN THE SAID CLA IM OF REIMBURSEMENT MADE BY THE C & F AGENTS AS IT IS EVIDENT FROM THE FREIGHT CERTIF ICATE AND OTHER DOCUMENTS SUBMITTED BY THE OTHER PARTIES WHO HAD RENDERED SERVICES TO C & F AGENTS. IN OTHER WORDS, C & F AGENTS HAD MERELY SOUGHT REIMBURSEMENT OF EXPENSES FORM THE ASSESSEE FOR HAVING INCURRED EXPENDITURE FOR AND ON BEHALF OF THE ASSES SEE FOR SHIPMENT OF GOODS BELONGING TO THE ASSESSEE WITHOUT ANY PROFIT ELEMENT THEREON. THIS IN OUR CONSIDERED OPINION WOULD NOT WARRANT DEDUCTION OF TAX AT SOURCE. ACCOR DINGLY, WE HOLD THAT THE LD. CIT(A) HAD RIGHTLY DELETED THE DISALLOWANCE MADE FOR THE S UMS OF RS. 22,08,330/-, RS. 1,66,269/-, RS. 1,10,146/-. ACCORDINGLY, GROUND NOS . 2 AND 3 RAISED BY THE REVENUE ARE DISMISSED. 7 ITA NO.896/KOL/2015 M/S BONIE APPARELS PVT. LTD. A.YR.2011-12 7 4. GROUND NO. 4 RAISED BY THE REVENUE IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 06.09.2017 SD/- SD/- [A.T. VARKEY] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 06.09.2017 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. DY. COMMISSIONER OF INCOME TAX: CIRCLE-11(1), KO LKATA, P-7, CHOWRINGHEE SQUARE, KOLKATA-700069. 2. M/S BONIE APPARELS (P) LTD. 54, ELLIOT ROAD, KOL KATA-700016 3..C.I.T.(A)-4, KOLKATA 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S