KHIMJI VISRAM & SONS ( COMMISSION DEPT), MUMBAI V. ADDL CIT RG 12(3), MUMBAI

ITA 9054/MUM/2010

• Counselvise Citation: 905419914 RSA 2010
• Duration Of Justice: 3 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 06-08-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 27-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANVENDRA GOYAL
• Assessee Lawyers: VIJAY MEHTA
• Keywords: Rectification of order; Opportunity of being heard; Services rendered outside India; Retrospective amendment
• Section: 154; 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND VIVEK VARMA, (JM) . . , , ./I.T.A. NO.9054/MUM/2010 ( / ASSESSMENT YEAR : 2007-08) KHIMJI VISRAM AND SONS (COMMISSION DEPT), 21, MITTAL CHAMBERS, 228, NARIMAN POINT, MUMBAI-400021. / VS. ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 12(3), AAYAKAR BHAVAN,QUEENS ROAD, MUMBAI-400004 ( / APPELLANT) .. ( / RESPONDENT) ./I.T.A. NO.7458/MUM/2011 ( / ASSESSMENT YEAR : 2007-08) KHIMJI VISRAM AND SONS (COMMISSION DEPT), 21, MITTAL CHAMBERS, 228, NARIMAN POINT, MUMBAI-400021. / VS. ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 12(3), AAYAKAR BHAVAN, QUEENS ROAD, MUMBAI-400004 ( / APPELLANT) .. ( / RESPONDENT) ./ ! ./PAN/GIR NO. :AAAFK4773G ' / APPELLANT BY SHRI VIJAY MEHTA # ' /RESPONDENT BY SHRI MANVENDRA GOYAL $ % # &' / DATE OF HEARING : 6.8.2014 () # &' /DATE OF PRONOUNCEMENT :8.10.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: BOTH T HE APPEALS HAVE BEEN FILED BY THE ASSESSEE CHALLENG ING THE ORDERS PASSED BY THE LD. CIT(A) AND BOTH RELATE TO THE ASS ESSMENT YEAR 2007-08. WHILE APPEAL NUMBERED AS ITA NO.9054/MUM/2010 RELATES TO THE ORDER PASSED BY LD. CIT(A) AGAINST THE ASSESSMENT ORDER PASSED BY THE A O UNDER SECTION 143(3) OF I.T.A. NO.9054/MUM/2010 I.T.A. NO.7458/MUM/2011 2 THE INCOME TAX ACT, 1961 (THE ACT), THE OTHER APPEA L RELATES TO THE ORDER PASSED BY THE LD. CIT(A) AGAINST THE RECTIFICATION ORDER PASSED UNDER SECTION 154 OF THE ACT. 2. WE SHALL FIRST TAKE UP THE APPEAL FILED BY THE A SSESSEE IN ITA NO.9054/MUM/2010. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF THE LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF COMMISSION AMOUNT OF RS.85,80,661/- PAID TO FOREIGN AGENTS WITHOUT DEDUCTION OF TAX AT SOURCE. 3. THE FACTS RELATING TO THE SAME ARE STATED IN BRI EF. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASS ESSEE HAS PAID COMMISSION OF RS.85,80,661/- TO THE FOREIGN PARTIES AGAINST EX PORT OF COTTON AND CLAIMED THE SAME AS EXPENDITURE. IT IS TO BE NOTED THAT THE AS SESSEE IS A TRADER AS WELL AS A COMMISSION AGENT IN RESPECT OF COTTON, COTTON YARN ETC. THE AO NOTICED THAT THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE FROM THE ABOV E SAID COMMISSION PAYMENTS. WHEN QUESTIONED ABOUT THE SAME, THE ASS ESSEE SUBMITTED THAT THE COMMISSION WAS PAID TO NON-RESIDENT FOREIGN AGENTS FOR SERVICES RENDERED OUTSIDE INDIA AND SINCE IT IS NOT TAXABLE IN THE HA NDS OF THE RECIPIENTS AS PER THE DTTA ENTERED BY INDIA WITH UK AND TURKEY, TAX WAS N OT REQUIRED TO BE DEDUCTED AT SOURCE. THE AO, HOWEVER, TOOK THE VIEW THAT TH E IMPUGNED COMMISSION WAS PAID TO THE FOREIGN AGENTS IN CONNECTION WITH THE S ERVICES RENDERED FOR POPULARIZING THE BRAND OF THE ASSESSEE, CONTACTING MORE CLIENTS ON BEHALF OF THE ASSESSEE AND FOR GIVING THE INFORMATION IN RESPECT OF PROSPECTIVE CUSTOMERS TO THE ASSESSEE. ACCORDINGLY, THE AO TOOK THE VIEW T HAT THE ABOVE SAID SERVICES RENDERED BY THE FOREIGN COMMISSION AGENTS WOULD CLE ARLY FALL UNDER THE CATEGORY OF MANAGERIAL SERVICES INCLUDED IN THE DEFINITION OF FEE FOR TECHNICAL SERVICES AS DEFINED IN SECTION 9(1)(VII) OF THE ACT. ACCORD INGLY, THE AO HELD THAT COMMISSION RECEIVED BY THE FOREIGN AGENTS IS CHARGE ABLE TO TAX IN INDIA U/S 9(1)(VII) OF THE ACT. ACCORDINGLY BY PLACING RELIA NCE ON THE DECISION RENDERED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V/S SAMSUNG ELECTRONICS (320 ITR 209), THE AO HELD THAT THE ABOVE SAID COMM ISSION PAYMENT IS LIABLE TO BE DISALLOWED UNDER SECTION 40(A)(I) OF THE ACT FOR NON DEDUCTION OF TAX AT SOURCE. ACCORDINGLY, THE AO DISALLOWED THE COMMISS ION EXPENDITURE OF RS.85,80,661/-. I.T.A. NO.9054/MUM/2010 I.T.A. NO.7458/MUM/2011 3 4. IN THE APPEAL FILED BY THE ASSESSEE, THE LD. CIT (A) TOOK THE VIEW THAT THE FOREIGN AGENTS ARE PROVIDING COMPOSITE SERVICES COM PRISING OF COMMISSION AGENCY AND SERVICES FOR PROMOTING SALES OF THE ASSE SSEE IN FOREIGN COUNTRIES, ALTHOUGH NOMENCLATURE USED BY THE ASSESSEE WAS COM MISSION. HE FURTHER HELD THAT THE PAYMENTS MADE BY ASSESSEE TO FOREIGN PARTI ES ARE TAXABLE IN INDIA. ACCORDINGLY, HE UPHELD THE DISALLOWANCE MADE U/S 40 (A)(I) OF THE ACT AND HENCE DISMISSED THE APPEAL FILED BY THE ASSESSEE. AGGRIE VED, THE ASSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE RECORD. WE FIND THAT BOTH THE TAXING AUTHORITIES HAVE TAKEN A VIEW THAT SERVICES RENDERED BY FOREIGN COMMISSION AGENT WOULD CLEARLY FALL IN THE CATEGORY OF FEE FOR TECHNICAL SERVICES DEFINED U/S 9(1)(VII) OF THE ACT. IN THIS REGARD, THE LD.AR SUBMITTED THAT THE QUESTION WHETHER THE PAYMENT OF COMMISSION MADE FOR SECURING ORDERS WOULD FALL IN THE CATEGORY OF FEE FOR TECHNICAL SE RVICES WAS EXAMINED BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V/S FAIZAN SHOES PVT LTD IN TC (A) 789 OF 2013 AND THE HONBLE HIGH COURT, VIDE IT S ORDER DATED 22.7.2014 HAS HELD THE SERVICES RENDERED BY THE NON-RESIDENT AGENT CAN AT BEST BE CALLED AS A SERVICE FOR COMPLETION OF THE EXPORT COMMITMENT AND WOULD NOT FALL WITHIN THE DEFINITION OF FEES FOR TECHNICAL SERVICES. ACCORDINGLY, THE HONBLE MADRAS HIGH COURT HELD THAT SECTION 9 OF THE ACT IS NOT APPLICABLE TO THE CASE AND CONSEQUENTLY, SECTION 195 OF THE ACT DOES NOT COME INTO PLAY. THE LD. AR ALSO PLACED RELIANCE ON THE DECISION RENDERED BY DELHI B ENCH OF THE TRIBUNAL IN THE CASE OF DY. CIT V .ANGELIQUE INTERNATIONAL LTD. (2 013) 55 SOT 226 (DELHI) (TRIB.), WHEREIN THE TRIBUNAL HAD CONSIDERED THE EXPRESSION MANAGERIAL, TECHNICAL AND CONSULTANCY SERVICES USED IN SECTION 9(1)(VII) OF THE ACT. THE DELHI TRIBUNAL HELD THAT PROCUREMENT SERVICES WILL NOT FALL IN ANY OF T HE ABOVE SAID THREE CATEGORIES. THE LD A.R SUBMITTED THAT THE IMPUGNED COMMISSION P AYMENTS WERE MADE FOR SECURING SALES ORDERS ONLY AND THE TAX AUTHORITIES HAVE PRESUMED THAT THE FOREIGN AGENTS WERE RENDERING SOME OTHER KIND OF SERVICES A LSO. HE SUBMITTED THAT THEY HAVE DRAWN THIS KIND OF INFERENCE ON SURMISES AND C ONJECTURES ONLY. WE FIND FORCE IN THE SAID CONTENTIONS OF THE LD. AR. WE NO TICE THAT THE ASSESSING OFFICER OR LD CIT(A) HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SUBSTANTIATE THEIR VIEWS I.T.A. NO.9054/MUM/2010 I.T.A. NO.7458/MUM/2011 4 THAT SOME OTHER KIND OF SERVICES WERE ALSO RENDERED BY THE FOREIGN AGENTS. HENCE, WE HAVE TO AGREE WITH THE SUBMISSION OF THE ASSESSEE THAT THE COMMISSION AMOUNTS WERE PAID FOR PROCURING SALES OR DERS. HENCE, BY FOLLOWING THE DECISION RENDERED BY THE HONBLE MADRAS HIGH CO URT (REFERRED SUPRA) AND ALSO THE DECISION RENDERED BY THE DELHI BENCH OF TR IBUNAL (SUPRA), WE HOLD THAT THE PAYMENT MADE FOR TECHNICAL SERVICES WILL NOT F ALL IN THE CATEGORY OF FEE FOR TECHNICAL SERVICES AS DEFINED U/S 9(1)(VII) OF THE ACT. 6. WITHOUT PREJUDICE TO THE ABOVE, T HE LD A.R MADE AN ALTERNATIVE CONTENTION IN RESPECT OF THIS ISSUE. HE HAS SUBMITTED THAT TH E LD CIT(A) HAS STATED THAT THERE IS NO REQUIREMENT OF HAVING A PERMANENT ESTAB LISHMENT IN INDIA FOR TAXING THE INCOME FALLING UNDER THE CATEGORY OF FEE FOR T ECHNICAL SERVICES AFTER THE INSERTION OF EXPLANATION BELOW SEC. 9(2) OF THE ACT . HE SUBMITTED THAT THE ABOVE SAID EXPLANATION WAS FIRST INSERTED BY FINANCE ACT, 2007 W.R.E. FROM 1.6.1976 AND LATER AMENDED BY FINANCE ACT, 2010. HE SUBMITTED T HAT, BY THE TIME THE AMENDMENT WAS BROUGHT INTO THE ACT, THE ASSESSEE HA D ALREADY PAID THE COMMISSION AMOUNT TO THE FOREIGN AGENTS. ACCORDING LY HE SUBMITTED THAT THE DISALLOWANCE CANNOT BE MADE U/S 40(A)(IA) OF THE AC T IN RESPECT OF A PAST ACTION ON THE BASIS OF SUBSEQUENT AMENDMENT BROUGHT INTO T HE ACT WITH RETROSPECTIVE EFFECT. FOR THIS PROPOSITION, HE PLACED RELIANCE O N THE FOLLOWING DECISIONS:- (A) M/S KERALA VISION LTD VS. ACIT (ITA NO.794/COC H/2013 DT. 06.06.2014) (B) INFOTECH ENTERPRISES LTD VS. ACIT (ITA NO.115 & 2184/HYD/2011) (C) CHANNEL GUIDE INDIA LTD VS. ACIT (139 ITD 49)( MUM) WE NOTICE, FROM THE ABOVE SAID DECISIONS CITED ABOV E, THE CO-ORDINATE BENCHES OF TRIBUNAL HAVE TAKEN THE VIEW AS CANVASSED BY LD A.R . IN THE INSTANT CASE, THE CLAIM OF LD A.R IS THAT THE ASSESSEE HAS PAID THE C OMMISSION AMOUNTS PRIOR TO THE DATE OF INSERTION OF THE EXPLANATION U/S 9(2) O F THE ACT WITH RETROSPECTIVE EFFECT. HOWEVER, THE DETAILS OF PAYMENT OF COMMISS ION AMOUNTS ARE NOT AVAILABLE ON RECORD. IN ANY CASE, WE ARE INCLINED TO FOLLOW THE RATIO OF THE ABOVE SAID DECISIONS IN THE INSTANT CASE ALSO. I.T.A. NO.9054/MUM/2010 I.T.A. NO.7458/MUM/2011 5 7. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS PLACE D RELIANCE ON THE CIRCULAR NO. 22 OF 1969, 103 OF 1975 AND 76 OF 2007 ISSUED B Y THE CBDT, WHEREIN THE CBDT HAS EXPRESSED THE VIEW THAT THE COMMISSION PAY MENTS MADE TO FOREIGN AGENTS FOR SERVICES RENDERED OUTSIDE INDIA ARE NOT LIABLE TO TAX IN INDIA. HOWEVER, THE ABOVE SAID CIRCULARS WERE SUBSEQUENTLY WITHDRAWN BY CBDT, VIDE ITS CIRCULAR NO.7 OF 2009 DATED 22.10.2009. THE L D A.R SUBMITTED THAT THE IMPUGNED COMMISSION PAYMENTS WERE MADE DURING THE C URRENCY OF OLD CIRCULARS REFERRED ABOVE AND HENCE THE ASSESSEE WAS ENTITLED TO FOLLOW THE SAID CIRCULARS. HE FURTHER SUBMITTED THAT THE CIRCULAR NO.7 OF 2009 , WHICH WITHDREW THE OLD CIRCULARS, SHALL HAVE PROSPECTIVE EFFECT ONLY, AS P ER THE DECISION RENDERED BY THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT V/ S MODEL EXIMS (358 ITR 72) (ALL), WHEREIN THE HONBLE HIGH COURT HAS HELD THAT THE CIRCULAR NO.7 OF 2009 SHALL HAVE PROSPECTIVE EFFECT. ACCORDINGLY HE SUBM ITTED THAT THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE FROM THE COMMISSION PAYMENTS MADE TO THE FOREIGN AGENTS AS PER THE OLD CIRCULARS REFERRED AB OVE. 8. ACCORDINGLY, THE LD A.R CONTENDED THAT THE DI SALLOWANCE MADE U/S 40(A)(I) IS NOT CORRECT IN LAW, SINCE THE ASSESSEE IS NOT LI ABLE TO DEDUCT TAX AT SOURCE FROM THE COMMISSION PAYMENTS. ON THE CONTRARY, THE LD D .R PLACED RELIANCE ON THE ORDER OF LD CIT(A). 9. WE FIND MERIT IN THE CONTENTIONS PUT FORTH BY LD A.R. ACCORDINGLY, WE HOLD THAT THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SO URCE FROM THE COMMISSION PAYMENTS MADE TO THE FOREIGN AGENTS IN THE FACTS AN D CIRCUMSTANCES OF THE INSTANT CASE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD. CIT(A) AND DIRECT THE AO TO DELETE THE IMPUGNED DISALLOWANCE. 10. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE AS SESSEE IN ITA NO.7458/MUM/2011. THE AO PASSED THE RECTIFICATION ORDER U/S 154 OF THE ACT FOR THE ASSESSMENT YEAR 2007-08, SINCE IN THE ORIG INAL ASSESSMENT PROCEEDINGS, THE DISALLOWANCE MADE U/S 40(A)(I) WAS SHORT DISALL OWED BY RS.13,29,918/- I.E. THE AO OMITTED TO MAKE DISALLOWANCE OF THE ABOVE S AID AMOUNT ALSO FOR NON- DEDUCTION OF TAX AT SOURCE U/S 195 OF THE ACT. THE ABOVE SAID AMOUNT ALSO I.T.A. NO.9054/MUM/2010 I.T.A. NO.7458/MUM/2011 6 REPRESENTS COMMISSION PAYMENTS MADE TO FOREIGN AGEN TS. SINCE IN THE EARLIER PARAGRAPHS, WE HAVE HELD THAT THE ASSESSEE IS NOT L IABLE TO DEDUCT TAX AT SOURCE U/S 195 OF THE ACT FROM THE COMMISSION PAYMENTS MAD E TO THE FOREIGN AGENTS DURING THE YEAR UNDER CONSIDERATION, THE ORDER OF L D. CIT(A) IN RESPECT OF THE ABOVE SAID ISSUE IS LIABLE TO BE SET ASIDE. ACCORD INGLY, WE SET ASIDE THE ORDER OF LD. CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION MADE IN THE RECTIFICATION ORDER. 11. THE LD. AR ALSO SUBMITTED THAT THE QUESTION WHE THER THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE FROM THE COMMISSION PAYMENT S MADE TO FOREIGN AGENTS IS A DEBATABLE ISSUE AND HENCE RECTIFICATION ORDER PASSED BY THE AO IS NOT LEGALLY SUSTAINABLE. HE ALSO SUBMITTED THAT THE AO HAS PASS ED THE IMPUGNED RECTIFICATION ORDER WITHOUT GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND ON THAT COUNT ALSO, THE RECTIFICATION ORDER IS LIABLE TO BE SET ASIDE. HOWEVER, SINCE WE HAVE DELETED THE ADDITION MADE IN THE RECTIFICATION ORDER ON MERITS, WE DO NOT FIND IT NECESSARY TO ADDRESS THE ABOVE SAID CONTENT IONS URGED BY THE LD. AR. 12. IN THE RESULT, BOTH THE APPEALS FILED BY THE AS SESSEE ARE ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 8THOCT , 2014. () $ * +, 8TH OCT, 2014 ) # -% . SD SD ( / VIVEK VARMA) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER $ % MUMBAI:8TH OCT,2014. . . ./ SRL , SR. PS !'# $#%! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. $ /& ( ) / THE CIT(A)- CONCERNED 4. $ /& / CIT CONCERNED 5. 0- &1 , ' 1 , $ % / DR, ITAT, MUMBAI CONCERNED 6. -2 3% / GUARD FILE. 4 $ / BY ORDER, TRUE COPY 5 (ASSTT. REGISTRAR) ' 1 , $ % /ITAT, MUMBAI