Dy. Commissioner of Income tax, Kanpur V. M/s Kothari Foods & Fragrances, Kanpur

ITA 92/LKW/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83296 (ITAT-LUCKNOW)
• Duration Of Justice: 2 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 23-07-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 02-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ALOK MITRA
• Assessee Lawyers: P K KAPOOR
• Section: 194C; 6

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.92/LKW/2012 ASSESSMENT YEAR:2008 - 09 DY.C.I.T., CENTRAL CIRCLE - 2, KANPUR. VS. M/S KOTHARI FOOD & FRAGRANCES, E - 19, PANKI INDUSTRIAL ESTATE, SITE - II, KANPUR. PAN:AADFK4487G (APPELLANT) (RESPONDENT) APPELLANT BY SHRI ALOK MITRA, D. R. RESPONDENT BY SHRI P. K. KAPOOR, C.A. DATE OF HEARING 23/07/2014 DATE OF PRONOUNCEMENT 0 5 /09/2014 O R D E R PER A. K. GARODIA, A.M. THIS IS REVENUES APPEAL DIRECTED AGAINST THE ORDER PASSED BY LEARNED CIT(A) - I, KANPUR, DATED 30/11/2011 FOR THE ASSESSMENT YEAR 2008 - 2009. 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. THAT LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.59,36,606/ - MADE BY THE AO BEING DISALLOWANCE OUT OF DISCOUNT ALLOWED ON SALES BY INVOKING THE PROVISIONS OF SECTION 195 READ WITH SECTION 40(A)(I) OF THE INCOME TAX ACT, 1961, HOLDING THAT NO WITHHOLDING OF TAX IN TERMS OF PROVISIONS OF SECTION 195 OF THE ACT WAS REQUIRED IN THIS CASE AS THE DISCOUNT ALLOWED DID NOT FORM ANY PAYMENT TO THE NON - RESIDENT, WITHOUT APPRECIATING THE AO'S FINDING OF FACT THAT THE PAYMENT T O NON - RESIDENT WAS NOT UNDER ANY CONTRACTUAL OBLIGATION AS NO STIPULATION REGARDING PAYMENT OF DISCOUNT TO THE NON - RESIDENT WAS MADE IN THE CONTRACT - 2 NOTE ENTERED INTO BY THE ASSESSEE WITH THE NON - RESIDENT COMPANY. 2. THAT LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.59,36,606/ - MADE BY THE AO BEING DISALLOWANCE OUT OF DISCOUNT ALLOWED ON SALES BY INVOKING THE PROVISIONS OF SECTION 195 READ WITH SECTION 40(A)(I) OF THE INCOME TAX ACT, 1961, HOLDING THAT THE ASSESSEE HAS DEBITED I TS TRADING ACCOUNT AND CREDITED THE FOREIGN COMPANY'S ACCOUNT WITH THE EQUIVALENT AMOUNT, AND IT WAS COVERED BY THE EXPLANATION BELOW THE PROVISION OF SECTION 195(1), AND THE WITHHOLDING OF TAX UNDER THE PROVISION OF SECTION 195 WAS OBLIGATORY UPON THE ASS ESSEE. 3. THAT LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.59,36,606/ - MADE BY THE AO BEING DISALLOWANCE OUT OF DISCOUNT ALLOWED ON SALES BY INVOKING THE PROVISIONS OF SECTION 195 READ WITH SECTION 40(A)(I) OF THE INCOME TAX A CT, 1961, HOLDING THAT DISCOUNTS CREDITED IN THE FOREIGN BUYERS ACCOUNT IN THE ASSESSEE'S BOOK CONSTITUTING A 'CREDIT', THOUGH NOT 'PAYMENT', IT ATTRACTED THE PROVISIONS OF SECTION 195(1) READ WITH ITS EXPLANATION, AND SINCE THE ASSESSEE HAD DEBITED AN EQU IVALENT AMOUNT AS EXPENDITURE, BY NOT DEDUCTING OR WITHHOLDING TAX ON SUCH PAYMENT, THE EXPENDITURE ON ACCOUNT OF DISCOUNT ALLOWED WAS INADMISSIBLE UNDER THE PROVISIONS OF SECTION 40(A)(I) OF THE IT ACT 1961. 4. THAT THE ORDER OF CIT(A) DESERVES TO BE VAC ATED AND THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER BE RESTORED. 3. LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER. HE ALSO SUBMITTED THAT PAYMENT OF DISCOUNT IS IN THE NATURE OF INTEREST AND THEREFORE, TDS WAS DEDUCTIBLE U/S 195( 1) AND HENCE , THE ORDER OF CIT(A) SHOULD BE REVERSED AND THAT OF THE ASSESSING OFFICER SHOULD BE RESTORED. 4. AS AGAINST THIS, LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF CIT(A). HE ALSO SUBMITTED THAT IN THE PRESENT CASE, THERE IS NEITHER 3 PAYMENT OF INTEREST NOR COMMISSION AND THEREFORE, NO TDS WAS DEDUCTIBLE. HE PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: (I) ADDL. CIT VS. PEARL BOTTLING (P) LTD. [2011] 46 SOT 133 (VIZAG.) ( I I) G.E. INDIA TECHNOLOGY CENTRE (P) LTD. VS. CIT [2010] 327 ITR 456 (SC) ( I II) FOSTERS INDIA (P) LTD. VS. INCOME TAX OFFICER [2008] 117 TTJ (PUNE) 346 (I V ) CIT VS. SINGAPORE AIRLINES LTD. [2009] 319 ITR 29 (DEL.) (V) INCOME TAX OFFICER VS. MOTHER DAIRY FOOD PROCESSING LTD. [2011] 7 ITR (TRIB) 16 (DELHI) (V I ) NMDC LTD. VS. ACIT (TDS) [2011] 7 ITR (TRIB) 690 (VIZAG.) (VI I ) DECISION OF I.T.A.T. ALLAHABAD BENCH IN THE CASE OF ANKUR YDYOG LTD. VS. ACIT IN I.T.A. NO.96/ALLD/2013 5. IN THE REJOINDER , LEARNED D.R. OF THE REVENUE SUBMITTED THAT THESE JUDGMENTS C ITED BY LEARNED A.R. OF THE ASSESSEE ARE NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE. HE ALSO SUBMITTED THAT THE PROVISION S OF SECTION 195 AND 194H ARE DIFFERENT. HE PLACED RELIANCE ON THE JUDGMENT OF HON'BLE DELHI HIGH COURT RENDERED IN THE CASE OF CIT VS. HAVELLS INDIA LIMITED [2012] 73 DTR 57 (DEL). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT IT IS NOTED BY THE ASSESSING OFFICER ON PAGE NO. 3 OF THE ASSESSMENT ORDER THAT THE CLAIM OF THE ASSESSEE IS CLEARLY INCORRECT THAT THE ASSESS EE HAS RECEIVED SALE PRICE IN ADVANCE UNDER CONTRACTUAL OBLIGATION AND IT WAS PRE DECIDED THAT PRE PAYMENT DISCOUNT WILL BE ALLOWED TO THE FOREIGN BUYERS. THE ASSESSING OFFICER HAS NOTED THAT IN THE TERMS OF CONTRACT ENTERED INTO WITH BUNGE S.A. , IT IS NO WHERE MENTIONED THAT IT IS THE OBLIGATION OF THE ASSESSEE TO GIVE ANY DISCOUNT TO THE BUYERS. HE HAS ALSO NOTED THAT ONLY STIPULATION REGARDING PRE PAYMENT ADVANCE S IN THE CONTRACT WITH THE BUYERS IS AS UNDER: 4 THE SELLER EXPRESSLY AGREES THAT PAYMENT OF THE PRE PAYMENT AMOUNT FULLY SATISFIES SELLERS PAYMENT OBLIGATION AND BUYER WILL SHIP GOODS EQUAL IN VALUE OF THE PROVISIONAL PRICE IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT. 6.1 WE FIND THAT AS PER PURCHASE CONTRACT DATED 16 TH MAY, 2006 AVAILABLE ON PAGE NO. 6 OF THE SECOND PAPER BOOK, IT HAS BEEN SPECIFIED THAT THE SELLER SHALL CAUSE THE ISSUANCE OF A BANKERS GUARANTEE OR SBLC BY PUNJAB NATIONAL BANK, KANPUR (SELLERS BANK) FOR AN AMOUNT EQUAL TO T HE PROVISIONAL PRICE PLUS INTEREST IN THE FORM ACCEPTABLE TO BUYER THAT WILL BE INFORMED IN SEPARATE MESSAGE. IT WAS ALSO SPECIFIED THAT WITHIN TWO BUSINESS DAYS FROM THE DATE BUYER S BANK RECEIVES THE GUARANTEE IN FORMAT ACCEPTABLE TO BUYER S BANK, BUYER SHALL PAY TO SELLER THE PREPAYMENT AMOUNT. THE PROVISIONAL PRICE AS PER THIS CONTRACT HAS BEEN FIXED AT (JPY)24,200 LAC. HENCE, IT IS SEEN THAT THERE IS NO MENTION IN THE AGREEMENT I.E. THE PURCHASE CONTRACT THAT ANY PREPAYMENT DISCOUNT WILL BE ALLOWED BY THE ASSESSEE. THE PAYMENT WAS TO BE MADE BY THE BUYER TO THE TUNE OF PROVISIONAL PRICE AS PER THE AGREEMENT AFTER FURNISHING OF BANK GUARANTEE BY THE ASSESSEE SELLER BUT AS PER THE INVOICE AVAILABLE ON PAGE NO. 27, 31, 35 AND 38 OF THE SECO ND PAPER BOOK, IT IS SEEN THAT IN ALL THESE INVOICES, PRE PAYMENT DISCOUNT WERE ALLOWED BY THE ASSESSEE AND THESE INVOICES ARE OF THE CURRENT YEAR I.E. APRIL, 2007 AND THE ASSESSEE ASKED THE BUYER TO MAKE PAYMENT OF THE BALANCE AMOUNT AGAINST THE INVOICED PRICE AFTER ADJUSTING THE ADVANCE RECEIVED BY THE ASSESSEE AND PRE PAYMENT DISCOUNT. ASKING THE BUYER TO PAY LESSER AMOUNT AFTER ADJUSTING DISCOUNT OR MAKING PAYMENT OF DISCOUNT TO THE BUYER IS EQUIVALENT IN OUR CONSIDERED OPINION BECAUSE IN BOTH THE CASE S , THE BUYER RECEIVE S THE BENEFIT. 6.2 NOW IN THE LIGHT OF THESE FACTS OF THE PRESENT CASE, WE EXAMINE THE APPLICABILITY OF THE VARIOUS JUDGMENTS CITED BY BOTH THE SIDES. 5 6.3 THE FIRST JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE IS THE DECISION OF TR IBUNAL HAVING BEEN RENDERED IN THE CASE OF PEARL BOTTLING (P) LTD. (SUPRA). IT WAS HELD BY THE TRIBUNAL THAT WHEN THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTURE AND SALE OF SOFT DRINKS FOR WHICH MRP HAS BEEN FIXED FOR THE PRODUCTS AND THOSE PRODUCTS A RE SUPPLIED TO THE RETAILERS ON DISCOUNTED RATE , NO TDS IS DEDUCTIBLE BECAUSE THE RELATION BETWEEN THE ASSESSEE COMPANY AND ITS DISTRIBUTOR IS IN THE NATURE OF PRINCIPAL - TO - PRINCIPAL BASIS AND THERE IS NO LIABILITY TO DEDUCT TDS ON DISCOUNT ON MRP IN TER MS OF SECTION 194H OF THE ACT. IN THAT CASE, THE GOODS WERE SUPPLIED BY THE ASSESSEE TO A DISTRIBUTOR ON FIXED PRICE WHICH WAS LESSER THEN THE MRP AND THE ASSESSING OFFICER WAS OF THE VIEW THAT ON THE DIFFERENCE OF SUCH AGREED PRICE AND THE M R P, TDS WAS D EDUCTIBLE U/S 194H AND THIS STAND OF THE ASSESSING OFFICER WAS NOT APPROVED BY THE TRIBUNAL. BUT IN THE PRESENT CASE, THE FACTS ARE DIFFERENT. IN THE PRESENT CASE, LESSER PRICE HAS BEEN REALIZED BY THE ASSESSEE FROM THE BUYERS AGAINST THE AGREED PRICE BE TWEEN THE ASSESSEE AND THE BUYER AND THIS LESSER REALIZATION FROM THE BUYER IS ON ACCOUNT OF ADVANCE PAYMENT RECEIVED FROM THE BUYER AND EVEN IN THE ABSENCE OF ANY SUCH CLAUSE IN THE PURCHASE CONTRACT, THE ASSESSEE HAS GIVEN THE NOMENCLATURE DISCOUNT TO TH IS BENEFIT ALLOWED BY THE ASSESSEE COMPANY TO THE BUYER . IN THE FACTS OF THE PRESENT CASE, WE FIND FORCE IN THE CONTENTION OF LEARNED D.R. OF THE REVENUE THAT IN THE FACTS OF THE PRESENT CASE, THIS BENEFIT ALLOWED BY THE ASSESSEE TO ITS BUYER IS IN THE NATURE OF INTEREST PAID BY THE ASSESSEE TO ITS BUYER ON ADVANCE PAYMENT RECEIVED FROM THE BUYE R. IN OUR CONSIDERED OPINION, UNDER THESE FACTS, THIS TRIBUNAL DECISION IS NOT APPLICABLE IN THE PRESENT CASE. 6.4 THE SECOND JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE IS THE JUDGMENT OF HON'BLE SUPREME COURT RENDERED IN THE CASE OF G. E. INDIA TEC HNOLOGY CENTRE (P) LTD. (SUPRA). IN THIS CASE, IT WAS HELD BY HON'BLE 6 APEX COURT THAT A PERSON PAYING INTEREST OR ANY OTHER SUM TO A NON - RESIDENT I S LIABLE TO DEDUCT TAX IF SUCH SUM IS CHARGEABLE TO TAX IN INDIA AND NOT OTHERWISE. IN THE PRESENT CASE, TH E ASSESSEE IS AN EXPORTER AND AGAINST THE EXPORT PROCEEDS RECEIVABLE FROM THE OVERSEAS BUYER, THE ASSESSEE IS ALLOWING BENEFIT TO THE BUYER FOR MAKING LESSER PAYMENT FOR THE REASON THAT THE BUYER HAS MADE ADVANCE PAYMENT TO THE ASSESSEE. AT THIS JUNCTURE , WE WOULD LIKE TO OBSERVE THAT AS PER THE JUDGMENT OF HON'BLE DELHI HIGH COURT CITED BY LEARNED D.R. OF THE REVENUE IN THE CASE OF HEWELLS INDIA LIMITED (SUPRA) , IT WAS HELD THAT EXPORT ACTIVITY HAVING BEEN TAKEN PLACE OR HAVING BEEN FULFILLED IN INDIA, SO URCE WAS LOCATED IN INDIA AND NOT OUTSIDE. IN THE PRESENT CASE ALSO , EXPORTS WERE MADE FROM INDIA AND THE PRE PAYMENT ADVANCE WAS ALSO RECEIVED IN INDIA AGAINST PROVIDING OF BANK GUARANTEE FROM PUNJAB NATIONAL BANK, MALL ROAD BRANCH, KANPUR, INDIA AND THE ADJUSTMENTS OF THE BENEFIT ALLOWED TO THE BUYER HAS BEEN ADJUSTED IN THE INVOICES ISSUED IN INDIA ON THE OVERSEAS BUYER AND UNDER THESE FACTS, IN OUR CONSIDERED OPINION, INCOME IN THE HANDS OF THE BUYER IN THE FORM OF DISCOUNT OR INTEREST (WHATEVER NAME W E GIVE TO IT) IS TAXABLE IN INDIA AND THEREFORE, THIS JUDGMENT OF HON'BLE APEX COURT IS ALSO NOT RENDERING ANY HELP TO THE ASSESSEE. 6.5 THE T HIRD JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE IS THE TRIBUNAL DECISION RENDERED IN THE CASE OF FOSTERS IND IA (P) LTD. (SUPRA). THIS JUDGMENT IS IN RESPECT OF TDS U/S 194H I.E. IN RESPECT OF PAYMENT OF COMMISSION WHEREAS IN THE PRESENT CASE , THE DISPUTE IS REGARDING TDS LIABILITY U/S 195 . AS PER SECTION 195 OF THE ACT, THE ASSESSEE IS REQUIRED TO DEDUCT TDS FROM ANY SUM PAID BY THE ASSESSEE TO A NON RESIDENT WHICH IS CHARGEABLE UNDER THE PROVISIONS OF THE INCOME TAX ACT. HENCE, IT IS NOT NECESSARY THAT ONLY ON PAYMENT OF COMMISSION OR INTEREST , TDS IS DEDUCTIBLE U/S 195 OF THE ACT. IN FACT , TDS IS DEDUCTIBL E U/S 195 OF THE ACT FROM ANY PAYMENT TO A NON RESIDENT WHICH IS CHARGEABLE TO TAX IN INDIA. 7 IN THAT CASE , THE ASSESSEE PAYER AND THE PAYEE RECIPIENT BOTH WERE LOCATED IN INDIA AND HENCE , SECTION 195 WAS NOT APPLICABLE AND THEREFORE, THIS TRIBUNAL DECISIO N IS NOT RELEVANT IN THE PRESENT CASE. 6.6 THE NEXT JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE IS THE JUDGMENT OF HON'BLE DELHI HIGH COURT RENDERED IN THE CASE OF SINGAPORE AIRLINES LTD. (SUPRA). IN THIS CASE ALSO , THE DISPUTE WAS REGARDING DEDUCTIBILITY OF TDS U/S 194H OF THE ACT AND NOT U/S 195 OF THE ACT. HENCE, THIS JUDGMENT OF HON'BLE DELHI HIGH COURT IS ALSO NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE. 6.7 THE NEXT JUDGMENT CITED BY LEARNED A.R. OF THE A SSESSEE IS A DECISION OF TRIBUNAL IN THE CASE OF MOTHER DAIRY FOOD PROCESSING LTD. (SUPRA). IN THIS CASE ALSO , THE DISPUTE WAS REGARDING DEDUCTION OF TDS U/S 194H AND 194C AND NOT U/S 195 OF THE ACT AND THEREFORE, THIS TRIBUNAL DECISION IS ALSO NOT APPLIC ABLE IN THE FACTS OF THE PRESENT CASE. 6.8 THE NEXT JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE IS A DECISION OF TRIBUNAL IN THE CASE OF NMDC LTD. (SUPRA). IN THIS CASE ALSO, THE DISPUTE WAS REGARDING DEDUCTIBILITY OF TDS U/S 194H AND NOT U/S 195 OF T HE ACT AND THEREFORE, THIS DECISION OF THE TRIBUNAL IS ALSO NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE. 6.9 THE LAST JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE IS A DECISION OF TRIBUNAL IN THE CASE OF ANKUR UDYOG LTD. (SUPRA). IN THIS CASE, THE DISPUTE WAS REGARDING DEDUCTIBILITY OF TDS AGAINST QUANTITY DISCOUNT PROVIDED BY THE ASSESSEE TO ITS BUYERS. THE CASE OF THE ASSESSING OFFICER WAS THAT THE TDS WAS DEDUCTIBLE U/S 194H OF THE ACT. WE FIND THAT IN THIS CASE ALSO, THE DISPUTE WAS NOT U/S 195 OF THE ACT AND MOVE OVER , EVEN DISCOUNT WAS NOT IN RESPECT OF PRE PAYMENT RECEIVED BY THE SELLER FROM THE BUYER . D ISPUTE IN THAT CASE WAS REGARDING QUANTITY DISCOUNT. QUANTITY 8 DISCOUNT IS IN FACT REDUCTION IN SALE PRICE AND HENCE, IT CANNOT BE CONSIDERED AS PAYMENT OF INTEREST WHEREAS THE BENEFIT ALLOWED BY THE ASSESSEE SELLER TO THE BUYER IN THE NAME OF DISCOUNT I N RESPECT OF ADVANCE PAYMENT RECEIVED BY THE ASSESSEE HAS TO BE CONSIDERED IN THE NATURE OF INTEREST IN THE PRESENT CASE. UNDER THESE FACTS , THIS TRIBUNAL DECISION IS ALSO NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE. 7. AS PER THE ABOVE DISCUSSION, WE HAVE SEEN THAT NONE OF THE JUDGMENTS CITED BY LEARNED A.R. OF THE ASSESSEE IS RENDERING ANY HELP TO THE ASSESSEE. WE ALSO FIND THAT IN THE PRESENT CASE , THE BENEFIT ALLOWED BY THE ASSESSEE TO ITS BUYERS UNDER THE NAME OF DISCOUNT IS IN FACT IN THE NATURE OF INTEREST BECAUSE THE SAME IS IN CONSIDERATION OF RECEIVING ADVANCE PAYMENT. ON RECEIVING ADVANCE PAYMENT, ONE MAY COMPENSATE THE MAKER OF ADVANCE PAYMENT BY WAY OF ALLOWING INTEREST OR THE SAME BENEFIT CAN BE GIVEN THE NAME OF DISCOUNT BUT MERELY BECA USE A DIFFERENT NOMENCLATURE HAS BEEN GIVEN, IT DOES NOT CHANGE ITS CHARACTER. UNDER THESE FACTS, WE ARE OF THE CONSIDERED OPINION THAT TDS WAS DEDUCTIBLE U/S 195 OF THE ACT AND THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS JUSTIFIED. HENC E, WE REVERSE THE ORDER OF CIT(A) AND RESTORE THAT OF THE ASSESSING OFFICER. 8. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS ALLOWED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 5 /09/2014. *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR