DCIT, Hyderabad V. M/s Linkwell Telesystems Pvt. Ltd., Hyderabad

ITA 943/HYD/2010

• Counselvise Citation: 94322514 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-12-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 21-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DIWAKAR PRASAD T
• Assessee Lawyers: SIVA KUMAR
• Keywords: Services rendered outside India

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO.943/HYD/2010 ASSESSMENT YEAR 2006-07 THE DCIT, CIRCLE 16(1), HYDERABAD VS M/S LINKWELL TELE - SYSTEMS (P) LTD., HYDERABAD (PAN AAACL 3452 E) APPELLANT RESPONDENT APPELLANT BY : SHRI DIWAKAR PRASAD T RESPONDENT BY : SHRI SIVAKUMAR DATE OF HEARING : 23.8.2011 DATE OF PRONOUNCEMENT : 23.8.2011 ORDER PER CHANDRA POOJARI, A.M. THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) V-HYDERABAD DATED 8.4.2010 AND PERTAINS TO THE ASSESSMENT YEAR 2006-0 7. 2. THE REVENUE RAISED THE FOLLOWING GROUNDS IN IT S APPEAL: 1. WHETHER THE CIT(A) IS RIGHT IN HOLDING THAT THE PRO VISIONS OF SEC.195 ARE NOT APPLICABLE FOR PAYMENTS OF COMMISSI ON AND PROFESSIONAL CHARGES 2. WHETHER THE CIT(A) IS RIGHT IN HOLDING THAT THE PRO VISIONS OF SECTION 40(A)(I) ARE NOT APPLICABLE FOR COMMISSION AND PROFESSIONAL CHARGES PAID BY THE ASSESSEE TO NON R ESIDENTS. 3. WHETHER THE CIT(A) OUGHT TO HAVE HELD THAT THE PAYM ENTS RELATE TO SERVICES UTILISED IN INDIA AND THEREFORE, THE PROVISIONS OF SECTION 195 AND SECTION 40(A)(I) ARE APPLICABLE. ITA NO.943/HYD/2010 M/S LINK WELL TELE-SYSTEMS (P) LTD., HYDERABAD 2 3. BRIEF FACTS OF THE ISSUE ARE THAT DURING THE C OURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD PAID THE FOLLOWING AMOUNTS TO ITS COMMISSION AGENTS AS EXPORT SALES COMMISSION: DATE NAME OF THE PART AMOUNT IN RS. 27.5.2005 INCOME I LIMITED, TANZANIA RS.6,77,356 31.8.2 005 XL ENTERPRISES (P) LTD., SRILANKA RS.6,70,428 21.1.2006 INCOME I LIMITED, TANZANIA RS.17,88,810 4. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE O PINION THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL IN THE CASE OF DCIT VS. DIVIS LABORATORI ES LTD. (131 ITD 271)(HYD). THE TRIBUNAL AFTER CONSIDERING THE ENTIRE ISSUE HELD AS UNDER: THE CBDT BY ITS RECENT CIRCULAR NO.7, DATED 22.10.2009 HAD WITHDRAWN ITS EARLIER CIRCULAR NOS.2 3 DATED 23.7.2009, 163 DATED 29.5.1975 AND 786 DATED 7.2.2000. THE EARLIER CIRCULARS ISSUED BY THE CBDT HAD CLEARLY DEMONSTRATED THE ILLUSTRATIONS TO EXPLA IN THAT SUCH COMMISSION COULD BE PAID WITHOUT DEDUCTIO N OF TAX. THUS, THE MAIN THRUST IN SUCH A SITUATION IS WHETHER THE COMMISSION MADE TO OVERSEAS AGENTS, WHO ARE NON RESIDENT ENTITIES, AND WHO RENDER SERVICES ONLY AT SUCH PARTICULAR PLACE, IS ASSESSABLE TO TAX. SE C.195 VERY CLEARLY SPEAKS THAT UNLESS THE INCOME IS LIABL E TO BE TAXED IN INDIA, THERE IS NO OBLIGATION TO DEDUCT TAX. IN ORDER TO DETERMINE WHETHER THE INCOME CAN BE DEEMED TO BE ACCRUED OR ARISEN IN INDIA, SECTION 9 IS ITA NO.943/HYD/2010 M/S LINK WELL TELE-SYSTEMS (P) LTD., HYDERABAD 3 THE BASIS. THIS SECTION DOES NOT PROVIDE SCOPE FOR TAXING SUCH PAYMENT BECAUSE THE BASIC CRITERIA PROVIDED IN THE SECTION IS ABOUT GENESIS OR ACCRUIN G OR ARISING IN INDIA, BY VIRTUE OF CONNECTION WITH THE PROPERTY IN INDIA, CONTROL AND MANAGEMENT VESTED IN INDIA, WHICH WERE NOT SATISFIED IN THE INSTANT CASE S. UNDER THESE CIRCUMSTANCES, WITHDRAWAL OF EARLIER CIRCULARS ISSUED BY THE CBDT HAD NO ASSISTANCE TO T HE DEPARTMENT, IN ANY WAY IN DISALLOWING SUCH EXPENDITURE. IT APPEARED THAT AN OVERSEAS AGENT OF INDIAN EXPORTER OPERATED IN HIS OWN COUNTRY AND NO PART OF HIS INCOME ARISES IN INDIA AND HIS COMMISSI ON IS USUALLY REMITTED DIRECTLY TO HIM BY WAY OF TT OR POSTING OF CHEQUES/DEMAND DRAFTS IN INDIA AND, THEREFORE, THE SAME IS NOT RECEIVED BY HIM ON HIS B EHALF CASES. UNDER THESE CIRCUMSTANCES, WITHDRAWAL OF EARLIER CIRCULARS ISSUED BY THE CBDT HAD NO ASSISTA NCE TO THE DEPARTMENT IN ANY WAY IN DISALLOWING SUCH EXPENDITURE. IT APPEARED THAT AN OVERSEAS AGENT OF INDIAN EXPORTER OPERATED IN HIS OWN COUNTRY AND NO PART OF HIS INCOME ARISES IN INDIA AND HIS COMMISSI ON IS USUALLY REMITTED DIRECTLY TO HIM BY WAY OF TT OR POSTING OF CHEQUES/DEMAND DRAFTS IN INDIA AND, THEREFORE, THE SAME IS NOT RECEIVED BY HIM OR ON HI S BEHALF IN INDIA AND SUCH AN OVERSEAS AGENT IS NOT LIABLE TO INCOME TAX IN INDIA AND THOSE COMMISSION PAYMENTS. SEC. 195 HAS TO BE READ ALONG WITH THE CHARGING SECTION 4,5, AND 9. ONE SHOULD BE READ SECTION 195 FOR MEAN THAT THE MOMENT THERE IS A REMITTANCE; THE ITA NO.943/HYD/2010 M/S LINK WELL TELE-SYSTEMS (P) LTD., HYDERABAD 4 OBLIGATION TO DEDUCT TDS AUTOMATICALLY ARISE. IF S UCH CONTENTION WAS TO BE ACCEPTED, IT WOULD MEAN THAT O N MERE PAYMENT IN INDIA, INCOME WOULD BE SAID TO ARIS E OR ACCRUED IN INDIA. IF THE CONTENTIONS OF THE DEPARTMENT WERE TO BE TAKEN AS CORRECT, THAT ANY PERSON MAKING PAYMENT TO A NON RESIDENT WAS NECESSARILY REQUIRED TO DEDUCT TAX, THEN THE CONSEQUENCES WOULD BE THAT THE DEPARTMENT WOULD BE ENTITLED TO APPROPRIATE THE MONIES DEPOSITED BY THE PAYER EVEN IF THE SUM PAID IS NOT CHARGEABLE TO TAX BECAUSE THERE IS NO PROVISION IN THE ACT BY WHICH A PAYER CAN OBTAIN REFUND. AS PER SECTION 237 READ WITH SECTION 199 IMPLIES THAT ONLY THE RECIPIENT OF THE SUM I.E. PAYEE WOULD SEEK A REFUND. IN VIEW OF THE ABOVE HENCE NO TAX IS DEDUCTIBLE U/S 195 ON COMMISSION PAYMENTS AND CONSEQUENTLY THE EXPENDITURE ON EXPORT COMMISSION PAYABLE TO NON RESIDENT FOR SERVICES RENDERED OUTSIDE INDIA BECOME S ALLOWABLE EXPENDITURE AND THE SAME IS OUTSIDE RIGOR S OF SECTION 40(A)(IA). IN THE INSTANT CASE, THE CIT(A) OBSERVED THAT THE ASSESSING OFFICER HAD NOT BEEN ABLE TO ESTABLISH TH AT THERE WAS SPECIFIC INTENTION OF THE PAYEE TO RECEIV E THE PAYMENT WITHIN THE TERRITORY OF INDIA, THEREFORE, T HE CIT(A) RIGHTLY DID NOT AGREE WITH THE VIEW TAKEN BY THE ASSESSING OFFICER WITH REGARD TO THE ADDITION MADE ON THIS ISSUE AND THE CIT(A) WAS JUSTIFIED IN DIRECTIN G THE ASSESSING OFFICER TO DELETE THE SAID ADDITION. AFT ER CONSIDERING THE TOTALITY OF FACTS AND THE CIRCUMSTA NCES OF THE CASE THE ORDER OF THE CIT(A) ON THIS ISSUE W AS NOT ITA NO.943/HYD/2010 M/S LINK WELL TELE-SYSTEMS (P) LTD., HYDERABAD 5 TO BE INTERFERED WITH AND, ACCORDINGLY, THE SAME WA S TO BE UPHELD. 5. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THIS TRIBUNAL, WE ARE INCLINED TO DECIDE THE ISSUE IN FA VOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 23. 8.2011 SD/ - G.C. GUPTA SD/ - CHANDRA POOJARI VICE PRESIDENT ACCOUNTANT M EMBER DATED THE 23 RD AUGUST, 2011 COPY FORWARDED TO: 1. THE DCIT, CIRCLE 16(1), AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2. M/S LINKWELL TELE SYSTEMS (P) LTD., 1-11-252/A, GOWRA CLASSIC, BEGUMPET, HYDERABAD. 3. THE CIT(A) V, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/