ACIT, CHENNAI V. Classic Linens International Pvt. Ltd., CHENNAI

ITA 947/CHNY/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68622 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 10-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N SANKARAN
• Assessee Lawyers: RAGHUNATHAN
• Keywords: Permanent establishment
• Section: 260A; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI VIKAS AWASTHY, JUDICIAL MEMBER] I.T.A. NO. 947/MDS/2013 ASSESSMENT YEAR : 2009-10 ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(3), CHENNAI 600 034. VS M/S. CLASSIC LINENS INTERNATIONAL PVT. LTD., UNIT 13 & 14, SDF-III, PHASE II, MEPZ, TAMBARAM, CHENNAI 600 045. [PAN: AABCC 3510 F] (APPELLANT) (RE SPONDENT) REVENUE BY : SHRI N. SANKARAN, CIT ASSESSEE BY : SHRI RAGHUNATHAN S. ADVOCATE DATE OF HEARING : 14-08-2013 DATE OF PRONOUNCEMENT : 14-08-2013 O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-IX, CHE NNAI DATED 30-01-2013 RELEVANT TO THE ASSESSMENT YEAR (A Y) 2009-10. I.T.A. NO. 947/MDS/2013 2 2. THE REVENUE HAS ASSAILED THE ORDER OF THE CIT(AP PEALS) ON TWO GROUNDS: I. DELETING DIS-ALLOWANCE U/S. 40(A)(I) IN RESPECT OF COMMISSIONS PAID TO FOREIGN CONCERNS; AND II. CIT(APPEALS) DIRECTING THE ASSESSING OFFICER TO RE- COMPUTE DEDUCTION U/S. 10B BY EXCLUDING FREIGHT EXPENDITURE BOTH FROM EXPORT TURN-OVER AND THE TOTA L TURNOVER. 3. THE ASSESSEE IS A COMPANY REGISTERED UNDER THE P ROVISIONS OF COMPANIES ACT, 1956, ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF PILLOWS AND CUSHIONS. THE ASSESSEE FILED RETURN OF INCOME FOR THE AY. 2009-10 ON 30-09 -2009 DECLARING ITS TAXABLE INCOME AS ` 69,94,988/-. SINCE THE ASSESSEE IS EXPORT- ORIENTED UNIT LOCATED AT MEPZ, THE ASSESSEE CLAIMED DEDUCTION OF ` 47,76,558/- UNDER SECTION 10A OF THE INCOME TAX ACT , 1961 (HEREIN AFTER REFERRED TO AS THE ACT). THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE U/S. 143(2) OF THE ACT WAS ISSUED ON 20-08-2010. DURING THE COURSE OF ASSESSM ENT, THE ASSESSING OFFICER MADE A DIS-ALLOWANCE U/S. 40(A)(I ) FOR THE REASON THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE AT THE TIME OF I.T.A. NO. 947/MDS/2013 3 PAYMENT OF COMMISSION TO FOREIGN AGENTS. MOREOVER, THE ASSESSING OFFICER RECOMPUTED DEDUCTION U/S. 10A WIT HOUT DEDUCTING FREIGHT EXPENDITURE FROM TOTAL TURNOVER. AGGRIEVED AGAINST THE ASSESSMENT ORDER DATED 22-12- 2011, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APP EALS). THE CIT(APPEALS) VIDE ORDER DATED 30-01-2013, ALLOWED B OTH THE GROUND OF APPEAL OF THE ASSESSEE. NOW, THE REVENU E HAS ASSAILED THE ORDER OF THE CIT(APPEALS) BEFORE US. 4. SHRI N. SANKARAN, APPEARING ON BEHALF OF THE REV ENUE RELIED ON THE ASSESSMENT ORDER AND THE GROUNDS OF APPEAL A ND PRAYED FOR SETTING ASIDE THE IMPUGNED ORDER. ON THE OTHER HAND, SHRI RAGHUNATHAN S., ADVOCATE REPRESENTING THE ASSESSEE SUBMITTED THAT THE COMMIS SION WAS PAID TO THE FOREIGN AGENTS FOR PROCURING ORDERS FOR FOREIGN BUYERS. THE AGENTS ARE ESTABLISHED OUTSIDE INDIA AND THE WO RK DONE BY THEM FOR PROCURING ORDERS WAS ALSO UNDERTAKEN OUTSI DE INDIA. THE FOREIGN AGENTS HAVE NO PERMANENT ESTABLISHMENT IN I NDIA AND NO PART OF THEIR INCOME HAS ACCRUED OR ARISEN IN INDIA . THE LD. COUNSEL FOR THE ASSESSEE TO SUPPORT HIS CONTENTIONS HAS RELIED ON THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ITA NO. 115/MDS/2013 IN THE CASE OF ACIT VS. M/S. LEATHER INDIA DECIDED I.T.A. NO. 947/MDS/2013 4 ON 11-06-2013. ON THE SECOND ISSUE OF DEDUCTION OF FREIGHT EXPENSES FROM EXPORT TURNOVER AS WELL AS TOTAL TURN OVER, THE LD. COUNSEL SUBMITTED THAT THE ISSUE HAS BEEN DECIDED I N FAVOUR OF THE ASSESSEE IN THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF ITO VS. M/S. SAKSOFT LTD REPORTED AS 121 TTJ CHENNAI (SB) . 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE HAS MADE COMMI SSION PAYMENTS TO TWO FOREIGN AGENTS: DARROW LANE CORPOR ATIONS, NEWYORK, USA AND A.J.M. SCHONK B.V. HOUTEN, NETHER LANDS FOR PROCURING THE ORDERS FOR EXPORT. AS IS EVIDENT FR OM THE FACTS OF THE CASE, THE SERVICES HAVE BEEN RENDERED BY THE AGENTS OUTSIDE INDIA, AND THEY HAVE NO PERMANENT ESTABLISHMENT IN INDIA. AS SUCH ON THE PAYMENT OF AGENCY COMMISSION, THE ASSES SEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE. WE FIND THAT SIMIL AR ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE OF M/S. LEATHER INDIA (SUPRA). THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE SAID C ASE HAS HELD AS UNDER: 6. THE SECOND GROUND OF APPEAL IS WITH REGARD TO A GENCY COMMISSION. THE ASSESSING OFFICER HAD MADE DISALLO WANCE U/S. 40(A)(I) OF THE ACT TO THE TUNE OF RS. 62,59, 777/-. OUT OF THE SAID AMOUNT, FOREIGN AGENCY COMMISSION IS RS. I.T.A. NO. 947/MDS/2013 5 30,38,746/- AND THE REMAINING AMOUNT IS LOCAL AGENC Y COMMISSION I.E., RS.32,21,031/-. TAS HAS BEEN DEDU CTED ON THE PAYMENT OF LOCAL AGENCY COMMISSION. THIS FACT HAS BEEN CONFIRMED BY THE ASSESSING OFFICER IN HIS REMAND RE PORT, THEREFORE, DIS-ALLOWANCE OF RS. 32,21,031/- IS NOT JUSTIFIED. AS REGARDS THE REMAINING AMOUNT OF RS.30,38,746/- IS C ONCERNED, THE FOREIGN AGENCY COMMISSION HAS BEEN PAID IN RES PECT OF THE SERVICES RENDERED ABROAD. SINCE THE AGENTS HAV E NO PE IN INDIA, THEREFORE, THERE IS NO REQUIREMENT TO DED UCT TAS ON THE PAYMENTS MADE TO THEM. IN OUR CONSIDERED OPINIO N, NO PART OF INCOME HAS EITHER ACCRUED OR ARISEN IN INDI A FOR WHICH THE PAYMENTS HAVE BEEN MADE BY THE ASSESSEE. ACCOR DINGLY, THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT ARE N OT APPLICABLE ON SUCH PAYMENTS. WE FIND THAT THE CASE OF THE ASS ESSEE IS SQUARELY COVERED BY THE JUDGMENT OF THE HONBLE SUP REME COURT OF INDIA IN THE CASE OF G.E. INDIA TECHNOLOGY CENTRE P. LTD., VS. CIT REPORTED AS 327 ITR 456 WHEREIN THE H ONBLE SUPREME COURT AFTER CONSIDERING THE JUDGMENT IN THE CASE OF TRANSMISSION CORPORATION OF AP LTD., VS. CIT (239 I TR 587) SC AND DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS COMPANY LTD., (SUPRA) HAS HELD THAT MERE REMITTANCE TO NON-RESIDENT WILL NOT MAKE IT OB LIGATORY ON THE PART OF PERSON MAKING PAYMENT TO DEDUCT TAX AT SOURCE, UNLESS REMITTANCE CONTAINS WHOLLY OR PARTLY TAXABLE INCOME. THE HONBLE APEX COURT HAS REJECTED THE VIEW TAKEN BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS COMPANY LTD., (SUPRA) WHICH HAS BEEN RE LIED UPON BY THE LD. DR. FOR THE AFORESAID REASONS, THIS GROU ND OF APPEAL OF THE REVENUE IS ALSO DISMISSED. I.T.A. NO. 947/MDS/2013 6 THE LD. DR HAS NOT BEEN ABLE TO CONTROVERT THE CONT ENTIONS OF THE LD. COUNSEL FOR THE ASSESSEE. THE ISSUE IN HAND IS IDENTICAL TO THE ONE ALREADY ADJUDICATED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL. TAKING A SIMILAR VIEW, THIS GROUND OF APPEAL OF TH E REVENUE IS DISMISSED. 6. THE SECOND GROUND OF APPEAL RELATES TO COMPUTATI ON OF DEDUCTION U/S. 10A. THE SPECIAL BENCH OF THE TRIB UNAL IN THE CASE OF M/S. SAKSOFT LTD (SUPRA) HAS HELD THAT EXPENSES ON FREIGHT, TELECOMMUNICATION OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE IND IA OR EXPENSES INCURRED IN FOREIGN EXCHANGE FOR PROVIDING TECHNICA L SERVICES OUTSIDE INDIA WHICH ARE REQUIRED TO BE EXCLUDED FRO M THE EXPORT TURNOVER AS DEFINED IN EXPLANATION 2(III) BELOW SEC TION 10B OF THE ACT SHOULD ALSO BE EXCLUDED FROM THE FIGURE OF THE TOTAL TURNOVER WHILE APPLYING THE FORMULA PRESCRIBED BY SUB-SECTIO N (4) OF SECTION 10B OF THE ACT. PROVISIONS OF SECTION 10A ARE PARI MATERIA WITH THE PROVISIONS OF SECTION 10B OF THE ACT. ACCORDINGLY, FOLLOWING THE DECISION OF SPECIAL BENCH, FREIGHT EXPENSES WHICH H AVE BEEN DEDUCTED FROM EXPORT TURNOVER SHOULD ALSO BE REDUCE D FROM TOTAL TURNOVER. I.T.A. NO. 947/MDS/2013 7 THE REVENUE HAS ASSAILED THE ORDER OF THE CIT(APPEA LS) ON THE GROUND THAT THE ORDER OF THE SPECIAL BENCH OF T HE TRIBUNAL IN THE CASE OF M/S. SAKSOFT LTD (SUPRA) HAS NOT BECOME FINAL AS THE DEPARTMENT HAS PREFERRED AN APPEAL U/S. 260A OF THE ACT. THE LD. DR HAS NOT BEEN ABLE TO PLACE ON RECORD ANY JUDGMEN T CONTRARY TO THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN M/S. SAKSOFT LTD (SUPRA). FILING OF APPEAL AGAINST THE ORDER CANNOT PRECLUDE THE ASSESSEE FROM THE BENEFIT WHICH HAS ALREADY BEEN GR ANTED TO THE OTHER SIMILARLY SITUATED ASSESSEES ESPECIALLY WHEN THE ORDER HAS NOT BEEN STAYED BY ANY HIGHER COURT. THIS GROUND O F APPEAL OF THE REVENUE IS ALSO DISMISSED. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED AS IT IS DEVOID OF MERIT. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON WEDNESDAY, THE 14 TH AUGUST, 2013 AT CHENNAI. SD/- SD/- (DR. O.K. NARAYANAN) (VIK AS AWASTHY) VICE PRESIDENT JUDICIAL MEMBER DATED: 14 TH AUGUST, 2013 TNMM COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR