JC FASHIONS, Jaipur V. ITO (T & J), Jaipur

ITA 993/JPR/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9734 (ITAT-JAIPUR)
• Duration Of Justice: 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 11-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA CIT DHK
• Assessee Lawyers: R C SVARNKAR
• Keywords: Double taxation relief; Retrospective amendment; Permanent establishment
• Section: 143(3); 148

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH HKKXPUN] YS[KK LNL; ,OA JH DQY HKKJR] U;KF;D LNL ; DS LE{K BEFORE: SHRI BHAGCHAND, JM & SHRI KUL BHARAT, AM VK;DJ VIHY LA-@ ITA NO. 993 & 970/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2008-09. M/S JC FASHIONS, JAIPUR. CUKE VS. THE ACIT CIRCLE 6 JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAAFJ 9370 N VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI SHRAWAN KUMAR GUPTA (ADVOCATE) & SHRI R.C. SVARNKAR (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI R.A. VERMA (ADDL CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 02.03.2017. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 16 /03/2017. VKNS'K@ ORDER PER SHRI KUL BHARAT, JM. THESE TWO APPEALS BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE ORDER OF INCOME TAX (A)-2 JAIPUR, DATED 23 RD AUG. 2016,PERTAINING TO THE ASSESSMENT YEAR 2008-09. FIRST WE TAKE UP THE ASSESSEES APPEAL IN ITA NO. 9 93/JP/2016. THE ASSESSEE HAS RAISED FOLLOWINGS GROUNDS OF APPEAL AS READ A U NDER:- 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A)- 2,JAIPUR HAS ERRED IN UPHOLDING THE RE-ASSESSMENT P ROCEEDING IN ORDER AND AS PER LAW. 2. THE ASSESSEE CRAVES YOUR INDULGENCE TO ADD/AMEND OR ALTER ALL OR ANY GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 2. THE ONLY EFFECTIVE GROUND IN THIS APPEAL IS AGAINST THE VALIDITY OF RE-ASSESSMENT PROCEEDINGS. 2 ITA NO. 993 & 970/JP/2016 M/S J.C. FASHION, JAIPUR. 3. BRIEFLY, STATED THE FACTS ARE THAT THE CASE WAS ASSESSED UNDER SECTION 143(3) ON THE RETURNED INCOME ON 15/12/2010. SUBSEQUENTLY , THE CASE WAS REOPENED AND THE ASSESSMENT UNDER SECTION 143(3) READ WITH SECTI ON 148 WAS FRAMED VIDE ORDER DATED 10/3/2015. THE REASON FOR RE-OPENING WAS THA T, THAT THE ASSESSEE HAD MADE COMMISSION PAYMENT OF RS. 31,76,338/- TO A NON-RESI DENT INDIAN BUT NO TAX WAS DEDUCTED AT SOURCE ON THIS COMMISSION PAYMENT. THE AFORESAID AMOUNT OF RS. 31,76,338/- WAS DISALLOWABLE UNDER SECTION 40(A)(IA ) BECAUSE OF CBDT CIRCULAR NO. 7/2009 DATED 22 ND OCT. 2009. THUS, THE ASSESSING OFFICER MADE ADDIT ION OF RS. 31,76,338/- AGAINST THIS, THE ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) WHEREIN THE ASSESSEE HAD CHALLENGED TO REOPENING OF THE AS SESSMENT. THE LD. CIT HOWEVER GRANTED RELIEF BY HOLDING THAT THERE IS NO LAW TO D EDUCT TAX AT SOURCE ON COMMISSION UNDER SECTION 195 OR CHAPTER XVII-B OF THE IT ACT,1 961. 3.1 HOWEVER, THE LD. CIT(A) REJECTED THE GROUNDS C HALLENGING FOR THE REOPENING OF THE ASSESSMENT AGAINST BOTH THESE REVENUE AND A SSESSEE HAVE CHALLENGED BY FILING APPEAL BEFORE THIS TRIBUNAL. THE LD. COUNSE L FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS MADE IN THE WRITTEN SUBMISSIONS. HE SUBMITTED THAT THE REASSESSMENT WAS MADE AFTER EXPIRY FOUR YEARS. THE REFORE, IT WAS INCUMBENT UPON THE ASSESSING OFFICER TO DEMONSTRATE THAT ASSESSEE HAS FAILED TO DISCLOSE FULLY AND TRULY ALL MATERIALS FACTS NECESSARY FOR HIS ASSESSM ENT FOR THE ASSESSMENT YEAR UNDER APPEAL. HE FURTHER SUBMITTED EVEN OTHERWISE ALSO T HIS ISSUE IS SQUARELY CLEAR BY THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF CIT VS. MODERN INSULATORS LTD. 369 ITR 138(RAJ.) WHEREIN IT HAS BEEN HELD TH AT THE CIRCULAR NO. 7 DATED 22/10/2009 CANNOT BE CONSIDERED RETROSPECTIVELY TO MAKE IT APPLICABLE TO MAKE PAYMENT BEFORE THAT DATE. HE SUBMITTED THAT THE ASS ESSMENT YEAR INVOLVED IS 2008- 3 ITA NO. 993 & 970/JP/2016 M/S J.C. FASHION, JAIPUR. 09 THE CIRCULAR WAS ISSUED ON 22/10/2009. ADMITTED LY, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT THE TAX PRIOR TO THE CIRCULAR DA TED 22/10/2009. THE LIABILITY IF ANY TO DEDUCT TAX WOULD ARISE POST 22/10/2009. HE SUBMI TTED THE PAYMENTS WERE MADE PRIOR TO THE ISSUANCE OF CIRCULAR AND EVEN RETURN O F INCOME WAS FILED ORIGINALLY ON 25/9/2008. 3.2 ON THE CONTRARY, THE LD. DEPARTMENTAL REPRESENT ATIVES OPPOSED THE SUBMISSIONS AND SUPPORTED THE ORDERS OF THE AUTHORI TY BELOW. 3.3 WE HAVE HEARD THE RIVAL CONTENTION, AND PERUSED THE MATERIAL AVAILABLE RECORDS AND GONE THROUGH THE ORDERS OF THE AUTHORIT IES BELOW. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT REOPENING WAS MADE AFT ER FOUR YEARS. THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL AVAILABLE ON R ECORD, THAT THE ASSESSEE WAS GUILTY OF NOT DISCLOSING FULLY AND TRULY ALL MATERIALS FAC TS NECESSARY FOR THE ASSESSMENT. WE FIND THAT THE ASSESSING OFFICER DURING THE ORIGINAL ASSESSMENT HAD MADE A SPECIFIC QUERY WITH REGARD TO PAYMENT OF COMMISSION AND THE ASSESSEE REPLIED THE SAME. THEREFORE, IT CANNOT BE INFERRED THAT THE MATERIALS FACTS RELATED TO THE PAYMENTS OF COMMISSION WAS NOT BEFORE ASSESSING OFFICER DURING THE ORIGINAL ASSESSMENT PROCEEDINGS. THE BASIS FOR REOPENING IS ADMITTEDLY THE CIRCULAR DATED 22/10/2009 WHICH WAS NOT HAVING RETROSPECTIVE EFFECTS AS HELD BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. MODERN INSULATORS(SUPR A) WHEREIN THE HONBLE HIGH COURT HAS HELD AS UNDER: FROM A PERUSAL OF RELEVANT PARAGRAPH 2 OF THE AFOR ESAID CIRCULAR, IT CLEARLY SPECIFIES THAT THE QUESTION OF DEDUCTION OF TAX AT SOURCE UNDER SECTION 195 WOULD ARISE ONLY IF THE PAYMENT OF COMMISSIONER TO A NON-RESIDENT IS CHARGEABLE TO TAX IN INDIA THE FACT THAT THE SAID P AYMENT WAS REMITTED DIRECTLY ABROAD AND IT CANNOT BE HELD TO HAVE BEEN RECEIVED ON OR ON BEHALF OF THE AGENT IN INDIA. IT IS A FINDING BY THE TWO APPELLA TE AUTHORITIES THAT THE COMMISSION PAY ABROAD IS NOT CHARGEABLE TO TAX IN I NDIA UNDER THE INCOME- 4 ITA NO. 993 & 970/JP/2016 M/S J.C. FASHION, JAIPUR. TAX ACT. CIRCULAR NO.7, DATED OCTOBER 22, 2009, IN OUR VIEW, CANNOT BE CONSIDERED RETROSPECTIVELY TO MAKE IT APPLICABLE FO R PAYMENTS MADE BEFORE THAT DATE. THE INCOME-TAX APPELLATE TRIBUNAL HAS A LSO HELD THAT THE ABOVE NON-RESIDENTS/FOREIGN AGENTS HAVE PROVIDED SERVICES FOR EARNING COMMISSION AND THE SERVICES HAVE BEEN RENDERED OUTSIDE INDIA, THE COMMISSION SO EARNED BY THE NON-RESIDENT IS A BUSINESS PROFIT. AS PER T HE DTAA BETWEEN INDIA AND THE UK AND THE DTAA BETWEEN INDIA AND THE UAE, IT I S MENTIONED IN ARTICLE 7 OF BOTH THE DTAAS THAT THE BUSINESS PROFIT CAN BE T AXED IN OTHER CONTRACTING STATE IN CASE THE ENTERPRISE OF A CONTRACTING STATE IS HAVING A PERMANENT ESTABLISHMENT IN OTHER CONTRACTING STATE AND IT HAS NEVER BEEN A CASE ADMITTEDLY OF THE REVENUE THAT THE AFORESAID NON-RE SIDENT COMPANIES/ENTITIES ARE HAVING THEIR PERMANENT ESTABLISHMENT IN INDIA. CIRCULAR NO. 786, DATED FEBRUARY 7, 2000, GOVERNS THE CASE OF THE RESPONDEN T-ASSESSEE AS THE YEAR INVOLVED IS THE ASSESSMENT YEAR 2007-08 AND, IN OUR VIEW, THE CIRCULAR NO. 7, DATED OCTOBER 22, 2009, WHICH CAME INTO FORCE FROM OCTOBER 22 ,2009, CANNOT BE SAID TO BE APPLICABLE IN THE FACTS OF THE INSTANT CASE OR CAN BE SAID TO BE RETROSPECTIVE IN NATURE OR EVEN CLARIFICATORY IN NATURE. IN THE LIGHT OF THE ABOVE WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED FOR REOPENING THE ASSESSMENT. T HEREFORE, WE HEREBY QUASH THE ASSESSMENT ORDER DATED 10/3/2015. THE GROUND RAISED IN THIS APPEAL ARE ALLOWED. THE APPEAL OF THE ASSESSEE IS ALLOWED. 4. NOW, WE TAKE UP THE REVENUES APPEAL IN ITA NO 970/JP/2016, PERTAINING TO THE ASSESSMENT YEAR 2008-09. THE REVENUE HAS RAISED FOL LOWINGS GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) HAS ERRED IN DELETING ADDITION MADE BY THE A O U/ 40(A)(IA) OF THE ACT THOUGH THE ASSESSEE WAS REQUIRED TO DEDUCT TDS AS PER PROVISIONS OF THE SECTION 195 OF THE ACT AND INCOME IS CHARGEABLE TO TAX U/S 9 O THE IT ACT. 2. THE APPELLANT CRAVES ITS RIGHTS TO ADD, AMEND OR AL TER ANY OF THE GROUND ON OR BEFORE THE HEARING. 5. THE REPRESENTATIVES OF THE PARTIES HAVE ADOPTED THE SAME ARGUMENT AS, IN ITA NO 993/JP/2016 OF THE ASSESSEE AS WE ALREADY HA VE QUASHED, THE REOPENING OF THE ASSESSMENT BY HOLDING AS UNDER: 5 ITA NO. 993 & 970/JP/2016 M/S J.C. FASHION, JAIPUR. WE HAVE HEARD THE RIVAL CONTENTION, AND PERUSED THE MATERIAL AVAILABLE RECORDS AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT REOPENING WAS MADE AFTER FOUR YEARS. THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL AVAILABLE ON RECORD, THAT THE ASSESSEE WAS GUILTY O F NOT DISCLOSING FULLY AND TRULY ALL MATERIALS FACTS NECESSARY FOR THE ASSESSMENT. WE FIND THAT T HE ASSESSING OFFICER DURING THE ORIGINAL ASSESSMENT HAD MADE A SPECIFIC QUERY WITH REGARD TO PAYMENT OF COMMISSION AND THE ASSESSEE REPLIED THE SAME. THEREFORE, IT CANNOT BE INFERRED THAT THE MATERIALS FACTS RELATED TO THE PAYMENTS OF COMMISSION WAS NOT BEFORE ASSESSING OFFICER DURING THE ORIGINAL ASSESSMENT PROCEEDINGS. THE BASIS FOR REOPENING IS THE CIRCUL AR DATED 22/10/2009 WHICH WAS NOT HAVING RETROSPECTIVE EFFECT AS HELD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. MODERN INSULATORS(SUPRA) WHEREIN THE HONBLE HIGH COURT HA S HELD AS UNDER: FROM A PERUSAL OF RELEVANT PARAGRAPH 2 OF THE AFORE SAID CIRCULAR, IT CLEARLY SPECIFIES THAT THE QUESTION OF DEDUCTION OF TAX AT SOURCE UND ER SECTION 195 WOULD ARISE ONLY IF THE PAYMENT OF COMMISSIONER TO A NON-RESIDENT IS CHARGE ABLE TO TAX IN INDIA THE FACT THAT THE SAID PAYMENT WAS REMITTED DIRECTLY ABROAD AND IT CANNOT BE HELD TO HAVE BEEN RECEIVED ON OR ON BEHALF OF THE AGENT IN INDIA. IT IS A FINDING BY T HE TWO APPELLATE AUTHORITIES THAT THE COMMISSION PAY ABROAD IS NOT CHARGEABLE TO TAX IN I NDIA UNDER THE INCOME-TAX ACT. CIRCULAR NO.7, DATED OCTOBER 22, 2009, IN OUR VIEW, CANNOT B E CONSIDERED RETROSPECTIVELY TO MAKE IT APPLICABLE FOR PAYMENTS MADE BEFORE THAT DATE. THE INCOME-TAX APPELLATE TRIBUNAL HAS ALSO HELD THAT THE ABOVE NON-RESIDENTS/FOREIGN AGENTS HA VE PROVIDED SERVICES FOR EARNING COMMISSION AND THE SERVICES HAVE BEEN RENDERED OUTS IDE INDIA, THE COMMISSION SO EARNED BY THE NON-RESIDENT IS A BUSINESS PROFIT. AS PER THE DTAA BETWEEN INDIA AND THE UK AND THE DTAA BETWEEN INDIA AND THE UAE, IT IS MENTIONED IN ARTICLE 7 OF BOTH THE DTAAS THAT THE BUSINESS PROFIT CAN BE TAXED IN OTHER CONTRACTING S TATE IN CASE THE ENTERPRISE OF A CONTRACTING STATE IS HAVING A PERMANENT ESTABLISHMENT IN OTHER CONTRACTING STATE AND IT HAS NEVER BEEN A CASE ADMITTEDLY OF THE REVENUE THAT THE AFORESAID N ON-RESIDENT COMPANIES/ENTITIES ARE HAVING THEIR PERMANENT ESTABLISHMENT IN INDIA. CIRC ULAR NO. 786, DATED FEBRUARY 7, 2000, GOVERNS THE CASE OF THE RESPONDENT-ASSESSEE AS THE YEAR INVOLVED IS THE ASSESSMENT YEAR 2007-08 AND, IN OUR VIEW, THE CIRCULAR NO. 7, DATED OCTOBER 22, 2009, WHICH CAME INTO FORCE FROM OCTOBER 22 ,2009, CANNOT BE SAID TO BE APPLICA BLE IN THE FACTS OF THE INSTANT CASE OR CAN BE SAID TO BE RETROSPECTIVE IN NATURE OR EVEN CLARIFIC ATORY IN NATURE. IN THE LIGHT OF THE ABOVE WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED THE ASSESSMENT. THEREFORE, WE HEREBY QUA SH THE ASSESSMENT ORDER DATED 10/3/2015. SINCE WE HAVE QUASHED THE ASSESSMENT ORDER BEING IL LEGAL. THE GROUNDS RAISED IN THIS APPEAL ARE DISMISSED. 6. IN THE RESULT , THE APPEAL OF THE ASSESSEE IN I TA NO.993/JP/2016 IS ALLOWED AND THAT OF THE REVENUES APPEAL IN ITA NO. 970/JP/ 2016 IS DISMISSED. 6 ITA NO. 993 & 970/JP/2016 M/S J.C. FASHION, JAIPUR. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF MARCH 2017. SD/- SD/- ( HKKXPUN ) ( DQY HKKJR ) ( BHAGCHAND ) ( KUL BHARAT ) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 16 /03/2017. POOJA/- VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- M/S J.C.FASHIONS, JAIPUR. 2. THE RESPONDENT- THE ACIT CIRCLE-6, JAIPUR. 3. THE CIT 4. THE CIT (A) 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 993 & 970/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 7 ITA NO. 993 & 970/JP/2016 M/S J.C. FASHION, JAIPUR.