ACIT, Circle-16(2), Hyderabad, Hyderabad V. Meera & Ceiko Pumps P Ltd., Hyderabad, Secunderabad

ITA 996/HYD/2015

• Counselvise Citation: 99622514 RSA 2015
• Duration Of Justice: 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 31-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B KURMI NAIDU
• Assessee Lawyers: S RAMA RAO
• Keywords: Deemed to accrue or arise in india

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 996/HYD/2015 ASSESSMENT YEAR: 2008-09 ASST. COMMISSIONER OF INCOME- TAX, CIRCLE 16(2), HYDERABAD. VS. M/S MEERA & CEIKO PUMPS PVT. LTD., HYDERABAD PAN AABCM 3924F (APPELLANT) (RESPONDENT) REVENUE BY : SHRI B. KURMI NAIDU ASSESSEE BY : SHRI S. RAMA RAO DATE OF HEARING : 15-10-2015 DATE OF PRONOUNCEMENT : 30-11-2015 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST TH E ORDER DATED 31/03/2015 OF LD. CIT(A) 4, HYDERABAD, FOR THE AY 2009-10. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURE OF HAND PUMP S AND ITS SPARES AND EXECUTION OF WORKS CONTRACTS. FOR THE AY UNDER CONSIDERATION, IT FILED ITS RETURN OF INCOME ON 29/ 09/08 DECLARING NIL INCOME AFTER CLAIMING SET OFF OF BROUGHT FORWARD UN ABSORBED BUSINESS LOSS OF RS. 6,08,457. SUBSEQUENTLY, THE CASE WAS SE LECTED FOR SCRUTINY. AFTER EXAMINING THE DETAILS SUBMITTED BY ASSESSEE, THE AO OBSERVED THAT IN THE PREVIOUS YEAR RELEVANT TO AY 2 008-09, THE ASSESSEE DEBITED AN AMOUNT OF RS. 1,01,24,853 TO TH E P&L A/C TOWARDS AGENCY COMMISSION (FOREIGN) AND THE SAME WA S PAID WITHOUT DEDUCTING TAX THEREON. ON ENQUIRY BY AO, VIDE ORDE R SHEET NOTING/LETTER DATED 12/11/10, TO EXPLAIN WHY THIS A MOUNT SHOULD NOT BE DISALLOWED, THE ASSESSEE FILED A NOTE STATING THAT THE SAID AMOUNT WAS 2 ITA NO. 996 /HYD/2015 MEERA & CEIKO PUMPS PVT. LTD. PAID TO NON RESIDENTS FOR PARTICIPATING AND OBTAINI NG EXPORT ORDERS FOR SUPPLY OF HANDPUMPS SPARES AND TOOLS MANUFACTURED B Y THE ASSESSEE. THE DETAILS OF PAYMENTS ARE AS UNDER: A) TO FOUNDARIES & AGRICULTURAL MACHINERY (GH) LTD. RS. 74,53,597 B) TO BUDHI VASUDEVIAH RS.26,17,256 THE AGREEMENTS ENTERED INTO BY THE ASSESSEE COMPANY WITH THE SAID COMPANIES WAS PRODUCED BEFORE AO FOR VERIFICATION. AFTER PERUSING THE TERMS AND CONDITIONS OF THE AGREEMENT ENTERED I NTO WITH THE SAID COMPANIES BY ASSESSEE AND REFERRING TO THE EXPLANAT ION (B) TO SECTION 9(1), THE AO HELD THAT ASSESSEES CONTENTION THAT N O TDS APPLICABLE AND AS SUCH NO DISALLOWANCE TO BE MADE U/S 40(A)(IA ) WAS NOT ACCEPTABLE. HE FURTHER HELD THAT SINCE THE AMOUNT P AID BY THE ASSESSEE FALLS WITHIN THE AMBIT OF INCOME DEEMED TO ACCRUE OR ARISE IN INDIA, THE ASSESSEE IS BOUND TO DEDUCT TAX AT SO URCE A PER THE PROVISIONS OF SECTION 195 OF THE ACT AND AS NO SUCH APPLICATION AS REQUIRED U/S 195(2) FOR NIL DEDUCTION OR DEDUCTION RATE WAS MADE TO THE JURISDICTIONAL OFFICER THE ASSESSEE FAILED TO C OMPLY WITH THE PROVISION OF TDS. THEREFORE, THE AO DISALLOWED THE AMOUNT OF RS. 1,01,24,853 U/S 40(A)(I) OF THE ACT. 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE CARRI ED THE MATTER IN APPEAL BEFORE THE CIT(A). 4. BEFORE THE CIT(A) THE ASSESSEE FILED WRITTEN SUB MISSIONS, WHICH WERE EXTRACTED BY CIT(A) AT PAGES 2 TO 5. AFTER CON SIDERING THE SUBMISSIONS OF ASSESSEE, THE LD. CIT(A) OBSERVED TH AT THE ASSESSEE HAD DEBITED THE PAYMENTS MADE FOR SIMILAR SERVICES TO FOREIGN AGENTS IN EARLIER YEARS UNDER THE HEAD INSTALLATION CHARG ES AND FEE FOR TECHNICAL SERVICES. THIS YEAR THE PAYMENT IS DEBITE D AS AGENCY COMMISSION. HE FURTHER OBSERVED THAT DURING THE YEA R UNDER CONSIDERATION ASSESSEE HAD ENTERED INTO FRESH AGREE MENTS WITH FOREIGN AGENTS STYLED AS AGENCY AGREEMENTS. THE SER VICES TO BE 3 ITA NO. 996 /HYD/2015 MEERA & CEIKO PUMPS PVT. LTD. RENDERED UNDER THE ABOVE AGREEMENTS WERE LOCAL SERV ICES I.E. CUSTOMS CLEARANCE, TRANSPORTATION AND DISTRIBUTION OF PUMPS TO VARIOUS REGIONS AND TO ARRANGE FOR INSPECTION AT DE STINATION. FOR THE ABOVE SERVICES AGENCY COMMISSION @ 5-10% IS PAYABLE . IT WAS ALSO OBSERVED THAT THE AMOUNTS PAID TO FOREIGN AGENTS OF INDIAN EXPORTERS IS NOT LIABLE TO TDS AS PER CIRCULAR NO. 23 DATED 2 3/07/1969 FOR AY 2008-09. FOLLOWING THE DECISION OF THE ITAT IN ASS ESSEES OWN CASE FOR AY 2005-06 AND 2006-07, THE CIT(A) HELD THAT TH E ASSESSEE IS NOT UNDER OBLIGATION TO DEDUCT TAX ON AGENCY COMMISSIO N PAYMENT MADE TO FOREIGN AGENTS AND ACCORDINGLY THE DISALLOWANCE MADE BY AO U/S 40(A)(IA) WAS DELETED BY CIT(A). 5. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. CIT(A)-4, HYD HAS ERRED ON FACTS AND CIRCUMSTANC ES BY PASSING THE ABOVE ORDER. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE BY THE AS SESSING OFFICER U/S 40(A)(IA) FOR FAILURE TO COMPLY WITH PROVISIONS O F TDS U/S.195(1) OF I.T.ACT. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSEE HAS BEEN UNDER NO OBLIGATION TO DEDUCT TAX ON 'AGENCY COMMISSION' PAYMENT TO FORE IGN AGENTS. 3.1. WHETHER THE CIT(A) HAS ERRED IN HOLDING THAT THE IMPUGNED PAYMENT ARE NOT COVERED BY THE DEFINITAION OF 'FEE FOR TECHNICAL SERVICES' GIVEN IN EXPLANATION 2 BELOW SECTION9(1) (VII) READ WITH CALRIFICATORY EXPLANATION BELOW SECTION9(2) AMENDE D BY THE FINANCE ACT, 2010 W.R.E.F. 01-06-1976. 3.2. WHETHER THE CIT(A) HAS ERRED IN HOLDING THAT EXCEPTION PROVIDED IN SECTION9(1)(VII)(B) IS APPLICABLE IGNORING THAT IT HAS TO BE READ WITH EXPLANATION BELOW SECTION9(2) AMENDED BY THE FINA NCE ACT, 2010 W.R.E.F. 01-06-1976. 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL AS OTHER MATERIAL ON RECORD. WE FIND THAT THE ISSUE IN DISPUTE IS SQUARELY COVER ED BY THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR AY 2005-06 A ND 2006-07. IN AY 2005-06 IN ITA NO. 960/HYD/2005-06, VIDE ORDER D ATED11TH DECEMBER, 2009, THE COORDINATE BENCH HELD AS FOLLOW S: 4 ITA NO. 996 /HYD/2015 MEERA & CEIKO PUMPS PVT. LTD. 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE AGREEMENT EN TERED INTO BETWEEN THE ASSESSEE AND MAOM CLEARLY SHOWS THAT THE ASSESSEE HAS TO DISPATCH HAND PUMPS, SPARES ETC. AND MAOM HAS TO CLEAR THE HAND PUMPS, SPARES AND OTHER MATERIAL DISPATCHED BY THE ASSESSEE FROM THE PORT SITUATED OUTSIDE THE COUNTRY. MAOM HAS TO MAKE ARRANGEMENTS FOR TR ANSPORTING, STORING, DISTRIBUTION, INSTALLATION AND COMMISSION OF HAND PUMPS. THE ASSESSEE HAS TO PAY A SUM OF EURO 40,880.00 IN RESPECT OF THIS WORK OF MAOM. THE ASSESSEE ALSO HAS TO PAY AN ADDITIONAL AMOUNT OF 5 % ON FOB VALUE IN RESPECT OF IIAISONING WORK CARRIED OUT BY MAOM WI TH DEPARTMENTS AT THE TIME OF TENDER. THIS DEARLY SHOWS THAT MAOM RENDER ED THEIR SERVICES ONLY OUTSIDE INDIAN TERRITORY. THE CONTRACT AMOUNT WAS ALSO ADMITTEDLY RECEIVED IN FINLAND AND THE PAYMENTS WERE ALSO MADE OUTSIDE INDIAN TERRITORY. WHEN THE ASSESSEE PAID TO A FOREIGN NATIONAL IN RE SPECT OF WORK CARRIED OUT OUTSIDE INDIA, AND THE PAYMENT WAS ALSO MADE OUTSI DE INDIA, IN OUR OPINION, SUCH A PAYMENT WOULD FALL WITHIN THE EXCE PTION PROVIDED' IN SEC.9(1)(VII)(B) OF THE INCOME-TAX ACT. THEREFORE, THE PAYMENT MADE BY THE ASSESSEE IS NOT SUBJECT TO ANY TAX IN INDIA. ACCOR DINGLY, THERE IS NO NEED FOR DEDUCTION OF TAX BY THE ASSESSEE. THE CIT (A) , AFTER TAKING INTO CONSIDERATION THE ACTIVITY CARRIED OUT BY MAOM IN SENEGAL, FOUND THAT THERE WAS NO REQUIREMENT OF DEDUCTION OF TAX AT TH E TIME OF PAYMENT. 6. WE HAVE ALSO CAREFULLY GONE THROUGH THE JUDGMEN T OF THE ANDHRA PRADESH HIGH COURT IN THE CASE OF CLOUTH GUMMIWERK E AKTIENGELLESCHAFT (SUPRA). IN THE CASE BEFORE THE ANDHRA PRADESH HIG H COURT, THE ASSESSEE IS A NON-RESIDENT COMPANY AND ENTERED INTO AN' AGR EEMENT WITH NATIONAL MINERAL DEVELOPMENT CORPORATION LTD. FOR ERECTING CERTAIN CONVEYOR BELT AT THEIR BAILADILLA PROJECT. THE NON-RESIDENT COMPANY AGREED TO ERECT THE CONVEYOR BELT THROUGH THEIR ENGINEERS. AS PER THE AGREEMENT, THE NON- RESIDENT COMPANY WAS TO DEPUTE TWO SUPERVISORS FOR A PERIOD OF 2 WORKING DAYS FOR BELT CHANGING AND ERECTION OF NEW BELT. L UMP SUM AMOUNT OF DM 33,000 WAS TO BE PAID TOWARDS CHARGES AND THE ENGI NEERS WERE TO BE PROVIDED FREE BOARDING LODGING AND TRANSPORT FACIL ITY APART FROM AIR-FARE. IN THIS FACTUAL SITUATION, THE ANDHRA PRADESH HIGH CO URT HELD THAT THE TWO SUPERVISORS WERE DEPUTED ONLY FOR THE PURPOSE OF T ECHNICAL SERVICE AND NOWHERE IT WAS DISCLOSED THAT THEY WERE ENGAGED FO R THE PURPOSE OF CONSTRUCTING A PLANT. THEREFORE, IT WAS HELD THAT THE INCOME WAS CHARGEABLE UNDER THE INDIAN INCOME-TAX ACT. IN THE CASE BEFORE US, THE FACTS ARE ENTIRELY DIFFERENT. IN THE CASE BEFORE U S, THERE WAS AN AGREEMENT BETWEEN THE ASSESSEE AND THE FOREIGN NATIONAL. AS PER THE AGREEMENT, EURO 40,880 WAS THE SHARE OF MAOM FOR CLEARING THE MATERIAL FROM THE PORT, TRANSPORT, STORAGE, INSTALLATION AND COMMISS IONING. AS RIGHTLY SUBMITTED BY THE LEARNED REPRESENTATIVE FOR THE AS SESSEE, BY OVERRIDING TITLE THIS AMOUNT OF EURO 40,880 HAS TO BE PASSED ON TO MAOM. THEREFORE, IN OUR OPINION, MAOM HAS A PARAMOUNT RIGHT OVER TH IS AMOUNT AND THERE WAS A CHARGE BY OVERRIDING TITLE. IN VIEW OF THIS, IT CANNOT BE CONSIDERED TO BE A PAYMENT FOR TECHNICAL SERVICES. IN VIEW OF TH E ABOVE FACTUAL SITUATION, IN OUR OPINION, THE JUDGMENT OF THE ANDHRA PRADESH HIGH COURT REFERRED TO ABOVE MAY NOT BE APPLICABLE TO THE FACTS OF THIS C ASE. 6.1 THE CIT(A) HAS DELETED THE DISALLOWANCE MADE BY AO U/S 40(A)(IA) FOLLOWING THE DECISION OF COORDINATE BENC H IN ASSESSEES OWN CASE AND ALSO THE CIRCULAR OF THE CBDT NO. 23 W AS IN EXISTENCE SINCE IT WAS WITHDRAWN BY THE CBDT ONLY ON 22/10/20 09 VIDE CIRCULAR NO. 7. HENCE, THE PAYMENT TO OVERSEAS AGENTS WERE O UTSIDE THE AMBIT 5 ITA NO. 996 /HYD/2015 MEERA & CEIKO PUMPS PVT. LTD. OF TAXATION IN THE AY UNDER CONSIDERATION. THEREFOR E, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) AND THE ORDER OF CIT(A) IS HEREBY CONFIRMED DISMISSING THE GROUNDS RAISED BY REVENUE. 7. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER, 2015. SD/- SD/- (D. MANMOHAN) (S. RIFAUR RAHMA N) VICE PRESIDENT A CCOUNTANT MEMBER HYDERABAD, DATED:30 TH NOVEMBER, 2015 KV COPY TO:- 1) ACIT, CIRCLE 16(2), ROOM NO. 611, 6 TH FLOOR, AAYAKAR BHAVAN, BAHEERBAGH, HYDERABAD 2) M/S MEERA & CEIKO PUMPS PVT. LTD., 4-3-161, HILL STREET, RANIGUNJ, SECUNDERABAD 3 CIT(A)-4, HYDERABAD 4) CIT-4, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., H YDERABAD.