The Principal Commissioner of Income tax-4 V. M/s Meera AND Ceiko Pumps Pvt Ltd.,

ITTA/606/2017

AI Insights

The case revolves around an appeal by the Principal Commissioner of Income Tax-4, Hyderabad against M/s Meera & Ceiko Pumps Pvt Ltd concerning the non-exclusion of payments made to an overseas agent from the ambit of taxation for the assessment year 2009-10. The Income Tax Appellate Tribunal had previously ruled in favor of the respondent, stating that the payments made for services rendered outside India and received outside India did not attract Indian tax. The Tribunal's decision was based on the interpretation of Section-9(1)(vii)(b) of the Income Tax Act and was supported by a relevant Circular from the Central Board of Direct Taxes, which was in effect during the relevant assessment years.

• Counselvise Citation: [2017] 140 COUNSELVISE.COM (IT) 744440 (HC-HYDERABAD)
• Appeal Type: Others
• Pronouncement Date: 31-10-2017
• Assessment Year: misc
• Other Referred Cases: Clouth Gummiwerke Aktiengelleschaft vs. National Mineral Development Corporation Ltd
• Laws Referred To: Income Tax Act, Central Board of Direct Taxes Circular No.23
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: J V PRASAD
• Keywords: Payment; Taxation; Technical Services; Overseas agent; Non-exclusion
• Section: 9(1)(vii)(b)

Judgement Text

"HON'BLE SRI JUSTICE C.V.NAGARJUNA REDDY AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM ITTA.No.606 of 2017 Date:31.10.2017 Between: The Principal Commissioner of Income Tax-4, Hyderabad. ..... Appellant And: M/s Meera & Ceiko Pumps Pvt Ltd., Secunderabad. .....Respondent Counsel for the appellant: Mr. J.V.Prasad Senior Standing Counsel for IT Department The Court made the following: CVNR, J & CKR, J ITTA.No.606 of 2017 Dated:31.10.2017 2 JUDGMENT: (per Hon’ble Sri Justice C.V.Nagarjuna Reddy) Feeling aggrieved by order, dated 30.11.2015, in ITA.No.996/Hyd/2015 on the file of the Income Tax Appellate Tribunal, Hyderabad Bench “B”, Hyderabad, the Principal Commissioner of Income Tax-4, Hyderabad (for short ‘the Tribunal’), filed this appeal. The issue before the Tribunal pertained to non-exclusion of payments to Overseas agent from the ambit of taxation for the assessment year 2009-10. The Tribunal took into consideration the order of the Commissioner of Income Tax (Appeals) {CIT (A)} in respect of the assessment years 2005-06 and 2006-07 relating to the respondent itself, whereunder he has deleted the disallowance made by the Assessing Officer (AO) following Circular No.23, dated 23.7.1969, of the Central Board of Direct Taxes and observed that the said Circular was withdrawn only on 22.10.2009. The said order of CIT (A) questioned in ITA.No.996/Hyd/201 by the Department was dismissed by the Tribunal with the following reasons: “We have considered rival submissions on either side and also perused the material available on record. The agreement entered 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 CVNR, J & CKR, J ITTA.No.606 of 2017 Dated:31.10.2017 3 country. MAOM has to make arrangements for transporting, 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 liaisoning work carried out by MAOM with the departments at the time of tender. This clearly shows that MAOM rendered 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 respect of work carried out outside India and the payment was also made outside India, in our opinion such a payment would fall within the exception provided in Section-9(1)(vii)(b) of the Income Tax Act. Therefore, the payment made by the assessee is not subject to any tax in India. Accordingly, 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 the time of payment. We have also carefully gone through the judgment of the Andhra Pradesh High Court in the case of Clouth Gummiwerke Aktiengelleschaft (supra). In the case before the Andhra Pradesh High Court, the assessee is a non-resident company and entered into an agreement with National Mineral Development Corporation Ltd for erecting certain conveyor belt at their Balladilla 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. Lump surmount of DM 33,000 was to be paid towards charges and the engineers were to be CVNR, J & CKR, J ITTA.No.606 of 2017 Dated:31.10.2017 4 provided free boarding, lodging and transport facility apart from air-fare. In this factual situation, the Andhra Pradesh High Court held that the two supervisors were deputed only for the purpose of technical service and nowhere, it was disclosed that they were engaged for 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 were entirely different. In the case before us, 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 commissioning. As rightly submitted by the learned representative for the assessee, 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 this 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 the 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 case.” Mr. J.V.Prasad, learned senior Standing Counsel for Income Tax Department, has not disputed the fact that similar payments made by the respondent during the assessment years 2005-06 and 2006-07 were excluded by CIT (A) and the same were confirmed in appeal by the Tribunal in the above reproduced order. However, the learned counsel is unable to CVNR, J & CKR, J ITTA.No.606 of 2017 Dated:31.10.2017 5 state whether the said order of the Tribunal was questioned or not. In the light of the above, we find no reason to interfere with the impugned order of the Tribunal. Hence, the appeal is dismissed. ___________________________ JUSTICE C.V.NAGARJUNA REDDY ___________________________ JUSTICE CHALLA KODANDA RAM 31st October 2017 DR "