M/s Exotic Fruits Pvt. Ltd.,, Bangalore v. ITO, Bangalore

ITA 1012/BANG/2012 | 2010-2011
Pronouncement Date: 04-10-2013 | Result: Allowed

Appeal Details

RSA Number 101221114 RSA 2012
Assessee PAN AAACE6341F
Bench Bangalore
Appeal Number ITA 1012/BANG/2012
Duration Of Justice 1 year(s) 1 month(s) 25 day(s)
Appellant M/s Exotic Fruits Pvt. Ltd.,, Bangalore
Respondent ITO, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 04-10-2013
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 04-10-2013
Date Of Final Hearing 25-09-2013
Next Hearing Date 25-09-2013
Assessment Year 2010-2011
Appeal Filed On 09-08-2012
Judgment Text
ITA NOS.1008 TO 1013 OF 2012 EXOTIC FRUITS PVT LTD BANGALORE PAGE 1 OF 17 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BBENCH BANGALORE BEFORE SHRI N. BARTHVAJASANKAR VICE PRESIDENT AND SHRI GEORGE GEORGE K. JUDICIAL MEMBER ITA NO.1008 TO 1013/BANG/2012 (ASSESSMENT YEAR: 2008-09 TO 2010-11) M/S EXOTIC FRUITS PVT LTD. NO.514 6 TH CROSS II STAGE INDIRANAGAR BANGALORE-560038 PAN: AAACE 6341 F VS. INCOME TAX OFFICER (INTERNATIONAL TAXATION) WARD 1(1) BANGALORE (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI P.C. KHINCHA CA DEPARTMENT BY: SHRI M.VIJAYA KUMAR DR DATE OF HEARING: 25/09/2013 DATE OF PRONOUNCEMENT: 04/10/2013 O R D E R PER BENCH: THESE SIX APPEALS INSTITUTED AT THE INSTANCE OF THE ASSESSEE COMPANY ARE DIRECTED AGAINST THE CONSOLIDATED ORDE R OF THE CIT (A)- IV BANGALORE DATED 29.6.2012 FOR THE ASSESSMENT Y EARS 2008-09 2009-10 AND 2010-11 [U/S 201(1) & U/S. 201(1A) OF T HE ACT]. ITA NOS.1008 1009 & 1010/12 AYS.2008-09 2009-10 & 2010-11: ORDERS U/S 201(1) OF THE ACT: 2. THE ASSESSEE COMPANY HAS IN ITS GROUNDS OF MEMO RANDUM FOR ALL THE THREE ASSESSMENT YEARS UNDER CONSIDERAT ION RAISED ALMOST FOUR IDENTICAL GROUNDS. HOWEVER ALL THE GR OUNDS ARE CONFINED TO A SOLITARY ISSUE NAMELY THAT THE CIT (A) HAD ERRED IN CONCLUDING THAT THE COMMISSION PAID TO M/S. FOOD SP ECIALITIES ITA NOS.1008 TO 1013 OF 2012 EXOTIC FRUITS PVT LTD BANGALORE PAGE 2 OF 17 LIMITED DUBAI AMOUNTING TO RS.1 14 34 166/- RS.1 58 65 626/- & 13 22 750/- FOR THE AYS 2008-09 TO 2010-11 RESPECTI VELY AND RS.1 53 99 061/- TO DOHLER MIDDLE EAST DUBAI FOR T HE AY 2010-11 WERE IN THE NATURE OF MANAGERIAL SERVICES U/S 9(1) (VII) OF THE ACT AND CONSEQUENTLY LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S 195 OF THE ACT. ITA NOS.1011 1012 & 1013/12 AYS.2008-09 2009-10 & 2010-11: ORDERS U/S 201(1A) OF THE ACT: 3. THE ASSESSEE COMPANY HAS ALSO RAISED THREE SIMILAR GROUNDS FOR ALL THE AYS UNDER DISPUTE THE GIST OF WHICH IS : WHETHER THE CIT (A) WAS JUSTIFIED IN CONFIRMING THE LEVY OF INTERES T U/S 201(1A) OF THE ACT? 3.1. AS THE ISSUES RAISED IN THESE APPEALS BEING IN TER-CONNECTED AND PERTAINING TO THE SAME ASSESSEE THEY WERE HEAR D CONSIDERED AND DISPOSED OF FOR THE SAKE OF CONVENIENCE IN TH IS CONSOLIDATED ORDER. 4. BRIEFLY STATED THE FACTS OF THE ISSUES ARE AS U NDER: THE ASSESSEE IS ENGAGED IN THE BUSINESS O F PROCESSING OF FRUIT PRODUCTS AND EXPORTING THE SAME TO THE VARIOUS NON- RESIDENT CUSTOMERS IN SAUDI ARABIA BAHRAIN DUBAI ETC. TH ROUGH ITS NON- RESIDENT AGENTS. FOR THE PURPOSE OF EXPORTS THE A SSESSEE HAD ENTERED INTO AN AGENCY AGREEMENT WITH THE NON-RESID ENT AGENTS TO WHOM THE COMMISSION WAS BEING PAID AS PER THE TERMS AND CONDITIONS. THE COMMISSION IT APPEARS WAS BEING REMITTED TO THEM IN PURSUANCE OF THE PERFORMANCE AS PER THE SAID AGR EEMENTS. HOWEVER ON VERIFICATION OF FORM 15CA/CB FURNISHED BY THE ASSESSEE THE AO HAD NOTICED THAT THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON THE PAYMENTS MADE TO THE NON-RESID ENTS AS ITA NOS.1008 TO 1013 OF 2012 EXOTIC FRUITS PVT LTD BANGALORE PAGE 3 OF 17 PROVIDED U/S 195 OF THE ACT. THE AO HAD FURTHER N OTICED IN 15CB REPORT THAT THE REMITTANCE WAS TOWARDS COMMISSION F OR EXPORT FOR SERVICES RENDERED OUTSIDE INDIA AND THAT THE SAME W AS IN THE NATURE OF BUSINESS INCOME OF THE BENEFICIARY WHO HAD GOT N O PERMANENT ESTABLISHMENT IN INDIA AND THAT HIS STAY IN INDIA D ID NOT EXCEED 90 DAYS DURING THE YEAR ETC. BEING QUERIED BY ISSUANC E OF A NOTICE THE ASSESSEE HAD FURNISHED A DETAILED SUBMISSION ON THE ISSUE. AFTER DUE CONSIDERATION OF THE ASSESSEES LENGTHY CONTENT IONS AS RECORDED IN THE ORDER UNDER DISPUTE THE AO HAD REJECTED THE ASSESSEES CLAIM BY EXTENSIVELY QUOTING THE PROVISIONS OF S. 9 (1) O F THE ACT AND CONCLUDED THAT 18. THEREFORE IN THE LIGHT OF THE ABOVE DISCUSSIO N MADE IN THE PRECEDING PARAGRAPHS IT IS CLEAR THAT THE PAYMENTS MADE TO NON- RESIDENTS IS DEEMED TO ACCRUE OR ARISEN U/S 5 AND 9 OF THE INCOME-TAX ACT 1961 AND WOULD THEREFORE CONSTITUT E AN INCOME CHARGEABLE UNDER THE INDIAN INCOME-TAX ACT 1961. THE FACT THAT THE NON-RESIDENT WOULD BE RENDERING SERVICES OUTSID E INDIA AND ALSO GETTING PAYMENT OUTSIDE INDIA ARE WHOLLY IRRE LEVANT CONSIDERATIONS. SINCE THE SOURCE OF INCOME BEING SITUATED IN INDIA THE NON-RESIDENTS ARE LIABLE TO INCOME-TAX I N INDIA UNDER THE ACT. 19. ..ACCORDINGLY THE TOTAL TAX AND INTERE ST PAYABLE FOR EACH YEAR IS COMPUTED AS UNDER: F.Y A.Y AMOUNT PAID TAX U/S 201(1) INT. U/S 201(1A) TOTAL (IN RS.) 2007-08 2008-09 1 23 54 742 50 65 444 18 57 660 69 23 104 2008-09 2009-10 1 61 05 386 66 03 208 12 28 332 7 8 31 540 THAT THE 2009-10 2010-11 1 71 79 678 70 32 925 10 34 458 80 67 38 3 TOTAL 2 28 22 028 20. ACCORDINGLY I DEEM M/S. EXOTIC FRUITS PVT. LTD . TO BE AN ASSESSEE IN DEFAULT UNDER SECTION 201(1) FOR ITS FA ILURE TO DEDUCT/WITHHOLD THE TAX FROM THE PAYMENTS MADE TO T HE NON- RESIDENTS AS REQUIRED UNDER SECTION 195 OF THE INCO ME-TAX ACT 1961. THE ASSESSEE IS LIABLE TO PAY A TOTAL SUM OF RS.2 28 22 028/- U/S 201(1) & 201 (1A) FOR NOT COMP LYING WITH THE PROVISIONS OF S. 195 OF THE I. T. ACT 1961 FOR THE ABOVE MENTIONED ASSESSMENT YEARS. 5. AGGRIEVED THE ASSESSEE TOOK UP THE ISSUES BEFO RE THE CIT (A). AFTER DUE CONSIDERATION OF THE CONTENTION S OF THE ASSESSEE AS RECORDED IN HIS ORDER QUOTING THE JUDGMENT OF T HE HONBLE ITA NOS.1008 TO 1013 OF 2012 EXOTIC FRUITS PVT LTD BANGALORE PAGE 4 OF 17 SUPREME COURT IN THE CASE OF CIT V. TOSHOKU LIMITED [ 125 ITR 525 (SC)] AND ALSO EXAMINING THE AGREEMENTS BETWEEN THE ASSESSEE AND ITS NON-RESIDENT CUSTOMERS THE CIT (A) HAD RECORDE D HIS FINDINGS AS UNDER: (ON PAGE 6 THE ABOVE FACTS NOTICED FROM THE AGREEMENTS MAKE IT CLEAR THAT IN RESPECT OF REMITTANCE MADE TO M/S FOOD SPECIALIT IES LIMITED UAE THE APPELLANT FAILED TO PRODUCE ANY EVIDENCE I N RESPECT OF THE PAYMENT MADE FOR THE FINANCIAL YEAR 2007-08 TO ESTABLISH THAT THE INCOME WAS NOT CHARGEABLE TO TAX IN INDIA FURTHER FROM THE AGREEMENT PRODUCED FOR SUBSEQUENT PERIOD IT IS EVIDENT THE SERVICES ARE IN THE NATURE OF MANAGERIAL SERVICES A ND THEREFORE COMES UNDER THE PURVIEW OF SECTION 9(1)(VII) OF THE INCOME-TAX ACT. SIMILARLY THE FACT REVEALED FROM THE AGREEME NT DISCUSSED ABOVE IN RESPECT OF REMITTANCES MADE TO M/S DOHLER MIDDLE EAST LTD. UAE IT IS CLEAR THAT THE PAYMENT WAS MADE FO R THE MANAGERIAL SERVICES WHICH COMES UNDER THE PURVIEW O F FEES FOR TECHNICAL SERVICES U/S 9(1)(VII) OF THE INCOME-TAX ACT. FURTHER FROM THE EXPLANATION TO SECTION 9(2) OF THE I.T. AC T INSERTED WITH RETROSPECTIVE EFFECT FROM 1.6.1976 IT IS CLEAR THA T THE FEES FOR TECHNICAL SERVICES SHALL BE DEEMED TO BE ACCRUED OR ARISE IN INDIA AND SHALL BE INCLUDABLE IN THE TOTAL INCOME O F THE NON- RESIDENTS EVEN IF THE NON-RESIDENTS DO NOT HAVE RES IDENTS OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA A ND SERVICES HAVE BEEN RENDERED OUTSIDE INDIA. THUS THE REMITT ANCES MADE TO THE ABOVE 2 NON-RESIDENTS ARE CHARGEABLE TO TAX IN INDIA U/S 9(1) (VII) OF THE INCOME-TAX ACT AND THEREFORE TH E APPELLANT WAS REQUIRED TO DEDUCT THE TAX U/S 195 OF THE I.T. ACT. HOWEVER IN THE CASES OF AUGUSTA TRADING AND BUREAU COUECOU TH E PAYMENT IS CLEARLY IN THE NATURE OF THE COMMISSION FOR THE SERVICES RENDERED OUTSIDE INDIA AND THEREFORE AS HELD BY T HE HONBLE SUPREME COURT OF INDIA IN THE CASE OF CIT V. TOSHOK U LIMITED (1225 ITR 525) THE COMMISSION PAID TO THEM WILL NO T BE CHARGEABLE TO TAX IN INDIA AND THEREFORE THE QUES TION OF DEDUCTING TAX AT SOURCE ON THE PAYMENT MADE TO THEM DOES NOT ARISE. ACCORDINGLY THE ASSESSING OFFICER IS DIREC TED TO RE- COMPUTE THE INTEREST U/S 201 & 201(1A) OF THE INCOM E-TAX ACT.. 6. AGGRIEVED THE ASSESSEE HAS COME UP BEFORE US WI TH THE PRESENT APPEALS. DURING THE COURSE OF HEARING THE LEARNED AR REITERATED MORE OR LESS WHAT HAS BEEN PRESENTED BEF ORE THE FIRST APPELLATE AUTHORITY. IN FURTHERANCE IT WAS SUBMIT TED THAT THE INITIATION OF PROCEEDINGS U/S 201 OF THE ACT SHALL COME INTO FORE ONLY ITA NOS.1008 TO 1013 OF 2012 EXOTIC FRUITS PVT LTD BANGALORE PAGE 5 OF 17 WHEN THERE WAS A DEFAULT ON THE PART OF THE ASSESSE E TO DEDUCT TAX AT SOURCE AS SPECIFIED UNDER THE PROVISIONS OF THE ACT. THE AO HAD FAILED TO FORESEE AS TO WHETHER THE ASSESSEE WAS LI ABLE TO DEDUCT TDS U/S 194H OR U/S 195 OF THE ACT WITH REGARD TO THE P AYMENT OF COMMISSION TO ITS FOREIGN AGENTS. IT WAS FURTHER SUBMITTED THAT NONE OF THE ASSESSEES AGENTS STATIONED ABROAD HAVE RENDERED ANY PART OF THEIR SERVICES ON INDIAN SOIL. AS A MATTER OF FACT IT WAS CLAIMED THE SERVICES RENDERED CONSIST OF GETTING O RDERS FROM CUSTOMERS SITUATED IN DUBAI AND OTHER COUNTRIES AND FOLLOWING UP OF THE PAYMENTS FROM CUSTOMERS AND THAT NONE OF THE AGENTS HAVE THEIR OFFICES OR BUSINESS ESTABLISHMENTS IN INDIA W HILE RENDERING THEIR SERVICES TO THE ASSESSEE. IT WAS URGED THAT SINCE NO PART OF THE SERVICES WERE RENDERED IN INDIA AND NO INCOME AROSE ON THE PAYMENTS OF COMMISSIONS TO SUCH AGENTS THE ASSESSE E WAS NOT OBLIGED TO DEDUCT TAX AT SOURCE U/S 195 OF THE ACT AS ATTRIBUTED BY THE REVENUE. TO STRENGTHEN HIS ARGUMENT LEARNED A R HAD PLACED RELIANCE ON THE FOLLOWING CASE LAWS: (A) JCIT V. M/S WIFI NETWORKS P. LTD IN ITA NOS.189 & 190/BANG/2012 DATED 8.3.2013; (B) SRI SUBBRAMAN SUBRAMANIAN V. ACIT (2013) 140 ITD 707 (BNG); (C) ITO V. M/S. FAIZAN SHOES PVT. LTD IN ITA NO.2095/MDS/2012 DATED 23.4.2013 ITAT CHENNAI D. BENCH; (D) ITO V. M/S. RELIANCE INTERNATIONAL (2013) TAXCORP (INTL)5395 (ITAT LUCKNOW); & (E) LINDE AG V. ITO 62 ITD 330) 6.1. ON THE OTHER HAND THE LEARNED DR SUPPORTED T HE STAND OF THE AUTHORITIES BELOW ON THE ISSUE. IT WAS FURTHER S UBMITTED THAT AS THE ISSUE HAS SINCE BEEN ELABORATELY ANALYZED AND C AME TO A RIGHT CONCLUSION BY THE CIT (A) IN HIS FINDINGS UNDER DIS PUTE THE SAME REQUIRES TO BE SUSTAINED. ITA NOS.1008 TO 1013 OF 2012 EXOTIC FRUITS PVT LTD BANGALORE PAGE 6 OF 17 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS DULY PERUSED THE RELEVANT MATERIALS ON RECORD AND ALSO T HE CASE LAWS ON WHICH THE ASSESSEES REPRESENTATIVE HAD PLACED STRO NG RELIANCE. THE ONLY ISSUE WHICH REQUIRES TO BE ADJUDICATED IS WHET HER THE ASSESSING AUTHORITY WAS RIGHT IN INVOKING THE PROVI SIONS OF SECTION 201(1) AND 201(1A) OF THE ACT IN THE PRESENT CASE. 7.1 BRIEFLY THE ASSESSEE IS ENGAGED IN THE BUSINES S OF PROCESSING OF FRUIT PRODUCTS AND EXPORTING THE SAME TO ITS CUS TOMERS IN VARIOUS COUNTRIES THROUGH ITS AGENTS POSITIONED IN THEIR RE SPECTIVE COUNTRIES. IT WAS THE CASE OF THE ASSESSING OFFICE R THAT THE SOURCE OF INCOME BEING SITUATED IN INDIA THE NON-RESIDENTS A RE LIABLE TO INCOME-TAX IN INDIA UNDER THE INCOME-TAX ACT AND SI NCE THE ASSESSEE HAD FAILED TO MAKE DEDUCTION TAX FROM THE PAYMENTS MADE TO THEM AS REQUIRED U/S 195 OF THE ACT THE ASSESSE E WAS TREATED AS ASSESSEE IN DEFAULT U/S 201(1) OF THE ACT. 7.2. HOWEVER ON A PERUSAL OF THE MATERIALS PLACED BEFORE US WE HAVE NOTICED THAT NONE OF THE ASSESSEES AGENTS BAS ED ABROAD HAVE RENDERED ANY SERVICES IN INDIA. ADMITTEDLY NONE O F THE ASSESSEES AGENTS HAVE THEIR OFFICES OR BUSINESS ESTABLISHMENT S IN INDIA FOR RENDERING SUCH SERVICES TO THE ASSESSEE. THE COMMI SSIONS TO SUCH AGENTS HAVE BEEN PAID NOT IN INDIA BUT OVERSEAS. SINCE NO PART OF THE SERVICES WERE RENDERED BY SUCH AGENTS IN INDIA NO INCOME AROSE ON THE PAYMENT OF COMMISSIONS TO SUCH AGENTS AND C ONSEQUENTLY AS RIGHTLY ARGUED BY THE LEARNED AR THE QUESTION OF DEDUCTION OF TAX AT SOURCE U/S 195 OF THE ACT DOESNT ARISE. TH E CIT (A) HAS MERELY STATED THAT PAYMENTS TO NON RESIDENT AGENTS COME WITH MEANING OF MANAGERIAL SERVICE MENTIONED U/S 9(1)(VI I). ON PERUSAL OF AGREEMENT IT IS EVIDENT THAT THE REMITTANCES TO NON RESIDENTS ARE MERE COMMISSION PAYMENT BASED ON TURNOVER OF SALES AND THERE IS NO MANAGERIAL SERVICE RENDERED BY NON RESIDENT TO T HE ASSESSEE. ITA NOS.1008 TO 1013 OF 2012 EXOTIC FRUITS PVT LTD BANGALORE PAGE 7 OF 17 7.3 AT THIS POINT OF TIME WE WOULD LIKE TO ANALYZE THE JUDICIAL VIEW ON A SIMILAR ISSUE. (I) THE EARLIER BENCH OF THIS TRIBUNAL HAD AN OCCA SION TO DEAL WITH A SIMILAR SITUATION IN THE CASE OF JCIT V . M/S. WIFI NETWORKS PVT. LTD (SUPRA). IN THAT CASE BRIEFLY AMONG OTHERS THE ASSESSEE W AS AGGRIEVED BY THE DISALLOWANCE OF MARKET SURVEY FEE PAID TO A RESIDENT OF UAE U/S 40(A) (I) OF THE ACT ON THE PRE MISE THAT THE SAID PAYMENT WAS IN THE NATURE OF FEES FOR TECHNICAL S ERVICES U/S 9(1) (VII) OF THE ACT AND THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE U/S 195 OF THE ACT. THE AO WAS OF THE VIEW THAT SINCE U NDER THE TREATY WITH UAE THERE WAS NO ARTICLE WHICH DEALS WITH TAXA BILITY OF FEES FOR TECHNICAL SERVICES THE PAYMENT WILL BE FEES FOR TE CHNICAL SERVICES U/S 9(1)(VII) OF THE ACT. WHEN THE ISSUE REACHED T HE TRIBUNAL FOR ADJUDICATION THE BENCH HAD AFTER TAKING INTO ACCO UNT THE RIVAL SUBMISSIONS AS RECORDED THEREIN OBSERVED AS UNDER: 10.4.1. .THE LEARNED COUNSEL FOR THE ASSESSEE PL ACED ON RECORD THE AGREEMENT DT 15.5.2006 PERTAINING TO THE RELEVANT PERIOD UNDER CONSIDERATION. AS PER THE AGREEMENT THE NON- RESIDENT IS TO CARRY OUT EXTENSIVE SURVEY TO ASSESS THE MARKET POTENTIAL AT UGANDA FOR VALUE ADDED SERVICES SPECIF ICALLY FOR SMS IVRS DIDIN CRBT USSD ETC. THE SHORT TERM A ND LONG TERM PROSPECTS FOR THE ASSESSEE COMPANY AND TO FUR NISH THE DETAILS OF THE TELECOM PRODUCTS CURRENTLY BEING OFF ERED BY EXISTING UAS VENDORS. THE ASSESSEE PAID THE MARKET SURVEY FEES TO THE NON-RESIDENT IN CONSIDERATION FOR RENDE RING THE ABOVE SERVICES. 10.4.2. SINCE THE TREATY BETWEEN INDIA-UAE DOES NO T CONTAIN AN ARTICLE IN RESPECT OF FEES FOR TECHNICAL SERVI CES THE PAYMENT OF MARKET SURVEY FEES WILL HAVE TO BE REGARDED AS BUSINESS PROFIT AS PER ARTICLE OF THE TREATY. THE NON-RESI DENT WAS CARRYING ON BUSINESS IN UAE IN THE FIELD OF MARKET SURVEY AND THE ASSESSEE HAS AVAILED HIS SERVICE FOR A CONSIDER ATION / FEES. THE AGREEMENT WITH THE NON-RESIDENT WAS IN THE COUR SE OF BUSINESS CARRIED ON AND WE FIND THAT THE LEARNED CI T (APPEALS) ITA NOS.1008 TO 1013 OF 2012 EXOTIC FRUITS PVT LTD BANGALORE PAGE 8 OF 17 WAS ALSO OF THE SAME VIEW. THUS WE ARE OF THE VIE W THAT THE PAYMENT OF MARKET FEES TO THE NON-RESIDENT IN THE P RESENT CASE ON HAND IS TO BE DEALT WITH AS PER ARTICLE 7 OF THE TREATY BETWEEN INDIA UAE. THE AAR IN TEKNISIL (SENDIRIA N) BERHARD IN RE (SUPRA) HELD AS UNDER AT PARA 12 AND 13 THERE OF: 12. THE AUTHORITY IS OF THE OPINION THAT NEITHER O F THESE CONTENTIONS PUT FORWARD BY THE DEPARTMENT CAN BE ACCEPTED. IT IS TRUE THAT THE INCOME DERIVED BY TH E TSB UNDER THE AGREEMENT CAN BE DESCRIBED AS FEES FOR TE CHNICAL SERVICES THOUGH THAT SPECIFIC EXPRESSION DOES OF FI D A PLACE IN THE CONTRACT. BUT THIS MAKES NO DIFFERENCE BEC AUSE THAT DESCRIPTION IS NOT SUFFICIENT TO TAKE IT OUT O F THE PURVIEW OF ARTICLE 7 WHICH MAKES THE INCOME OR PROF IT OF AN ENTERPRISE OF A STATE TAXABLE ONLY IN THAT STATE UNLESS THE ENTERPRISE CARRIES ON BUSINESS IN OTHER STATE T HROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN. TO SAY T HAT TSB IS NOT CARRYING ON A BUSINESS AND THAT INCOME B Y WAY OF TECHNICAL SERVICES HAS NOT BEEN SPECIFICALLY PRO VIDED FOR BY THE DTAA MAY INDEED BE FATAL TO THE CASE OF THE DEPARTMENT BECAUSE BY VIRTUE OF ARTICLE 7 ALL THE INCOME OR PROFITS OF AN ENTERPRISE IN A STATE ARE TAXABLE ONLY IN THAT STATE SAVE IN TWO CASES. THE TWO EXCEPTIONS A RE: (A) THE PROFITS OF A BUSINESS CARRIED ON THROUGH AS PER MANENT ESTABLISHMENT IN ANOTHER STATE AND ATTRIBUTABLE TO SUCH PERMANENT ESTABLISHMENT; AND (B) INCOME OR PROFITS WHICH ARE DEALT WITH SEPARATELY IN OTHER ARTICLES OF THE AGREEMENT. THAT APART THERE CAN BE NO DOUBT WHATSO EVER THAT THE SUPPLY OF SKILLED LABOURERS TO OTHER COMPA NIES IS IN THE NATURE OF A BUSINESS ACTIVITY. IN ITS APPLI CATION DATED APRIL 4 1995 UNDER SECTION 197 THE APPLICA NT HAS STATED THAT IT IS ENGAGED IN THE BUSINESS OF SUPPLY ING SKILLED LABOUR FOR EXECUTION OF OFFSHORE PROJECTS F OR JACKET AND RISER INSTALLATIONS. THE CONTRACT WITH HHI WAS ENTERED INTO IN THE COURSE OF ITS BUSINESS. NO DETAILS OF ASSESSMENT YEAR CONTRACTS OF SIMILAR NATURE ENTERED INTO BY THE APPELLANT WITH OTHER PARTIES HAVE BEEN FURNI SHED. STILL THE VERY NATURE OF THE CONTRACT IS SUCH THAT IT SPELLS OUT A BUSINESS. THE ASSESSEE IS TO ENGAGE SKILLED L ABOUR AND SUPPLIES THE LABOURERS TO OTHER COMPANIES REQUI RING SUCH LABOUR. IT GETS PAID ON THE BASIS OF CERTAIN RATES PER UNIT OF LABOUR EMPLOYED AND BY EFFECTING ECONOMICS IN THE SCALE OF WAGES IT OFFERS TO ITS EMPLOYEES EARNS A M ARGIN OF PROFIT FOR ITSELF. THIS IS CLEARLY IN THE NATURE O F A BUSINESS AND ARTICLE 7 WILL BE ATTRACTED. 13. THE FACT THAT THE REMUNERATION PAID TO THE ASS ESSEE MAY BE IN THE NATURE OF TECHNICAL FEE WITHIN THE SCOPE OF SECTION ITA NOS.1008 TO 1013 OF 2012 EXOTIC FRUITS PVT LTD BANGALORE PAGE 9 OF 17 9(1)(VII) DOES NOT MAKE A DIFFERENCE. FEES OF THIS NATURE CAN BE EARNED IN BUSINESS OR OTHERWISE. IF EARNED IN T HE COURSE OF BUSINESS THEY CONSTITUTE INCOME FROM BUSINESS. THERE IS O INCOMPATIBILITY BETWEEN RECOGNIZING THE RECEIPTS AS ROYALTIES OR TECHNICAL FEES AND ALSO LOOKING UPON T HEM AS THE PROFITS OF A BUSINESS. JUDICIAL DECISIONS HAVE REC OGNIZED THE PRINCIPLE IN REGARD TO OTHER TYPES OF RECEIPTS SUCH AS DIVIDENDS AND INTEREST. THAT BEING SO WHEN TECHNI CAL FEES ARE RECEIVED IN THE COURSE OF BUSINESS ONE CANNOT DENY THEM THE TREATMENT ENVISAGED BY ARTICLE 7 SPECIALLY INT ENDED FOR APPLICATION TO BUSINESS INCOME. THE ITAT MUMBAI IN THE CASE OF CHRISTIANI & NEILS EN COPERHOGAN (SUPRA) AT PARA 8 THEREOF HAS HELD AS UN DER: ..THE FEES FOR TECHNICAL SERVICES IN THE NORMA L BUSINESS PARLANCE IS A PART OF THE PROFITS EARNED B Y AN ENTERPRISE. IT IS EARNED THROUGH A SYSTEMATIC SERI ES OF ACTIVITIES CARRIED ON BY THE ASSESSEE I.E. IN PRE PARING THE PROJECT BY CONDUCTING PRELIMINARY STUDIES COLLECTI ON AND ASSIMILATION OF DATA AND FINALLY PREPARING THE FEAS IBILITY REPORT AND IN THIS CASE WITH REGARD TO TRANS-HARB OUR COMMUNICATION LINK BETWEEN THE ISLAND CITY OF BOMBA Y AND THE INDUSTRIAL AND COMMERCIAL PROFITS AND THER EFORE IT CANNOT BE SAID THAT THERE IS NO SPECIFIC PROVISION FOR DEALING WITH SUCH KIND OF PROFIT IN AADT.. RECENTLY THE MUMBAI ITAT IN THE CASE OF CHANNEL GU IDE INDIA LTD V ACIT (2012) 25 TAXMAN.COM 25 (MUMBAI TRIB) HA S HELD THAT IF THERE IS NO CLAUSE DEALING WITH FEES FOR TECHNICAL SERVICES UNDER THE TREATY THE PAYMENT SHALL BE DE ALT WITH ARTICLE 7 OF THE TREATY DEALING WITH BUSINESS PROF IT. IT WAS HELD THAT ARTICLE 22 WOULD NOT BE APPLICABLE IN SUC H CIRCUMSTANCES. RELEVANT OBSERVATIONS OF THIS DECIS ION ARE AS UNDER: 23. AT THE TIME OF HEARING BEFORE US THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RAISED AN ALTOGETHER NEW CONTENT ION THAT THERE BEING NO CLAUSE IN THE INDO-THAILAND TREATY D EALING WITH FEES FOR TECHNICAL SERVICES THE AMOUNT IN QUESTION PAID BY THE ASSESSEE TO SSA IS COVERED BY THE RESIDUARY ARTICLE 22 OF THE TREATY AND THE SAME IS CHARGEABLE TO TAX IN INDIA A S OTHER INCOME. WE FIND IT DIFFICULT TO ACCEPT THIS CONTEN TION OF LD. DR M/S. SSA TO WHOM THE PAYMENT IN QUESTION WAS MADE B Y THE ASSESSEE IS A LICENSEE OF CERTAIN SATELLITE OWNED B Y GOVERNMENT OF THAILAND AND IT IS IN THE BUSINESS OF PROVIDING TV CHANNELS FACILITY OF BROADCASTING THEIR PROGRAMM ES THROUGH THE TRANSPONDERS LOCATED IN THE SAID SATELLITE. FO R THE SAID ITA NOS.1008 TO 1013 OF 2012 EXOTIC FRUITS PVT LTD BANGALORE PAGE 10 OF 17 FACILITY M/S. SSA RECOVERS SERVICE CHARGES FROM TV CHANNELS LIKE THE AMOUNT IN QUESTION RECOVERED FROM THE ASSE SSEE. KEEPING IN VIEW THIS NATURE OF BUSINESS OF M/S. SSA THE AMOUNT PAID BY THE ASSESSEE CERTAINLY CONSTITUTES B USINESS INCOME OF M/S. SSA AND WHEN THE SAME IS NOT IN THE NATURE OF ROYALTY OR FEES FOR TECHNICAL SERVICES IT IS COVER ED BY ARTICLE 7 OF THE INDO-THAILAND TREATY DEALING WITH BUSINESS I NCOME. THERE IS THUS NO NEED TO TAKE A RECOURSE TO ARTICLE 22 OF THE TREATY WHICH COVERS ONLY THE ITEMS OF INCOME WHICH ARE NOT COVERED EXPRESSLY BY ANY OTHER ARTICLE OF THE TREAT Y. IN VIEW OF THE DECISION ABOVE AND THE JUDICIAL DECI SIONS REFERRED TO WE ARE OF THE CONSIDERED OPINION THAT THE PAYMENT OF MARKET SURVEY FEES TO A RESIDENT OF UAE IN THE P RESENT CASE WILL FALL UNDER ARTICLE 7 I.E. BUSINESS PROFIT IN THE ABSENCE OF AN ARTICLE IN THE INDIA-UAE TREATY DEALING WITH FE ES FOR TECHNICAL SERVICES. IT IS A SETTLED PRINCIPLE THA T BUSINESS PROFIT OF A RESIDENT OF A CONTRACTING STATE IS NOT CHARGEA BLE TO TAX IN THE OTHER CONTRACTING STATE UNLESS THE NON-RESIDENT CARRIED OUT THE BUSINESS THROUGH A PE IN INDIA. IN THE CAS E ON HAND REVENUE HAS NOT ESTABLISHED THAT THE NON-RESIDENT H AS A PE IN INDIA. HENCE IN THE ABSENCE OF THE PE IN INDIA TH E BUSINESS PROFIT OF THE NON-RESIDENT IS NOT TAXABLE IN INDIA. EVEN IF IT IS CONSIDERED THAT THE PAYMENTS MADE TO NON-RESIDENT W ILL FALL UNDER ARTICLE 22 OF THE TREATY VIZ. OTHER INCOME THEN ALSO THE PAYMENTS ARE NOT TAXABLE TO TAX IN INDIA SINCE AS PER ARTICLE 22 INCOME OF A RESIDENT SHALL BE TAXABLE O NLY IN THAT CONTRACTING STATE I.E. UAE AND NOT IN INDIA. IN T HIS VIEW OF THE MATTER THE PAYMENT MADE TO THE NON-RESIDENT WA S NOT CHARGEABLE TO TAX IN INDIA AND THEREFORE THERE WA S NO LIABILITY TO DEDUCT TAX AT SOURCE IN RESPECT OF THE SAID PAYM ENT UNDER SECTION 195 OF THE ACT.. (II) IN THE CASE OF SRI SUBBARAMAN SUBRAMANIAN V. ACIT (SUPRA) THE EARLIER BENCH OF THIS TRIBUNAL HAS WI TH REGARD TO PAYMENTS TO NON-RESIDENTS OBSERVED AS UNDER: 12..THE BASIC QUESTION TO BE CONSIDERED BY U S IS WHETHER THE PAYMENT MADE BY THE ASSESSEE TO THE AGENTS OUTSIDE INDIA ARE IN THE NATURE OF THEIR BUS INESS INCOME OR FEES FOR TECHNICAL SERVICES. BOTH THE AO AS WELL AS THE CIT (A) HAVE HELD THE SERVICES TO BE TECHNIC AL SERVICES AS PER PROVISION OF S. 9(1)(VII) OF THE IN COME-TAX ACT. FOR APPLICATION OF THE SAID PROVISION THE NA TURE OF THE SERVICES RENDERED BY THE NON-RESIDENTS IN MALDIVES IS TO BE EXAMINED. AS FAR AS GEMINI INTERNATIONAL IS CON CERNED WE FIND THAT IT SUPPLIES BUILDING MATERIALS TO VARI OUS TOURIST RESORTS AT MALDIVES AND TO FACILITATE THE D ELIVERY OF ITA NOS.1008 TO 1013 OF 2012 EXOTIC FRUITS PVT LTD BANGALORE PAGE 11 OF 17 GOODS TO ITS CUSTOMERS THE ASSESSEE HAS ENGAGED TH E SERVICES OF M/S MISC. MALDIVES PVT LTD FOR WEIGHING THE GOODS CLEARANCE FROM THE CUSTOMS OF MALDIVES AND T HEIR DELIVERY TO THE PURCHASERS. IN THIS WHOLE EXERCISE WE HAVE TO EXAMINE WHETHER THERE IS ANY TECHNICAL CONSULTANCY OR MANAGERIAL SERVICES RENDERED BY THE NON- RESIDENT. FOR EVERY ACTIVITY OF SUPERVISION CERTA IN SKILL AND KNOWLEDGE OF THE EQUIPMENT TO BE DEALT WITH IS REQUIRED BUT CAN IT BE CALLED AS TECHNICAL SERVICES . THE AGENT ONLY RECEIVES THE MATERIAL GETS THE MATERIAL CLEARED FROM THE CUSTOMS AND DELIVERS IT TO THE PURCHASERS. IN THIS WHOLE EXERCISE THERE IS NO APPLICATION OF MIN D BY THE AGENT AND NO INDEPENDENT DECISION TAKEN WITH REGARD TO THE GOODS TO BE DELIVERED. IN SUCH CIRCUMSTANCES IT CANNOT BE SAID THAT TECHNICAL SERVICES HAVE BEEN RE NDERED BY THE AGENT AT MALDIVES. THEREFORE THE INCOME EA RNED BY THE SAID AGENT OUTSIDE INDIA IS TO BE CONSIDERED AS HIS BUSINESS INCOME AND AS HELD BY THE HONBLE DELHI HI GH COURT IN THE CASE OF CIT V. EON TECHNOLOGY (P) LTD (2012) 343 ITR 366 (DEL) THE BUSINESS PROFITS OF A NON-RE SIDENTS CANNOT BE BROUGHT TO TAX UNTIL AND UNLESS THERE IS A PE IN INDIA. (III) THE HONBLE ITAT CHENNAI IN THE CASE OF ITO V. M/S. FAIZAN SHOES PVT. LTD IN ITA NO. 2095/MDS/2012 DATE D 23.4.2013 ON A SIMILAR ISSUE HAS OBSERVED AS UNDER: 6. ON-GOING THROUGH THE ORDER OF THE COMMISSIONER OF INCOME- TAX (APPEALS) WE FIND THAT THE NON-RESIDENTS ARE O NLY PROCURING ORDERS FOR THE ASSESSEE AND FOLLOWING UP PAYMENTS NO OTHER SERVICES ARE RENDERED OTHER THAN PROCURING THE ORDE RS AND COLLECTING THE AMOUNTS. THE NON-RESIDENTS ARE NOT PROVIDING ANY TECHNICAL SERVICES TO THE ASSESSEE. THE COMMISSION PAYMENT MADE TO NON-RESIDENTS ALSO DOES NOT FALL UNDER THE CATEGORY OF ROYALTY OR FEE OF TECHNICAL SERVICES THEREFORE TH E EXPLANATION TO SUB-SECTION (2) OF SECTION 9 HAS NO APPLICATION TO THE FACTS OF THE ASSESSEES CASE. WE SEE THAT THIS CASE IS SQUARELY COVERED BY THE DECISION OF THE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CEN. P LTD V. CIT (327 ITR 456) WHEREIN THE HONBLE SUPREME COURT HELD THAT THE ASSESSEE IS NOT LIABLE TO DEDUCT TDS WHEN NON-RESIDENTS PROVIDED SERVICE OUTSIDE INDIA. IT WAS HELD THAT WHEN THE SERVICES ARE PROVIDED OUTSIDE INDIA THE COMMISSION PAYMENTS MADE TO NON-RESIDENTS CANNOT BE TREATED AS INCOME DEED TO ACCRUE OR ARISE IN INDIA THEREFO RE THE PROVISIONS OF SECTION 195 HAS NO APPLICATION. IN O RDER TO INVOKE THE PROVISIONS OF SECTION 195 OF THE ACT THE INCOM E SHOULD BE CHARGEABLE TO TAX IN INDIA. HERE THE COMMISSION P AYMENTS TO ITA NOS.1008 TO 1013 OF 2012 EXOTIC FRUITS PVT LTD BANGALORE PAGE 12 OF 17 NON-RESIDENTS ARE NOT CHARGEABLE TO TAX IN INDIA AN D THEREFORE THE PROVISIONS OF SECTION 1095 ARE NOT APPLICABLE. IN THE CIRCUMSTANCES WE SUSTAIN THE ORDER OF THE COMMISSI ONER OF INCOME-TAX (APPEALS) IN DELETING THE DISALLOWANCE M ADE UNDER S. 40(A)(I) OF THE ACT. (IV) YET ANOTHER FINDING IN THE CASE OF BRAKES IND IA LTD V. DCIT (LTU) REPORTED IN (2013) TAXCORP (INTL)527(ITA T CHENNAI) WITH REGARD TO THE PAYMENTS OF EXPORT SALES COMMISS ION AND LOGISTIC SERVICES MADE TO NON-RESIDENTS FOR NON-DEDUCTION OF TAX AT SOURCE THE HONBLE BENCH OF CHENNAI TRIBUNAL HAS OBSERVED AS UNDER: 47. IN OUR OPINION NATURE OF SERVICES MENTIONED A BOVE WILL COME NOT WITHIN THE DEFINITION OF FEES FOR TECHNIC AL SERVICES GIVEN UNDER EXPLANATION 2 TO SECTION 9(1) (VII) OF THE ACT. BY VIRTUE OF SUCH SERVICES THE CONCERNED RECIPIENTS H AD NOT MADE AVAILABLE TO THE ASSESSEE ANY NEW TECHNIQUE OR SKIL L WHICH ASSESSEE COULD USE IN ITS BUSINESS. THE SERVICES R ENDERED BY THE SAID PARTIES RELATED TO CLEARING WAREHOUSING A ND FREIGHT CHARGES OUTSIDE INDIA. THE LOGISTICS SERVICE RENDER ED WAS ESSENTIALLY WAREHOUSING FACILITY. IN OUR OPINION THIS CANNOT BE EQUATED WITH MANAGERIAL TECHNICAL OR CONSULTANCY S ERVICES. EVEN IT IS CONSIDERED AS TECHNICAL SERVICE THE FEE WAS PAYABLE ONLY FOR SERVICES UTILIZED BY THE ASSESSEE IN THE B USINESS OR PROFESSION OF THE NON-RESIDENTS EARNED THEM INCOME OUTSIDE INDIA. THUS IT WOULD FALL WITHIN THE EXCEPTION GI VEN UNDER SUB- CLAUSE (B) OF SECTION 9(1) OF THE ACT. IN ANY CASE UNDER SECTION 195 OF THE ACT ASSESSEE IS LIABLE TO DEDUCT TAX ON LY WHERE THE PAYMENT MADE TO NON-RESIDENTS IS CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT. IN THE CIRCUMSTANCES MENTIO NED ABOVE ASSESSEE WAS JUSTIFIED IN HAVING A BONA FIDE BELIEF THAT THE PAYMENTS DID NOT WARRANT APPLICATION OF SECTION 195 OF THE ACT. IN SUCH CIRCUMSTANCES WE ARE OF THE OPINION THAT I T COULD NOT HAVE BEEN SADDLED WITH THE CONSEQUENCES MENTIONED U NDER SECTION 40(A)(I) OF THE ACT.. 7.4. AT THIS JUNCTURE WE WOULD LIKE TO REFER TO TH E AOS OBSERVATION IN RESPECT OF THE ASSESSEES RELIANCE O N CBDTS CIRCULAR NO.23 DATE 23.7.1969 THAT 5.THE CIRCULAR NO.23 DATED 23.7.1969 HAS BEEN WITHDRAWN RESULTING IN CIRCULAR NO.786 DATED 7.2.2000 ALSO BECOMING INFRUCTUOUS. IN FACT AN IDENTICAL ISSUE TO THAT OF THE PRESENT ONE CAME UP FOR CONSID ERATION BEFORE THE HONBLE MUMBAI TRIBUNAL IN THE CASE OF GUJARAT RECLAIM & ITA NOS.1008 TO 1013 OF 2012 EXOTIC FRUITS PVT LTD BANGALORE PAGE 13 OF 17 RUBBER PRODUCTS LTD. V. ADDL CIT REPORTED IN (2013) 7 TAXCORP (A.T) 32950 (MUMBAI) WHEREIN THE HONBLE BENCH HAD OBSERVED THAT 4.7. IN VIEW OF THE ELABORATE DISCUSSION MADE BY THE CIT (A) IN AY 2008-09 WITH WHICH WE FULLY CONCUR AS IT IS C ORRECT BOTH ON FACTS AND ON LAW WE UPHOLD THE SAME AND DISMISS T HE REVENUE GROUND ON THIS ISSUE IN AY 2008-09 AND ALLOW ASSESS EES GROUNDS IN AY 2007-08. 7.5 FOR APPRECIATION OF FACTS WE EXTRACT THE CIT ( A)S OBSERVATIONS VERBATIM AS REPRODUCED BY THE TRIBUNAL IN ITS ORDER (SUPRA) AS UNDER: 4.3. ON PAGE 7.. THE NEXT QUESTION FOR CONSIDERATION IS THE EFFECT O F WITHDRAWAL OF CIRCULAR NO.23 OF 1969 AND 786 OF 2000 BY THE CBDT VIDE CIRCULAR NO.7 OF 2009. I HAVE CONSIDERED THE FACTS OF THE CASE. IN THE CI RCULAR NO.23 OF 1969 DTD 23.9.1969 SOME ILLUSTRATION INSTANCES OF N ON-RESIDENT HAVING BUSINESS CONNECTION IN INDIA HAD BEEN GIVEN AS UNDER: - MAINTAINING A BRANCH OFFICE IN INDIA FOR THE PURCHA SE OR SALE OF GOODS OR TRANSACTING OTHER BUSINESS - APPOINTING AN AGENT IN INDIA FOR THE SYSTEMATIC AND REGULAR PURCHASE OF RAW MATERIALS OR OTHER COMMODITIES OR FOR SALE OF THE NON-RESIDENTS GOODS OR FOR OTHER BUSINESS PUR POSES - ERECTING FACTORY IN INDIA WHERE THE RAW PRODUCE PUR CHASED LOCALLY IS WORKED OUT INTO A FORM SUITABLE FOR EXPO RT ABROAD. - FORMING A LOCAL SUBSIDIARY COMPANY TO SELL THE PROD UCTS OF THE NON-RESIDENT PARENT COMPANY - HAVING FINANCIAL ASSOCIATION BETWEEN A RESIDENT AND A NON- RESIDENT COMPANY IN THE SAID CIRCULAR CBDT HAVE GIVEN CLARIFICATION REGARDING THE APPLICABILITY OF PROVISIONS OF SEC. 9 IN THE CERTAI N SPECIFIC SITUATIONS AS UNDER: (1) NON-RESIDENT EXPORTER SELLING GOODS FROM ABROAD TO INDIAN IMPORTER (2) NON-RESIDENT COMPANY SELLING GOODS FROM ABROAD TO INDIAN SUBSIDIARY (3) SALE OF PLANT AND MACHINERY TO AN INDIAN IMPORTER O N INSTALMENT BASIS (4) FOREIGN AGENTS OF INDIAN EXPORTERS A FOREIGN AGEN T OF INDIAN EXPORTER OPERATES IN HIS OWN COUNTRY AND NO PART OF HIS ITA NOS.1008 TO 1013 OF 2012 EXOTIC FRUITS PVT LTD BANGALORE PAGE 14 OF 17 INCOME ARISES IN INDIA. HIS COMMISSION IS USUALLY REMITTED DIRECTLY TO HIM AND IS THEREFORE NOT RECEIVED BY HIM OR ON HIS BEHALF IN INDIA. SUCH AN AGENT IS NOT LIABLE TO IN COME-TAX IN INDIA ON THE COMMISSION. (5) NON-RESIDENT PERSONS PURCHASING GOODS IN INDIA (6) SALE BY A NON-RESIDENT TO INDIAN CUSTOMER EITHER DI RECTLY OR THROUGH AGENTS. (7) EXTENT OF THE PROFIT ASSESSABLE U/S 9 IN THE ABOVE CIRCULAR RELEVANT PARA IS NO.4 DEALING WITH THE SUBJECT OF FOREIGN AGENTS OF INDIAN EXPORTERS. THE CBDT VIDE CIRCULAR NO.7 OF 2009 DTD. 22.10.2009 HAS WITHDRAWN THE CIRCULAR NO.23/1969 WITH RETROSPECTIV E EFFECT. IN THE CIRCULAR NO.23 OF 1969 CBDT CLARIFIED THAT THE PAYMENT MADE TO NON-RESIDENT COMMISSION AGENTS WAS NOT LIAB LE TO INCOME-TAX IN INDIA. SUCH CLARIFICATION OF CBDT WA S BASED ON THE PROVISIONS OF SECTIONS 5 7 9 195 AND OTHER R ELEVANT PROVISIONS OF THE ACT. THE QUESTION FOR CONSIDERAT ION IS WHEN THERE IS NO RELEVANT CHANGE IN SECTIONS 5 7 9 19 5 THEN AS TO HOW THE WITHDRAWAL OF CIRCULAR NO.23 OF 1969 OF CBD T WILL MAKE THE COMMISSION PAID TO SUCH NON-RESIDENT COMMI SSION AGENTS TAXABLE IN INDIA. I AM OF THE CONSIDERED VI EW THAT EVEN AFTER THE WITHDRAWAL OF CIRCULAR NO.23 OF 1969 THE POSITION WILL REMAIN THE SAME I.E. THE COMMISSION PAID TO NON-RE SIDENT AGENTS IS NOT LIABLE TO TAX UNDER THE PROVISIONS OF I.T. ACT WHEN THE SERVICES WERE RENDERED OUTSIDE INDIA SERVICES WERE USED OUTSIDE INDIA PAYMENTS WERE MADE OUTSIDE INDIA AND THERE WAS NO PERMANENT ESTABLISHMENT OR BUSINESS CONNECTION IN INDIA. IT CANNOT BE ACCEPTED THAT BY VIRTUE OF CBDT CIRCULAR NO.23/1969 THE COMMISSION PAID TO NON-RESIDENT AGENTS BECOME N OT LIABLE TO INCOME-TAX IN INDIA AND ON SUCH WITHDRAWAL OF CIRCU LAR BY THE CBDT SUCH COMMISSION PAID TO NON-RESIDENT AGENTS B ECOME LIABLE TO INCOME-TAX IN INDIA. IRRESPECTIVE OF CIR CULAR ISSUED BY CBDT THE QUESTION OF TAXABILITY OF SUCH COMMISSION TO INCOME- TAX HAS TO BE DECIDED AS PER THE PROVISIONS OF SECT ION 9(1) OF THE ACT. I AM OF CONSIDERED VIEW THAT THE PROVISIONS O F SEC. 9(1) ARE NOT APPLICABLE TO THE COMMISSION PAID TO SUCH NON-R ESIDENT AGENTS. SUCH INCOME (COMMISSION) IN THE HANDS OF N ON-RESIDENT COMMISSION AGENTS DID NOT ACCRUE OR ARISE DIRECTLY OR INDIRECTLY THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA. SUCH INCOME TO THE NON-RESIDENT COMMISSION AGENTS DID NOT ACCRU E OR ARISE IN INDIA THROUGH OR FROM ANY PROPERTY IN INDIA OR THRO UGH THE TRANSFER OF CAPITAL ASSET SITUATED IN INDIA. IN TH E FACTS AND CIRCUMSTANCES THE PROVISIONS OF SEC. 9(1) WERE NOT APPLICABLE TO SUCH PAYMENT OF COMMISSION BY APPELLANT TO NON-RESI DENT AGENTS. ITA NOS.1008 TO 1013 OF 2012 EXOTIC FRUITS PVT LTD BANGALORE PAGE 15 OF 17 THE YEAR UNDER CONSIDERATION IS AY 2008-09 COVERING THE PREVIOUS YEAR PERIOD 1.4.2007 TO 31.3.2008. THE CB DT ISSUED CIRCULAR NO.7 OF 2009 IN THE YEAR 2009. IN THE ABO VE MENTIONED CASE THE BENCH OF ITAT HAVE HELD THAT WITHDRAWAL O F SUCH CIRCULAR IS NOT HAVING RETROSPECTIVE EFFECT AND WIL L BE APPLICABLE PROSPECTIVELY. IN THE FACTS AND CIRCUMSTANCES EVE N IF IT IS ASSUMED THAT THE WITHDRAWAL OF CIRCULAR NO.23 OF 19 69 BY THE CBDTS CIRCULAR NO.7 OF 2009 IS HAVING ANY EFFECT O N TAXABILITY OF COMMISSION PAID TO NON-RESIDENT AGENTS SUCH WIT HDRAWAL OF CIRCULAR WILL NOT BE APPLICABLE IN THE YEAR UNDER C ONSIDERATION. IN THE FACTS AND CIRCUMSTANCES THE CIRCULAR NO.23 OF 1969 WILL BE CLEARLY APPLICABLE IN THE YEAR UNDER CONSIDERATI ON MAKING SUCH COMMISSION PAYMENT NOT LIABLE TO TAX IN INDIA. 7.6 FURTHER WE HAVE ALSO CAREFULLY PERUSED THE COM PREHENSIVE AGREEMENT DATED 18.11.1993 ENTERED INTO BY THE GOVE RNMENT OF INDIA WITH UNITED ARAB EMIRATES FOR AVOIDANCE OF DOUBLE TAXATION WHEREIN ARTICLE 7 SPEAKS THUS ARTICLE 7 BUSINESS PROFITS 1. THE PROFITS OF AN ENTERPRISE OF A CONTRACTING STATE SHALL BE TAXABLE ONLY IN THAT STA TE UNLESS THE ENTERPRISE CARRIES ON BUSINESS IN THE OTHER CONTRAC TING STATE THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN. IF THE ENTERPRISE CARRIES ON BUSINESS AS AFORESAID THE PR OFITS OF THE ENTERPRISE MAY BE TAXED IN THE OTHER STATE BUT ONLY SO MUCH OF THEM AS IS ATTRIBUTABLE TO THAT PERMANENT ESTABLISH MENT. FURTHER ARTICLE 22 OF THE SAID AGREEMENT SPECIFIES THAT - ARTICLE 22 OTHER INCOME 1. SUBJECT TO THE PROV ISIONS OF PARAGRAPHS (2) ITEMS OF INCOME OF A RESIDENT OF A CONTRACTING STATE WHEREVER ARISING WHICH ARE NOT EXPRESSLY DE ALT WITH IN THE FOREGOING ARTICLES OF THIS AGREEMENT SHALL BE TAXABLE ONLY IN THAT CONTRACTING STATE . 7.7 TO ILLUSTRATE THE INCOME OF THE NON-RESIDENT(S ) BY WAY OF COMMISSION IN THE PRESENT CASE CANNOT BE CONSIDERED AS ACCRUED OR ARISEN OR DEEMED TO ACCRUE OR ARISE IN INDIA AS THE SERVICES OF SUCH AGENTS AS ASSERTED BY THE ASSESSEE WERE RENDERED / UTILISED OUTSIDE INDIA AND THE COMMISSION WAS ALSO PAID OUTS IDE INDIA. FURTHER IN THE ABSENCE OF PERMANENT ESTABLISHMENT(S) OF SUCH AGENTS IN INDIA THE INCOMES OF THE SAID AGENTS WER E NOT LIABLE TO BE TAXED IN INDIA AND AS SUCH THE ASSESSEE WAS NOT O BLIGED TO EFFECT ITA NOS.1008 TO 1013 OF 2012 EXOTIC FRUITS PVT LTD BANGALORE PAGE 16 OF 17 ANY DEDUCTION OF TAX ON THE COMMISSION PAYMENTS MAD E TO THE AGENTS WHO WERE POSITIONED OVERSEAS. 7.8. THE LEARNED A R HAD ALSO PRODUCED A PHOTOSTAT COPY OF THE ASSESSMENT ORDER FOR THE A.Y 2010-11 [U/S 143 ( 3) OF THE ACT DT: 30.3.2012] IN THE ASSESSEES OWN CASE. IN T HE SAID ORDER THE ASSESSING OFFICER HAS ACCEPTED THE INCOME RETURNED AFTER VERIFYING VARIOUS DETAILS INCLUDING THE DETAILS OF TDS MADE E TC. THE ASSESSMENT ORDER WAS PASSED SUBSEQUENT TO THE ORDER PASSED U/S 201(1) & 201(1A). THE RELEVANT PORTION OF THE ASSES SMENT ORDER READ AS FOLLOWS: DURING THE COURSE OF ASSESSMENT PROCEEDINGS BOOKS O F ACCOUNTS WERE VERIFIED WITH REFERENCE TO BILLS/VOUCHERS. FU RTHER THE DETAILS OF SUNDRY DEBTORS/SUNDRY CREDITORS DETAILS OF LOANS AND ADVANCES DETAILS OF DIRECT & INDIRECT EXPENSES DE TAILS OF PROCESSING CHARGES TRAVELLING EXPENSES PROFESSION AL FEES DETAILS OF ALL STATUTORY PAYMENTS MADE DETAILS OF TDS MADE ETC. WERE OBTAINED AND VERIFIED. AFTER EXAMINING THE DETAILS FILED AND AFTER DISCUSS ION WITH THE ACCOUNTS MANAGER OF THE COMPANY THE ASSESSMENT IS COMPLETED DETERMINING THE TOTAL INCOME AS UNDER: TOTAL ASSESSED INCOME RS.2 20 91 560/-. [AS DECLAR ED BY THE ASSESSEE IN ITS ROI] 7.9 THE FACTS AND CIRCUMSTANCES OF THE ISSUE AS DEL IBERATED UPON AND ALSO IN CONFORMITY WITH THE JUDICIAL VIEWS (SUP RA) WE ARE OF THE CONSIDERED VIEW THAT AUTHORITIES BELOW WERE NOT JUS TIFIED IN BRINGING THE ASSESSEES CASE UNDER THE PURVIEW OF S. 201 (1) OF THE ACT. IN SUBSTANCE THE ASSESSEE WAS NOT LIABLE TO DEDUCT TA X AT SOURCE WHILE MAKING PAYMENTS OF COMMISSIONS TO NON-RESIDENT AGEN TS. IT IS ORDERED ACCORDINGLY. 8. WE HAVE SINCE DECIDED THAT THE ASSESSEES CASE D OESNT FALL WITHIN THE AMBIT OF S. 201 (1) OF THE ACT FOR ALL T HE ASSESSMENT YEARS ITA NOS.1008 TO 1013 OF 2012 EXOTIC FRUITS PVT LTD BANGALORE PAGE 17 OF 17 UNDER CONSIDERATION THE QUESTION OF CHARGING OF IN TEREST U/S 201(1A) OF THE ACT DOES NOT ARISE. 9. IN THE RESULT THE ASSESSEES APPEALS FOR ALL TH E ASSESSMENT YEARS VIZ. ASSESSMENT YEARS 2008-09 2009-10 AND 2010-11 [U/S 201(1) & 201(1A) OF THE ACT] ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH OCTOBER 2013. SD/- SD/- (N. BARTHVAJASANKAR) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBER BANGALORE DATED 4 TH OCTOBER 2013. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR ITAT BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES BANGALORE