English Indian Clays lTd, Trivandrum v. The Asstt. Director of Incomet ax, Trivandrum

ITA 339/COCH/2013 | 2006-2007
Pronouncement Date: 18-10-2013 | Result: Dismissed

Appeal Details

RSA Number 33921914 RSA 2013
Bench Cochin
Appeal Number ITA 339/COCH/2013
Duration Of Justice 4 month(s) 22 day(s)
Appellant English Indian Clays lTd, Trivandrum
Respondent The Asstt. Director of Incomet ax, Trivandrum
Appeal Type Income Tax Appeal
Pronouncement Date 18-10-2013
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 18-10-2013
Date Of Final Hearing 10-10-2013
Next Hearing Date 10-10-2013
Assessment Year 2006-2007
Appeal Filed On 27-05-2013
Judgment Text
1 ITA NO.337 TO 339/COCH/2013 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKA RAN(AM) I.T.A NO. 337 TO 339/COCH/2013 (ASSESSMENT YEARS 2004-05 TO 2006-07) ENGLISH INDIAN CLAYS LTD VS THE A.C.I.T. (INTL .TAXATION) VELI TRIVANDRUM- 695 021 TRIVNDRUM PAN : NOT AVAILABLE (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R KRISHNA IYER RESPONDENT BY : SHRI K.K. JOHN DATE OF HEARING : 10-10-2013 DATE OF PRONOUNCEMENT : 18-10-2013 O R D E R PER N.R.S. GANESAN (JM) ALL THE THREE APPEALS OF THE ASSESSEE ARE DIRECTED AGAINST THE COMMON ORDER PASSED BY THE CIT(A)-III KOCHI PERTAI NING TO ASSESSMENT YEARS 2004-05 TO 2006-07. SINCE COMMON ISSUE ARISE S FOR CONSIDERATION IN ALL THE THREE APPEALS WE HEARD THEM TOGETHER AND D ISPOSE OF THE SAME BY THIS COMMON ORDER. 2. SHRI R KRISHNA IYER THE LD.REPRESENTATIVE FOR T HE ASSESSEE SUBMITTED THAT THE ASSESSEE ENGAGED M/S STRATUM RESOURCES AS MARKETING AGENT FOR 2 ITA NO.337 TO 339/COCH/2013 SOUTH EAST ASIAN COUNTRIES. M/S STRATUM RESOURCES HAS TO STUDY THE MARKET SITUATION IN SOUTH EAST ASIA FOR THE PRODUCT MANUFACTURED BY THE ASSESSEE AND THEY HAVE TO MARKET THE PRODUCT OF THE ASSESSEE IN THOSE COUNTRIES. THE ASSESSEE HAS ALSO ENTERED INTO A SI MILAR AGREEMENT WITH TIONALE ENTERPRISES PTE LTD SINGAPORE. HOWEVER T HE CIT(A) FOUND THAT TIONALE ENTERPRISES PTE LTD IS ONLY A MARKETING AGE NCY THEREFORE TAX NEED NOT BE DEDUCTED ON THE PAYMENTS MADE TO THEM. HOWE VER IN RESPECT OF M/S STRATUM RESOURCES THE CIT(A) FOUND THAT IT IS CONSULTANCY CHARGES THEREFORE TAX HAS TO BE DEDUCTED. ACCORDINGLY TH E CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. ACCORD ING TO THE LD.REPRESENTATIVE M/S STRATUM RESOURCES WAS ENGAGE D ONLY FOR THE PURPOSE OF MARKETING THE ASSESSEES PRODUCT IN SOUT H EAST ASIAN COUNTRIES; THEREFORE THE PAYMENT CANNOT BE CONSIDE RED AS CONSULTANCY CHARGES. HENCE IT IS NOT TAXABLE IN INDIA AND CON SEQUENTLY THE QUESTION OF DEDUCTION OF TAX AT SOURCE U/S 195 OF THE ACT DO ES NOT ARISE. THE LD.REPRESENTATIVE HAS PLACED HIS RELIANCE ON THE JU DGMENT OF THE APEX COURT IN V. LAKSHMANAN V. B.R. MANGALAGIRI & ORS [1 995 SUPP.(2) SCC33] AND SUBMITTED THAT THE NOMENCLATURE OR LABEL GIVEN IN THE AGREEMENT CANNOT BE A DECISIVE FACTOR. ACCORDING TO THE LD.R EPRESENTATIVE THE SUBSTANCE OF THE AGREEMENT SHOULD BE TAKEN INTO CON SIDERATION. REFERRING TO ANOTHER JUDGMENT OF THE SUPREME COURT IN THE CAS E OF ASSAM SMALL SCALE IND. DEV.CORP. LTD AND ORS V.J.D. PHARMACEUTI CALS AND ANR [2005 3 ITA NO.337 TO 339/COCH/2013 (8) SCALE 298 = (2005) 13 SCC [9] THE LD.REPRESENT ATIVE SUBMITTED THAT THE EXPRESSION IN THE AGREEMENT CANNOT BE A DECISIV E FACTOR. THE NATURE OF TRANSACTION IS REQUIRED TO BE DETERMINED ON THE BASIS OF THE SUBSTANCE AND NOT BY THE NOMENCLATURE. THEREFORE MERELY BEC AUSE IT WAS MENTIONED AS CONSULTANCY CHARGES IN THE AGREEMENT THE REAL SUBSTANCE OF MARKETING THE PRODUCT CANNOT BE IGNORED. THE LD.RE PRESENTATIVE HAS ALSO PLACED HIS RELIANCE ON THE JUDGMENT OF THE KERALA H IGH COURT IN THE CASE OF JOE JOSEPH & ORS V K.C. MOIDEEN REPORTED IN 1996 (I ) KLJ 656. 3. THE LD.REPRESENTATIVE FURTHER SUBMITTED THAT NEW SUB SECTIONS (3) AND (4) WERE INSERTED IN SECTION 201 WITH EFFECT FR OM 01-04-2010. ACCORDING TO THE LD.REPRESENTATIVE SUB SECTIONS (3 ) AND (4) OF SECTION 201 WHICH WERE INSERTED BY FINANCE ACT 2009 WITH EFFEC T FROM 01-04-2010 CANNOT BE APPLIED RETROSPECTIVELY FOR THE YEAR UNDE R CONSIDERATION. ACCORDING TO THE LD.REPRESENTATIVE THE RETROSPECTI VE OPERATION IS NOT PRACTICAL AND POSSIBLE. THE LD.REPRESENTATIVE PLAC ED HIS RELIANCE ON THE SPECIAL BENCH DECISION OF THE DELHI BENCH OF THIS T RIBUNAL IN NEW SKIES SATELLITES N.V. VS A.D.I.T. INTL.TAXATION CIR.2(1 ) NEW DELHI (2009) 121 ITD 1 (DEL)(SB). ACCORDING TO THE LD.REPRESENTATIV E THE TRANSACTION IN THIS CASE REFERS TO PAYMENT OF COMMISSION. SECTION 195 OF THE ACT REQUIRES DEDUCTION OF TAX WHILE MAKING PAYMENT TO NON RESIDE NT INDIAN. ACCORDING TO THE LD.REPRESENTATIVE IN THIS CASE THE PAYMENT MADE TO NON RESIDENT 4 ITA NO.337 TO 339/COCH/2013 INDIAN IS NOT TAXABLE THEREFORE THERE IS NO QUEST ION OF ANY DEDUCTION OF TAX. THE LD.REPRESENTATIVE FURTHER SUBMITTED THAT THE ENTIRE AMOUNT PAYABLE TO THE NON RESIDENT INDIAN HAS ALREADY BEEN PAID. THEREFORE THE AMENDMENT TO SECTION 201 CANNOT FIX THE LIABILITY O N THE ASSESSEE TO DEDUCT TAX. 4. ON THE CONTRARY SHRI K.K. JOHN THE LD.DR SUBMI TTED THAT AS PER THE AGREEMENT WITH M/S STRATUM RESOURCES THE FOREIGN P ARTY HAS TO TAKE MARKET SURVEY AND IDENTIFY THE POTENTIAL CUSTOMERS AND FILE A REPORT TO THE ASSESSEE. THE PAYMENT IS ON EVERY DAY BASIS. 50% OF THE TOTAL PAYMENT DEPENDING UPON THE WORK OF THE FOREIGN PARTY HAS TO BE PAID IN ADVANCE. THEREFORE IT IS NOT A CASE OF MARKETING THE PRODUC T IN FOREIGN COUNTRIES BUT IT IS A CASE OF DOING MARKETING SURVEY AND THE ASSE SSEE IS PAYING CONSULTANCY CHARGES. THE AGREEMENT NOWHERE STATES THAT THE FOREIGN PARTY HAS TO MARKET THE PRODUCT OF THE ASSESSEE IN SOUTH EAST ASIAN COUNTRIES. IN THE ABSENCE OF ANY ENABLING PROVISIO N TO ENABLE THE FOREIGN PARTY TO MARKET THE ASSESSEES PRODUCT IN FOREIGN C OUNTRIES THE PAYMENT MADE BY THE FOREIGN PARTY CANNOT BE CONSTRUED AS PA YMENT FOR MARKETING. ACCORDING TO THE LD.DR MARKETING SURVEY AND IDENTI FYING THE POTENTIAL CUSTOMERS FOR THE ASSESSEES PRODUCT ARE ONLY CONSU LTANCY SERVICES AND THEREFORE THE PAYMENT MADE TO FOREIGN PARTY IS TAX ABLE IN INDIA. HENCE THE ASSESSEE IS BOUND TO DEDUCT TAX U/S 195 OF THE ACT. REFERRING TO THE 5 ITA NO.337 TO 339/COCH/2013 PROVISIONS OF SECTION 201(3) OF THE ACT THE LD.DR SUBMITTED THAT THE ASSESSING OFFICER PASSED THE IMPUGNED ORDER BEFORE 31-03-2011. PROVISO TO SECTION 201(3) OF THE ACT ENABLES THE ASSESSING OFFICER TO PASS ORDER BEFORE 31-03-2011 IN RESPECT OF FINANCIAL YEAR COMM ENCING ON OR BEFORE 01-04-2007. THEREFORE THE ORDER PASSED BY THE ASS ESSING OFFICER IS WITHIN THE PERIOD PROVIDED IN SECTION 201(3) OF THE ACT. THEREFORE THERE IS NO QUESTION OF ANY IMPOSSIBILITY AS CLAIMED BY THE ASS ESSEE. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO CAREFULLY GONE THROUGH THE COPY OF THE AGREEMENT SAID TO BE ENTERE D INTO BETWEEN THE ASSESSEE AND THE FOREIGN PARTY. THE CIT(A) ALSO HA S REPRODUCED COPY OF THE AGREEMENT ON PAGES 24 AND 25 OF THE IMPUGNED OR DER. AS RIGHTLY SUBMITTED BY THE LD.DR THE WORK OF THE FOREIGN PAR TY IS TO IDENTIFY THE POTENTIAL CUSTOMER AND FILE A REPORT REGARDING THE MARKET STRATEGY AND DEVELOPMENTAL STUDIES. AGREEMENT DOES NOT ENABLE T HE FOREIGN PARTY TO MARKET THE PRODUCT OF THE ASSESSEE IN SOUTH EAST AS IAN COUNTRIES. THE FOREIGN PARTY ONLY HAS TO DO SURVEY AND FILE A REPO RT SO THAT THE ASSESSEE COULD MARKET THEIR PRODUCT AFTER CONSIDERING THE RE PORT FILED BY THE FOREIGN PARTY. THEREFORE THE PAYMENT MADE TO M/S STRATUM ENTERPRISES IS ONLY CONSULTANCY CHARGES AS FOUND BY THE CIT(A). IT IS NOT A CASE OF MARKETING THE PRODUCT IN THE FOREIGN COUNTRY. THEREFORE THI S TRIBUNAL IS OF THE 6 ITA NO.337 TO 339/COCH/2013 CONSIDERED OPINION THAT THE CIT(A) HAS RIGHTLY CONF IRMED THE ORDER OF THE ASSESSING OFFICER. 6. NOW COMING TO THE PROVISIONS OF SECTION 201(3) THE LEGISLATURE INTRODUCED THE LIMITATION FOR PASSING THE ORDER U/S 201 BY FINANCE ACT 2009 WITH EFFECT FROM 01-04-2010. IN RESPECT OF THE FINANCIAL YEAR BEFORE 01-04-2007 A PERIOD IS PRESCRIBED SAYING THAT THE O RDER MAY BE PASSED ON OR BEFORE 31-03-2011. THEREFORE IT IS NOT A CASE OF RETROSPECTIVE OPERATION. IT IS ONLY A REGULAR OPERATION OF LAW. THE ENACTMENT IS PROSPECTIVE IN NATURE. ONLY IN RESPECT OF THE EARL IER ASSESSMENT YEAR THE LEGISLATURE HAS FIXED TIME LIMIT FOR PASSING THE OR DER. THEREFORE THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT IT IS NO T AN ACT OF IMPOSSIBILITY AS CONTENDED BY THE ASSESSEE. 7. THE CASE LAWS REFERRED TO BY THE ASSESSEE WAS RE PORTED IN SCC; SCALE AND KLJ. THOUGH IN THE WRITTEN SUBMISSION T HE ASSESSEE REFERRED THESE CASE LAWS THE COPIES OF THE JUDGMENTS WERE N OT FILED BEFORE US. THE REGISTRY OF THIS TRIBUNAL DOES NOT HAVE COPIES OF S CC; SCALE; AND KLJ. THEREFORE THIS TRIBUNAL DO NOT HAVE ANY OCCASION T O GO THROUGH THE JUDGMENT OF THE ABOVE CASE LAWS REFERRED TO BY THE LD.REPRESENTATIVE FOR THE ASSESSEE. HOWEVER THE SUM AND SUBSTANCE OF TH E JUDGMENTS AS DEMONSTRATED BY THE LD.REPRESENTATIVE FOR THE ASSES SEE IS THAT THE 7 ITA NO.337 TO 339/COCH/2013 IMPUGNED AGREEMENT HAS TO BE VIEWED BY SUBSTANCE OF THE TRANSACTION AND NOT BY THE NOMENCLATURE. IN THIS CASE THE SUB STANCE OF THE AGREEMENT IS FOR CONSULTING THE FOREIGN PARTY FOR MARKETING T HE PRODUCT OF THE ASSESSEE IN SOUTH EAST ASIAN COUNTRIES. THEREFORE IT IS ON LY CONSULTANCY CHARGES. THE SUBSTANCE OF THE IMPUGNED AGREEMENT IS ONLY CON SULTANCY AGREEMENT. THEREFORE THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THE ABOVE JUDGMENTS AS DEMONSTRATED BY THE LD.REPRESENTTIVE F OR THE ASSESSEE MAY NOT BE APPLICABLE TO THE FACTS OF THE CASE. 8. IN VIEW OF THE ABOVE DISCUSSION WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY. THE SAME IS HEREBY C ONFIRMED. 9. IN THE RESULT ALL THE APPEALS OF THE ASSESSEE S TAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 TH OCTOBER 2013. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN DT : 18 TH OCTOBER 2013 PK/- COPY TO: 1. ENGLISH INDIAN CLAYS LTD VELI TRIVANDRUM-695 0 21 2. THE ACIT (INTERNATIONAL TAXATION) AAYAKAR BHAVAN TRIVANDRUM 682 036 3. THE DIRECTOR OF INCOME-TAX (INTELLIGENCE) CHENN AI 4. THE COMMISSIONER OF INCOME-TAX(A)-III KOCHI 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR INCOME-TAX APPELLATE TRIBUNAL COCHIN BENCH