DCIT, Madurai v. TVS Srichakra Limited, Madurai

ITA 501/CHNY/2015 | 2010-2011
Pronouncement Date: 31-07-2015

Appeal Details

RSA Number 50121714 RSA 2015
Assessee PAN AAACT5557G
Bench Chennai
Appeal Number ITA 501/CHNY/2015
Duration Of Justice 4 month(s) 21 day(s)
Appellant DCIT, Madurai
Respondent TVS Srichakra Limited, Madurai
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2015
Appeal Filed By Department
Bench Allotted A
Date Of Final Hearing 27-07-2015
Next Hearing Date 27-07-2015
Assessment Year 2010-2011
Appeal Filed On 10-03-2015
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH CHENNAI . . . ! ' #$ BEFORE SHRI N.R.S.GANESAN JUDICIAL MMBER AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ./ ITA NO. 501/MDS/2015 / ASSESSMENT YEAR : 2010-11 THE DEPUTY COMMISSIONER OF INCOME-TAX CORPORATE CIRCLE-2 MADURAI. APPELLANT) V. M/S.TVS SRICHAKRA LIMITED NO.10 JAWAHAR ROAD CHOKKIKULAM MADURAI-625002. PAN AAACT5557G RESPONDENT) / APPELLANT BY : SHRI P. RADHAKRISHNAN JCIT / RESPONDENT BY : SHRI S.A.BALASUBRAMANIAN CA ! / DATE OF HEARING : 27.07.2015 '# ! / DATE OF PRONOUNCEMENT: 31.07.2015 / O R D E R PER CHANDRA POOJARI ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) DATED 22 .12.2014. - - ITA 501/15 2 2. THE GROUND RAISED BY THE REVENUE IN THIS APPEAL IS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED I N DELETING THE ADDITION TOWARDS DISALLOWANCE U/S.40(A)(I) OF T HE I.T.ACT 1961 BY FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF FAIZAN SHOES (P) LTD. (58 SOT 425). 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E CLAIMED AN EXPENDITURE OF ` 30 61 686/- UNDER THE HEAD COMMISSION AND DISCOUNT. ON AN ENQUIRY BY THE ASSESSING OFFICER THE ASSESSEE STATED THAT THE SAID AMOUNT WAS NOT LIABLE FOR TDS AS THE SERVICES WERE RENDERED OUTSIDE INDIA. THE ASSESSIN G OFFICER DISAGREEING WITH THE CONTENTION OF THE ASSESSEE DI SALLOWED THE CLAIM U/S.40(A)(I) OF THE ACT. AGAINST THIS THE A SSESSEE WENT IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX(APPEAL S). 4. ON APPEAL THE COMMISSIONER OF INCOME-TAX(APPEAL S) OBSERVED THAT THE PAYMENT IS MADE IN FOREIGN EXCHAN GE TO NON- RESIDENT FOR COMMISSION TO ITS SALES ABROAD AND THA T THE AGENTS HAVE NO BUSINESS PLACES IN INDIA WHICH IS NOT REBU TTED BY THE ASSESSING OFFICER. ACCORDING TO THE COMMISSIONER O F INCOME- TAX(APPEALS) THE EXPORTS ARE OUTSIDE INDIA AND NO PART OF INCOME COULD BE TAXED IN INDIA. ACCORDINGLY HE DELETED T HE - - ITA 501/15 3 DISALLOWANCE MADE U/S.40(A)(I) OF THE ACT BY PLACIN G RELIANCE ON THE DECISION OF THE TRIBUNAL IN FAIZAN SHOES (P) LT D. (SUPRA) WHEREIN IT WAS HELD AS UNDER: IT WAS HELD THAT WHEN THE SERVICES ARE PROVIDED OUTSIDE INDIA THE COMMISSION PAYMENTS MADE TO NON- RESIDENTS CANNOT BE TREATED AS INCOME DEEMED TO ACCRUE OR ARISE IN INDIA THEREFORE THE PROVISIONS OF SECTION 195 HAS NO APPLICATION. IN ORDER TO INVOK E THE PROVISIONS OF SECTION 195 OF THE ACT THE INCOME SH OULD BE CHARGEABLE TO TAX IN INDIA. HERE THE COMMISSIO N PAYMENTS TO NON-RESIDENTS ARE NOT CHARGEABLE TO TAX IN INDIA AND THEREFORE THE PROVISIONS OF SECTION 195 A RE NOT ARE NOT APPLICABLE. IN THE CIRCUMSTANCES WE SUSTAIN THE ORDER OF THE COMMISSIONER OF INCOME- TAX(APPEALS) IN DELETING THE DISALLOWANCE MADE UNDE R 40(A)(I) OF THE ACT. AGGRIEVED BY THIS THE REVENUE IS IN APPEAL BEFORE US. 5. THE LD. DR SUBMITTED THAT THE SELLING AGENT IN THIS CASE THOUGH HAD RENDERED SERVICES ABROAD WAS ENTITLED TO RECEIVE THE COMMISSION FOR THE SERVICES RENDERED TO THE ASSESSEE AND RECEIVED THE AMOUNT THROUGH OR FROM BUSINESS CO NNECTION WHICH IT HAD IN INDIA AND SOURCE OF INCOME IS IN IN DIA. BEING SO THE INCOME SHALL BE DEEMED TO ACCRUE OR ARISE I N INDIA. SINCE THE SOURCE OF INCOME OF THE NON-RESIDENT WHO IS THE AGENT OF THE ASSESSEE IT EARNED COMMISSION FROM THE BUSI NESS ACTIVITY OF THE ASSESSEE AND THE ASSESSEE HAS NOT DEDUCTED T DS IT - - ITA 501/15 4 SHOULD BE DISALLOWED U/S. 40(A)(I) OF THE I.T. ACT. THE SERVICES RENDERED BY THE AGENT FALLS WITHIN THE AMBIT OF EXP LANATION (2) OF SEC. 5 OF THE I.T. ACT. THE FACT THAT THE AGENT HAS RENDERED SERVICES ABROAD IN THE FORM OF SOLICITING ORDERS AN D THE COMMISSION IS TO BE REMITTED TO THEM ABROAD IS WHOL LY IRRELEVANT FOR THE PURPOSE OF DETERMINING THE SITUS OF THEIR I NCOME. ACCORDING TO THE LD. DR NON-DEDUCTION OF TDS TOWAR DS THIS INCOME IS TO BE DISALLOWED. 6. ON THE OTHER HAND THE LD. AR SUBMITTED THAT THE IN COME ACCRUED OUTSIDE INDIA FOR THE SERVICES RENDERED FOR MARKETING AND THE RECIPIENT OF THE COMMISSION HAS NO BUSINESS CONNECTION IN INDIA WHAT IS PAID TO THE NON-RESIDENT IS NOT T AXABLE IN INDIA. HENCE THERE IS NO QUESTION OF TDS FROM THAT PAYMEN T. HE RELIED ON THE JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF CIT V. FAIZAN SHOES P. LTD. (367 ITR 155) WHEREIN IT WAS HELD DISMISSING THE APPEAL THAT ON A READING OF SECTIO N 9(1)(VII) COMMISSION PAID BY THE ASSESSEE TO THE NON-RESIDENT AGENTS WOULD NOT COME UNDER THE TERM FEES FOR TECHNICAL S ERVICES. FOR PROCURING ORDERS FOR LEATHER BUSINESS FROM OVERSEAS BUYERS. WHOLESALERS OR RETAILERS AS THE CASE MAY BE THE N ON-RESIDENT - - ITA 501/15 5 AGENT WAS PAID 2.5 PER CENT COMMISSION ON FREE ON B OARD BASIS. THIS WAS A COMMISSION SIMPLICITER. WHAT WAS THE NA TURE OF TECHNICAL SERVICE THAT THE NON-RESIDENT AGENTS HAD PROVIDED ABROAD TO THE ASSESSEE WAS NOT CLEAR FROM THE ORDER OF THE ASSESSING OFFICER. THE OPENING OF LETTERS OF CREDI T FOR THE PURPOSE OF COMPLETING THE EXPORT OBLIGATION WAS AN INCIDENT OF EXPORT AND THEREFORE THE NON-RESIDENT AGENT WAS U NDER AN OBLIGATION TO RENDER SUCH SERVICES TO THE ASSESSEE FOR WHICH COMMISSION WAS PAID. THE NON-RESIDENT AGENT DID NO T PROVIDE TECHNICAL SERVICES FOR THE PURPOSES OF RUNNING OF T HE BUSINESS OF THE ASSESSEE IN INDIA. THEREFORE THE COMMISSION P AID TO THE NON-RESIDENT AGENTS WOULD NOT FALL WITHIN THE DEFIN ITION OF FEES FOR TECHNICAL SERVICES AND THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE ON PAYMENT OF COMMISSION . HE ALSO RELIED ON THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF CIT V. KIKANI EXPORTS PVT. LTD. (369 ITR 97) WHEREIN IT W AS HELD DISMISSING THE APPEAL THAT THE SERVICES RENDERED BY THE NON- RESIDENT AGENT COULD AT BEST BE CALLED AS A SERVICE FOR COMPLETION OF THE EXPORT COMMITMENT AND WOULD NOT FALL WITHIN THE DEFINITION OF FEES FOR TECHNICAL SERVICES AND THEREFORE SE CTION 9 WAS NOT - - ITA 501/15 6 APPLICABLE AND CONSEQUENTLY SECTION 195 DID NOT C OME INTO PLAY. THEREFORE THE DISALLOWANCE MADE BY THE ASSE SSING OFFICER TOWARDS EXPORT COMMISSION PAID BY THE ASSESSEE TO T HE NON- RESIDENT WAS RIGHTLY DELETED. 6.1 ACCORDING TO THE A.R. THE INCOME HAS BEEN ACCRUIN G OUTSIDE INDIA FOR THE SERVICES RENDERED FOR MARKETI NG ASSESSEES PRODUCTS IN ABROAD AND RECIPIENT HAS NO BUSINESS CO NNECTION IN INDIA WHAT IS PAID TO THE AGENT IS NOT TAXABLE IN INDIA HENCE THERE IS NO QUESTION OF DEDUCTION OF TAX AT SOURCE FROM THAT PAYMENT AND NO ASSESSMENT OF RECIPIENT HAS BEEN MAD E IN INDIA. FURTHER HE SUBMITTED THAT ONLY WHEN THE INC OME OF THE AGENT IS CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT THEN ONLY THE ASSESSEE IS LIABLE TO DEDUCT TDS AS PER SE C. 195C OF THE I.T. ACT. THE PERSON PAYING THE COMMISSION TO A NON-RESIDENT IS NOT LIABLE TO DEDUCT TAX IF SUCH SERVICES ARE NO T CHARGEABLE TO TAX UNDER THE ACT. SEC. 195 CONTEMPLATES NOT MERELY AMOUNTS THE WHOLE OF WHICH ARE PURE INCOME PAYMENTS; IT ALS O COVERS COMPOSITE PAYMENTS WHICH HAVE AN ELEMENT OF INCOME EMBEDDED OR INCORPORATED IN THEM. THE OBLIGATION TO DEDUCT TAX AT SOURCE IS HOWEVER LIMITED TO APPROPRIATE PROPO RTION OF INCOME - - ITA 501/15 7 CHARGEABLE UNDER THE ACT FORMING PART OF THE GROSS SUM OF MONEY PAYABLE TO THE NON-RESIDENT. 6.2 THE LD. AR FURTHER SUBMITTED THAT INCOME THOUGH ACCRUED IN INDIA AS PER THIS AGREEMENT THE SERVICES WERE RENDERED TO THE ASSESSEE ABROAD AND THE PAYMENTS WERE ALSO RECE IVED BY HIM ABROAD THEREFORE NO INCOME WOULD ARISE UNDER THE PROVISIONS OF SEC. 9(1) OF THE ACT. THE LD. AR RELI ED ON THE ORDER OF THE CIT(A) AND SUBMITTED THAT THERE IS NO QUESTI ON OF DEDUCTION OF TDS ON THE ABOVE PAYMENTS MADE TO THE NON- RESIDENT AGENT. 7. WE HAVE HEARD THE PARTIES AND PERUSED THE RECOR D. AT THE OUTSET CERTAIN PROVISIONS OF THE ACT NEEDS TO BE LOOKED INTO SECTION 40(A)(I) WHICH READS AS UNDER:- 40 NOT WITHSTANDING ............. (A) IN THE CASE OF ANY ASSESSEE (I) ANY INTEREST (NOT BEING INTEREST ON A LOAN ISSU ED FOR PUBLIC SUBSCRIPTION BEFORE THE 1ST DAY OF APRIL 19 38) ROYALTY FEES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER THIS ACT WHICH IS PAYABLE A. OUTSIDE INDIA B. IN INDIA TO A NON-RESIDENT NOT BEING A COMPANY OR TO A FOREIGN COMPANY ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER VIIB AND SUCH TAX HAS NOT BEEN - - ITA 501/15 8 DEDUCTED OR AFTER DEDUCTION HAS NOT BEEN PAID DUR ING THE PREVIOUS YEAR OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SECTION 200: 8. THE AFORESAID CLAUSE MAKES IT CLEAR THAT THE DI SALLOWANCE SHALL BE MADE IN CASE OF ANY PAYMENT MADE WHICH IS CHARGEABLE UNDER THIS ACT AND IS PAYABLE OUTSIDE INDIA OR IN I NDIA TO A NON- RESIDENT NOT BEING A COMPANY OR TO A FOREIGN COMPAN Y ON WHICH TAX IS DEDUCTIBLE AT SOURCE. THEREFORE THE FIRST C ONDITION REQUIRED TO BE FULFILLED IS THE PAYMENT MUST BE CHARGEABLE U NDER THE ACT THEREAFTER THE QUESTION OF DEDUCTION OF TAX WILL AR ISE. SECTION 195 (1) OF THE ACT ALSO PRESCRIBES THAT TAX HAS TO BE D EDUCTED WHILE MAKING PAYMENT TO NON-RESIDENT WHICH IS CHARGEABLE UNDER THE PROVISIONS OF THE ACT. THEREFORE THE CONDITION PRE CEDENT FOR DEDUCTION OF TAX IS THE INCOME MUST BE CHARGEABLE U NDER THE PROVISIONS OF THE ACT. IN THE FACTS OF THE PRESENT CASE THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH FOREIGN AGENTS REVEALED THAT THEY HAVE BEEN APPOINTED TO ACT AS CO MMISSION AGENTS OUTSIDE INDIA IN THEIR RESPECTIVE COUNTRIES. THE AO HAS DISALLOWED COMMISSION PAYMENT U/S 40(A)(I) SINCE TH ERE WAS NO TDS MADE ON THIS PAYMENT. - - ITA 501/15 9 9. AS IS EVIDENT FROM THE ASSESSMENT ORDER EXCEPT ING THIS INFERENCE BY THE AO THERE IS NOTHING ON RECORD TO SUGGEST THAT THE INCOME IS CHARGEABLE TO TAX IN INDIA OR THE PAY MENT HAS BEEN RECEIVED BY THE NON-RESIDENT AGENTS IN INDIA OR BY ANY OTHER PERSON ON THEIR BEHALF. THERE IS ALSO NO FINDING BY THE AO THAT THE NON-RESIDENT AGENTS HAVE A PERMANENT ESTABLISHM ENT IN INDIA OR HAVE ANY BUSINESS CONNECTION IN INDIA BY VIRTUE OF WHICH THE PAYMENT OF COMMISSION WOULD HAVE ACCRUED OR AROSE I N INDIA. THE FACTS AVAILABLE ON RECORD CLEARLY SUGGEST THAT THE NON- RESIDENT AGENTS DID NOT CARRY OUT ANY BUSINESS OPER ATIONS IN INDIA AND HAS ACTED AS SELLING AGENTS OF THE ASSESS EE OUTSIDE INDIA. THEREFORE THE COMMISSION EARNED BY THEM FOR SERVICES RENDERED BY THEM OUTSIDE INDIA CANNOT BE CONSIDERED AS INCOME CHARGEABLE TO TAX IN INDIA. THE AO HAS NOT ESTABLIS HED THE FACT ON RECORD THAT ANY ONE OF THE NON-RESIDENT AGENTS I S CARRYING ON BUSINESS THROUGH A PERMANENT ESTABLISHMENTS. THEREF ORE WHEN THE COMMISSION PAID TO THE NON-RESIDENTS ARE NOT CH ARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT NO DEDUCTION O F TAX IS REQUIRED TO BE MADE U/S 195(1) OF THE ACT. - - ITA 501/15 10 10. IN THE PRESENT CASE THE AO HAS FAILED TO BRIN G ANY MATERIAL ON RECORD ON THE BASIS OF WHICH IT COULD B E CONCLUDED THAT COMMISSION PAID TO FOREIGN AGENTS IS CHARGEABL E TO TAX IN INDIA. UNLESS THE INCOME IS CHARGEABLE TO TAX IN IN DIA THEN TAX IS NOT REQUIRED TO BE DEDUCTED U/S 195(1). FROM THE FA CTS AND MATERIALS AVAILABLE ON RECORD NO DEFINITE CONCLUSI ON CAN BE MADE THAT THE COMMISSION PAID TO FOREIGN AGENTS IS CHARGEABLE TO TAX IN INDIA. 11. IN THE PRESENT CASE THE FOREIGN CONCERN WAS A CTING AS THE SELLING AGENT FOR THE ASSESSEE AND NO SERVICES RENDERED BY IT WITHIN THE TAXABLE TERRITORY THE AMOUNT PAYABLE AS COMMISSION WAS NOT LIABLE TO TAX AND AS THE INCOME IS ARISING OR ACCRUING TO A FOREIGN CONCERN IN INDIA THERE IS NO DISALLOWANCE U/S. 40(A)(I) OF THE ACT ON THE GROUND THAT THE TAX IS NOT DEDUCTED AT SOURCE U/S. 195 OF THE ACT OR REMITTANCES MADE TO A FOREIGN CON CERN. IN VIEW OF THIS WE FIND NO MERIT IN THE GROUND TAKEN BY TH E REVENUE. 12. IN THE RESULT THE APPEAL OF THE REVENUE IS DIS MISSED. - - ITA 501/15 11 ORDER PRONOUNCED ON FRIDAY THE 31 ST OF JULY 2015 AT CHENNAI. SD/- SD/- ( $ . . $ . %& ) ( ' ( ) * ) N.R.S.GANESAN + -./01.2334.15+ 6 78 /JUDICIAL MEMBER ! 789::3;/<./<=>?@>1 '6 /CHENNAI A7 /DATED THE 31 ST JULY 2015. MPO* 7& BCDC /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. E+ /CIT(A) 4. E /CIT 5. CF% G /DR 6. %HI /GF.