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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI KUL BHARAT & SHRI MANISH BORAD
आदेश / O R D E R PER KUL BHARAT, J.M: This appeal filed by the assessee is directed against order of the CIT(A)-13, Ahmedabad dated 20.12.2017 for
[IT&TPA No.198/Ind/2018] [RSV Global, Raipur] the A.Y. 2015-16. The assessee has raised following grounds of appeal:
The Ld. CIT(A) has gravely erred in law and on facts of the case in confirming the action of the Ld. A.O. in raising the tax demand of Rs.3,51,566/- u/s 195 r.w.s. 201(1) of the I.T. Act in respect of payments made by the appellant to PKT Associates Inc. USA (demand of Rs.3,15,154/-) & AST Enterprise Inc., UAE (demand of Rs.36,412/-) for import of commodities by treating M/s. Ashapura Commodities and M/s. A.G. Goel & Sons as their respective business connections in India in terms of section 9(1)(i) of the I.T. Act. Hence, this appeal.
The Ld. CIT(A) has erred in law and on facts of the case in confirming the action of the Ld. A.O. in levying interest of Rs.61,826/- (Rs.56,728/- with regard to demand in respect of PKT Associates Inc., USA and Rs.5,098/- with regard to demand in respect of AST Enterprise Inc, UAE) u/s 201(1A) of the I.T. Act with reference to aforementioned two import payments. 3. Without prejudice to the above grounds, the appellant prays that the Ld. CIT(A) has erred in law and on facts of the case in confirming profit attribution in the hands of the appellant at the rate of 10% of the purchase amount as is determined by the Ld. A.O. on adhoc basis. 4. Without prejudice to the above grounds, the Ld. CIT(A) has erred in law and on facts of the appellant’s case in confirming the grossing up of the entire amount for the purpose of section 201(1) & 201(1A) r.w.s. 195 of the Act without appreciating the fact that the appellant’s case is not covered within the ambit of section 195A of the I.T. Act. 2. Facts in brief are that the assessee is a firm engaged in trading activity of yellow peas, grains, etc. The A.O. observed that as per the information available on the system, the assessee filed form No.15CA regarding remittance of various payments to non-residents. The A.O. issued a letter dated 6.11.2015 for verification of payments
[IT&TPA No.198/Ind/2018] [RSV Global, Raipur] made to non-residents without deducting tax at source u/s 195 of the Act. In response to the query raised by the A.O., the assessee filed a reply along with documents. However, the A.O. on the basis of the information supplied, issued a show cause notice dated 13.1.2016 as to why the assessee should not be treated as assessee in default u/s 201(1), 201(1A) of the Act for non-deducting tax u/s 195 of the Act on various payments made to different non-residents. In response thereto, the A.R. of the assessee appeared and filed detailed reply. However, the A.O. did not accept the explanation of the assessee and proceeded to hold the assessee in default for the assessment year under appeal.
The A.O. made addition of Rs.12,88,887/- and interest thereon of Rs.2,12,097/-. Hence, demanded tax of Rs.15,00,984/-.
Aggrieved against this, the assessee is in appeal before this Tribunal. Ld. Counsel for the assessee reiterated the [IT&TPA No.198/Ind/2018] [RSV Global, Raipur] submissions as made in the written synopsis. For the sake of clarity, submissions of the assessee are reproduced as under:
[IT&TPA No.198/Ind/2018] [RSV Global, Raipur] [IT&TPA No.198/Ind/2018] [RSV Global, Raipur] [IT&TPA No.198/Ind/2018] [RSV Global, Raipur] [IT&TPA No.198/Ind/2018] [RSV Global, Raipur] [IT&TPA No.198/Ind/2018] [RSV Global, Raipur]
Ld. D.R. opposed these submissions and submitted that it has been categorically brought on record that the 9
[IT&TPA No.198/Ind/2018] [RSV Global, Raipur] transaction has been carried out through the agent and agent has received orders substantially from the non- resident. He therefore relied on the orders of the authorities below and submitted that no case is made out for interference in the finding of the authorities below.
We have heard the rival submissions and perused the materials available on record. The moot issue to be considered is whether under the facts and circumstances of the present case the assessee could be treated as assessee in default. For the sake of clarity, the relevant provision of the Act is reproduced as under:
”Section 201: [(1) Where any person, including the principal officer of a company,-- (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, be an assessee in default in respect of such tax: [Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account
[IT&TPA No.198/Ind/2018] [RSV Global, Raipur] of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident— (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed] Provided [further] that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax.] [(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest.,--
(i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and (ii) at one and one half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid.
And such interest shall be paid before furnishing the statement in accordance with the provisions of sub-section (3) of section 200;] [Provided that in case any person, including the principal officer of a company fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident but is not deemed to be an assessee in default under the first proviso to sub-section (1), the interest under clause (i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident.] (2) Where the tax has not been paid as aforesaid after it is deducted, [the amount of the tax together with the amount of simple interest thereon referred to in sub- section (1A)] shall be a charge upon all the assets of the person, or the company, as the case may be referred to in sub-section (1).
(3) No order shall be made under sub-section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a [IT&TPA No.198/Ind/2018] [RSV Global, Raipur] person resident in India, at any time after the expiry of seven years from the end of the financial year in which payment is made or credit is given.] (4) The provisions of sub-clause (ii) of sub-section (3) of section 153 and of Explanation 1 to section 153 shall, so far as may, apply to the time limit prescribed in sub-section (3).]”
From the above provision of law, it is clear that any person who is required to deduct any sum in accordance with the provisions of Act does not deduct or does not pay the whole or part of the amount so deducted fails to pay, such person should be deemed to be assessee in default.
Now the question arises whether assessee was required to deduct tax under the Act. As per assessing officer the assessee was required to deduct tax under section 195 of the Act. The contention of the assessee is that under the facts and circumstances, it is not required to deduct tax. It is contended that the agency clause under explanation (2) to section 9(1)(i) of the Act is clearly not attracted as agent does not conclude contract. Contract is signed by the non –resident only. No evidence brought that agent concludes
[IT&TPA No.198/Ind/2018] [RSV Global, Raipur] contracts on behalf of the non-resident. It is undisputed that the agent does not maintain stock of goods or merchandise. The agent has clearly stated that he deals for other parties also. However, the agent stated that PKT Associates is their main client and it is unknown as to what volume has been sold by the agent on behalf of the PKT Associates and how he is claiming PKT Associates to be main client. Agent has used the words ‘Main Client’ loosely and that does not have repercussions u/s 9 of the Act. The agent itself has stated that he is just a commission agent. The A.O. has not provided that there is a ‘real and intimate relation’. Merely picking and choosing words from letter would not demonstrate a ‘business connection’. He does not ‘secure orders’. He only forwards the orders to PKT Associates. The order is thereafter secured, concluded and executed by PKT Associates.
Clause (c) is subject to proviso, which is an exception to the [IT&TPA No.198/Ind/2018] [RSV Global, Raipur] rule of business connection. In present case the agent has stated that he is a general commission agent having independent status. His confirmation at page 29 of the assessment order is clear that he acts on a principal to principal basis and is not controlled by the non-resident.
No evidence to show that he is controlled by the non- resident is brought on record. The agent acts in the ordinary course of business. There is no specific contract between PKT Associates, USA and the agent. No space is provided to PKT Associates like they are procuring order for others, they are doing it for PKT Associates. It is therefore submitted that the provisions of law does not mandate the assessee to deduct tax under the facts the present case. In respect of the transaction with AST Enterprises, the similar submissions have been made as were in the case of PKT Associates. He further contended that in the light of circular No.23 of 1969 dated 23.7.1969, the specific
[IT&TPA No.198/Ind/2018] [RSV Global, Raipur] instances were quoted regarding applicability of provisions of section 9 of the Act. He contended that appellant had prima facie established that the non-resident had no business connection in India. The onus was on the revenue to establish that the non- resident had a business connection in India. No enquiry was conducted from the non residents. No evidence to establish that there is a real and intimate connection. The commonness of interest has to be there. It may be by way of management control or financial control or by way of sharing of profits. It may also come into existence in some other manner but there must be something more than of mere transaction or sale and purchase between principal and principal. Reliance is placed on the decision of the Hon'ble A.P. High Court 109 ITR 158 (A.P.). The reliance also placed on the form No.15CA/15CB issued by the accountant based on the [IT&TPA No.198/Ind/2018] [RSV Global, Raipur] declaration given by the respective parties and their agents.
It is further contended that appellant cannot be expected to act on such information, which is imposed to obtain for him. Therefore, the assessee cannot be fastened with the liability of TDS u/s 195 of the Act and treat the assessee in default u/s 201 of the Act.
We find the Ld. CIT(A) affirmed the action of the A.O. on the ground that as per provisions of the Act, the onus is on the assessee to prove that agents are not securing orders in India mainly or wholly for non-residents. The burden of proving the same always lies on the assessee.
We find that the assessee has filed letters dated 31.7.2014 enclosed at paper book page Nos.28, 29 & 30. It is stated by PKT Associates Inc., USA that it does not have any regular agent in India and are exporting through brokers who are general commission agents having independent status. Similarly, the other parties also have stated that [IT&TPA No.198/Ind/2018] [RSV Global, Raipur] they have independent status. Ld. CIT(A) has heavily relied on the explanation to section 9(1)(i) of the Act, which has been reproduced in the impugned order. For the sake of clarity, same is reproduced as under:
“Provided further that where such broker, general commission agent or any other agent works mainly or wholly on behalf of a non-resident (hereafter in this proviso referred to as the principal non-resident) or on behalf of such non-resident and other non-residents which are controlled by the principal non- resident or have a controlling interest in the principal non-resident or are subject to the same common control as the principal non- resident, he shall not be deemed to be a broker, general commission agent or an agent of an independent status.”
In the above provision of law, broker, general commission agent or an agent of an independent status is excluded, if it is found that such broker, general commission agent or any other agent works mainly or wholly on behalf of a non-resident. The Ld. CIT(A) is of the view that the agents have been working mainly on behalf of the non-resident. The basis of such opinion is based upon the finding of the A.O. that in the sale invoice issued by PKT Associates it mentions that the commodity sold
[IT&TPA No.198/Ind/2018] [RSV Global, Raipur] through Ashapura Commodities, Vasi, Navi Mumbai, India.
Similarly other parties have also stated the same fact. The contention of the assessee is that agent is not working mainly or wholly on behalf of the non-resident. However, the authorities have considered from the material placed before it that the agent is working mainly or wholly on behalf of the non-resident on the ground that more than 50% of the commission receipt is received from the non- resident. Ld. CIT(A) has also observed that an agent is regarded as economically dependent on the principal if it derives major revenue from principal or if he services the principal and bear entrepreneurial or business risk.
Further, Ld. CIT(A) observed that agent namely M/s.
Ashapura Commodities it is stated that PKT Associates is from main client. In our view, this basis of the Ld. CIT(A) is not in confirmity with the law. The agent may be main client, but the law mandates that the non-resident should
[IT&TPA No.198/Ind/2018] [RSV Global, Raipur] be the main client of the agent. Therefore, this reasoning of the Ld. CIT(A) cannot be affirmed. The A.O. has also observed that 52% of the revenue of the agent is from non- resident. In our view, 52% of the revenue would not make the agent falling in the category of the working mainly for the non-resident. Reliance is also placed on the circular no.23/1969 dated 23.7.1969. Further reliance is placed on the judgement of the Hon'ble A.P. High Court rendered in the case of CIT Vs. Hindustan Shipyard Limited 109 ITR
We find merit into the contention that under the facts of the present case, it cannot be considered that the agent was mainly working for the non-resident. Moreover, the assessee has furnished various documents to demonstrate that agent was a general commission agent. He therefore, has no liability for deduction of tax cannot be fastened on the assessee. Therefore, we set aside the order declaring the assessee as assessee in default and direct the A.O. to [IT&TPA No.198/Ind/2018] [RSV Global, Raipur] delete the additions so made. Hence, ground No.1 of assessee’s appeal is allowed.
Ground No.2 is in respect of levy of interest u/s 201A of the Act. Since we have allowed ground No.1 in favour of the assessee, for the same reasoning, this ground is allowed in favour of the assessee.
Ground Nos.3 & 4 are general in nature needs no separate adjudication.
In the result, the appeal filed by the assessee in for the A.Y. 2015-16 is partly allowed.
Order was pronounced in the open court on 28 .01.2020.