THE DY. COMMISSIONER OF INCOME TAX, KHEDA CIRCLE,, KHEDA vs. ADF FOODS LTD.,, KHEDA

Revenue has taken three grounds of appeal, but its grievance revolves around a single issue viz. the ld.CIT(A) has erred in not upholding the disallowance under section 40(a)(ia) of the Income Tax Act, 1961 in respect of sales linked variable commission without appreciating that these payments are taxable in India, as fees for technical services.

Brief facts of the case are that the assessee at the relevant time was engaged in the business of manufacturer and exporter of processed and 2 preserved food products, spices etc. It has filed its return of income on 29.11.2013 declaring total income at Rs.8,49,87,460/- . During the course of assessment proceedings, the ld.AO found that the assessee was required to deduct TDS on certain payment for which it has claimed expenditure in the books. According to him, the assessee failed to deduct TDS, and therefore, a disallowance under section 40(a)(ia) of the Act to be made. He noted the following expenses. “Advertisement Rs. 3,17,527/- (out of total advertisement expenses of Rs. 1,26,42,409/-the assessee has made advertisement expenses to Indus Age Rs.217516, Lebanese Fruit company Rs.45792/- and Proactive Publications Ltd. Rs.542197/- on which TDS has not been deducted) Legal & professional fees Rs. 1,65,75,785/- Sales commission Rs. 1,10,31,710/-“

The ld.AO accordingly disallowed a sum of Rs.2,79,25,022/-. Dissatisfied with the disallowance the assessee carried the dispute in appeal before the ld.CIT(A) who has partly deleted the disallowance by holding as under: “4.1.1. Undisputedly, the facts are identical in this year also and accordingly following the above mentioned order which otherwise is also necessary to follow in order to maintain consistency, I hold that except for variable commission linked to the sales made, the fixed sales commission, legal and professional fees and business promotion expenses being in the nature of managerial and consultancy charges, are chargeable to tax in India. Hence the appellant was required to deduct tax thereon u/s. 195(1). Similarly, the advertisement expenses are also relating to the business promotion of the appellant and hence the same are also covered under managerial and consultancy charges. Since the appellant has failed to deduct tax u/s. 195(1), the disallowance made by the Assessing Officer u/s.40(a)(i) of the Act is confirmed. The Assessing Officer is directed to allow consequential relief only to the extent of sales linked variable

3 commission paid by the appellant after necessary verification. Thus, appellant succeeds partly in this regard.”

A perusal of the break-up reproduced by the AO and noted above, it would reveal that the ld.CIT(A) has deleted the disallowance of sales commission at Rs.1,10,31,710/-. On legal and professional fees, business promotion expenses, the ld.CIT(A) has held that these are chargeable to tax in India and TDS was required to be deducted. Hence, this issue has been decided partly against the assessee. Be that as it may, we perused the record and impugned order of the ld.Revenue authorities. We noticed that tax effect in disputed addition, after the part relief given by the ld.CIT(A), would be less than Rs.50 lakhs, if that be so, then appeal of the Revenue is hit by recent CBDT Instruction No.17 of 2019 dated 8.8.2019, and it is not maintainable and liable to be dismissed at the threshold. This instruction is applicable to the pending cases also. Therefore, the present appeal of the Revenue is liable to be dismissed at the threshold. The Id.DR, however, did not dispute applicability of the above CBDT circular and left to the Tribunal to pass appropriate order in the matter.

After hearing the ld.DR, we are of the view that the present appeal of the Revenue falls within the purview of the CBDT Instruction cited (supra). It is not disputed by the Revenue that tax effect on the disputed addition is more than Rs.50 lakhs, and therefore, keeping in view the above CBDT circular and provisions of section 268A of the Income Tax Act, we are of the view that the present appeal of the Revenue deserves to be dismissed. It is dismissed.

In the result, appeal of the Revenue is dismissed due to low tax effect.