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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI PRADIP KUMAR KEDIA
आदेश/O R D E R
PER PRADIP KUMAR KEDIA - AM:
The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)-1, Ahmedabad (‘CIT(A)’ in short), dated 22.12.2017 arising in the assessment order dated 23.03.2016 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2013-14.
ITA No. 601/Ahd/18 [DCIT vs. Amol Dicalite Ltd.) A.Y. 2013-14 - 2 -
The ground of appeal raised by the Revenue reads as under:
“(1) That the ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs.85,49,008/- made under section 40(a)(i) of the Act on account of payment to non-residents without deduction of tax at source.”
The assessee company is engaged in the business of construction/manufacturing of (i) Filteraid & Perlite Products & activities, (ii) Cotton & Synthetics Cloth & activities etc. The assessee, a resident company, filed return of income at Rs.5,77,20,540/- concerning AY 2013- 14 in question. The return filed by the assessee was subjected to scrutiny assessment. In the course of the scrutiny assessment, the AO inter alia noticed that the assessee has paid consultancy/legal fees amounting to Rs.85,49,008/- to one Mr. W. H. Waugh of USA on which holding tax has not been deducted as contemplated under s.195 of the Act. The AO accordingly invoked the provisions of Section 40(a)(i) of the Act for alleged default in non deduction towards the consultancy charges paid.
Aggrieved, the assessee preferred the appeal before the CIT(A).
The CIT(A) after taking note of the submissions made by the assessee and having regard to the decision rendered by the CIT(A) in the preceding assessment years AYs. 2010-11, 2011-12 & 2012-13 held that the amount paid to the non-resident is not chargeable to tax in India and therefore the provisions of Section 195 of the Act is not applicable at the threshold. It was thus held that the disallowance made by the AO under s.40(a)(i) of the Act is not sustainable in law. The relevant operative para of the order of the CIT(A) is reproduced hereunder:
“ …………………………. Relying on the order of the learned CIT(A), addition u/s.40(a)(i) for making payments to the same non-residents individuals was also deleted by the CIT(A) in the appellant's own case for A. Y.2012-13. Now I proceed to deal with payments made to each and every Non-resident individual who the appellant claims to be covered:-
ITA No. 601/Ahd/18 [DCIT vs. Amol Dicalite Ltd.) A.Y. 2013-14 - 3 -
(1) Regarding payment made to W.H. Waugh (USA)) Rs.85,49,008/- The appellant has made payment of Rs 51.24 lacs to W.H.Waugh resident of United States of America. Coming to the facts of the case, it is seen that there is no evidence placed on record by the Department that Mr. W.H. Waugh (USA) to whom an amount of Rs. 85,49,008/-was paid had ever visited India to render services to the appellant-company. It is also not the case of the AO that Mr. Waugh had a fixed base which was made available by the appellant. Therefore, respectfully following the decision of the learned CIT(A) for the A.Ys. 2010-11, 2011-12 and 2012- 13, I find no reason to deviate from the stand already taken. The amount paid to Mr. W.H. Waugh (USA) is not effectively connected to a fixed base regularly wade available to him in India by the appellant-company. Accordingly, the question of attributing the income to the fixed base does not arise. Further, it is also not the case of the learned Assessing Officer that the stay of Mr. W.H. Waugh exceeded 90 days in India. Therefore, under Article 15 of India USA DTAA, income of a person rendering professional services would be taxable only in the country in which the person is a resident i.e. USA. Accordingly, the said amount is not taxable in India. Once it is held that the amount paid to a non-resident is not taxable in India, the question of withholding tax does not arise u/s.195 of the Act. This legal position is well settled by virtue of the Apex Court decision in the case of GE India Technology Cen. (P.) Ltd. vs. CIT. [2010] 193 Taxman 234 (SC). The Headnote of the said decision is reproduced below:- " Section 195 of the Income-tax Act, 1961 - Deduction of tax at source - Payment to nonresident - Whether the moment a remittance is made to a non-resident, obligation to deduct tax at source does not arise; it arises only when such remittance is a sum chargeable under Act, i.e., chargeable under sections 4, 5 and 9 - Held, yes - Whether section 195(2) is not a mere provision to provide information to ITO(TDS) so that department can keep track of remittances being made to non-residents outside India; rather it gets attracted to cases where payment made is a composite payment in which certain proportion of payment has an element of 'income' chargeable to tax in India and payer seeks a determination of appropriate proportion of sum chargeable - Held, yes." Accordingly, the addition made on account of payment made to Mr. W.H. Waugh (USA) is deleted. In view of the above facts, the case laws as discussed supra and respectfully following the above decision of CIT(A) Gandhinagar, for AY 2012-13, no deduction of tax from reimbursement of expenses is required to be made. Accordingly, no disallowance is warranted u/s.40(a)(i) of the Act. The ground of the appellant is allowed.
Aggrieved, the Revenue preferred appeal before the Tribunal.
When the matter was called for hearing, nobody contended on behalf of the assessee, however, a letter dated 30th July, 2019 was placed on record wherein it was submitted on behalf of the assessee that action of the
ITA No. 601/Ahd/18 [DCIT vs. Amol Dicalite Ltd.) A.Y. 2013-14 - 4 -
assessee towards payment made to non-resident without deducting tax at source was just and proper. The assessee sought to rely upon the order of the co-ordinate bench of ITAT in ITA No. 1247 & 1248/Ahd/2016 concerning AY 2011-12 & 2012-13 dated 03.05.2019 and ITA No.539/Ahd/2018 AY 2010-11 order dated 27.03.2019 in assessee’s own case where the ITAT has decided the issue in favour of the assessee had held that provisions of Section 195 of the Act are not applicable in the absence of chargeability of the remittance in the hands of non-resident under the provisions of Income Tax Act. As per the submissions made, it is thus the contention of the assessee that the Revenue’s appeal would not survive in the light of the decision of the co-ordinate bench for all the three assessment years in the identical facts and circumstances of the case.
The learned DR for the Revenue, on the other hand, has relied upon the order of the AO.
We have carefully considered the rival submissions. The deductibility of TDS under s.195 of the Act on remittance made to non- resident situated abroad in respect of consultancy services rendered outside India is in controversy. As a consequence and incidental to the aforesaid controversy, the applicability of Section 40(a)(ia) of the Act is in dispute. We straightway find that CIT(A) has relied upon the order of the predecessor CIT(A) concerning AY 2010-11, 2011-12 & 2012-13. The aforesaid orders of the CIT(A) have been endorsed by the co-ordinate bench of ITAT. Thus, the issue is no longer res integra. In consonance with the view already taken in assessee’s own case, we do not see any reason to interfere with the order of the CIT(A). It may be pertinent to note here that Revenue has not brought on record any distinguishing feature which may render the earlier decisions inapplicable. It is clearly observed that non-resident consultant has no fixed base in India and thus the question of attributing income to the fixed base does not arise. It is also observed that non-resident has not stayed in India for more than 90 days during the year. The beneficial provisions of Article 15 of India USA DTAA was applied and it was held that amount paid to non-resident is not
ITA No. 601/Ahd/18 [DCIT vs. Amol Dicalite Ltd.) A.Y. 2013-14 - 5 -
taxable in India and consequently, in the absence of income chargeable under the Income Tax Act, Section 195 would not apply and thus Section 40(a)(i) of the Act is not applicable. We concur with the view expressed by the CIT(A) in sync with the decisions rendered in assessee’s own case.
In the result, the appeal of the Revenue is dismissed.
This Order pronounced in Open Court on 07/08/2019
Sd/- Sd/- (RAJPAL YADAV) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad: Dated 07/08/2019 True Copy S. K. SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।