THE PRINCIPAL COMMISSIONER OF INCOME TAX-2 vs. M AND B ENGINEERING LIMITED

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TAXAP/285/2020HC GujaratGJHC24038130202006 October 2020Author: HONOURABLE THE CHIEF JUSTICE MR. JUSTICE VIKRAM NATH,HONOURABLE MR. JUSTICE J.B.PARDIWALA4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeal, following its own earlier decision in the case of the same assessee for an earlier assessment year. In that prior decision, the Court had dismissed the Revenue's appeal concerning identical questions of law. The Tribunal's reasoning, which was upheld by the Court, was based on the principle that a person paying interest or any other sum to a non-resident is not liable to deduct tax if such sum is not chargeable to tax in India. The Tribunal had concluded that the commission income in the hands of the foreign agent was not chargeable to tax in India, thus rendering the deduction of TDS under Section 195 unnecessary. The Court found no substantial question of law arising from the ITAT's order and therefore dismissed the appeal. No issue was expressly left undecided.

What were the facts?

The Revenue has filed this Tax Appeal under Section 260A of the Income Tax Act, 1961, challenging an order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2013-14. The dispute concerns the deletion of disallowance of commission paid to foreign agents, amounting to Rs. 4,63,62,693. The Revenue also challenges the upholding of the CIT(A)'s order deleting an addition made on account of disallowance under Section 40(a)(i) for non-deduction of tax on this commission. The learned counsel for the Revenue conceded that a similar appeal filed by the Revenue for an earlier Assessment Year, involving the same assessee and identical questions, was dismissed by this Court.

What were the issues?

1. Whether the Appellate Tribunal has erred in law and on facts in deleting the disallowance of commission to foreign agents amounting to Rs. 4,63,62,693/- paid without properly appreciating the facts that the assessee was unable to lead evidence to prove the factum of actual rendering of services by such recipients? (Question of law and fact) 2. Whether the Appellate Tribunal had erred in law and on facts in upholding the order of the CIT (A) deleting the addition made on account of disallowance u/s. 40(a)(i) of the Act for non deduction of tax on commission payable to foreign agents of Rs.4,63,62,693/-? (Question of law and fact, turning on Section 40(a)(i) and Section 195) Assessee's Arguments: Not recorded in the judgment. Revenue's Arguments: The Revenue argued that the assessee failed to provide evidence proving the actual rendering of services by the foreign agents. Consequently, the disallowance of commission and the addition for non-deduction of TDS were justified. The Revenue relied on the proposed questions of law for its appeal.

Which sections of the Income-tax Act were involved?

Section 260A,Section 40(a)(i),Section 195

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
C/TAXAP/285/2020 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 285 of 2020 ========================================================== THE PRINCIPAL COMMISSIONER OF INCOME TAX-2 Versus M AND B ENGINEERING LIMITED ========================================================== Appearance: MRS MAUNA M BHATT(174) for the Appellant(s) No. 1 for the Opponent(s) No. 1 ========================================================== CORAM: HONOURABLE THE CHIEF JUSTICE MR. VIKRAM NATH and HONOURABLE MR. JUSTICE J.B.PARDIWALA Date : 06/10/2020

ORAL ORDER (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA)

1.

This Tax Appeal under Section 260A of the Income Tax Act, 1961 (for short “the Act, 1961”) is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench “C”, Ahmedabad in ITA No. 370/Ahd/2018 for A.Y. 2013-

14.2.

The Revenue has proposed the following two questions for consideration of this Court. “(A) Whether the Appellate Tribunal has erred in law and on facts in deleting the disallowance of commission to foreign agents amounting to Rs. C/TAXAP/285/2020 ORDER 463,62,693/- paid without properly appreciating the facts that the assessee was unable to lead evidence to prove the factum of actual rendering of services by such recipients? (B) Whether the Appellate Tribunal had erred in law and on facts in upholding the order of the CIT (A) deleting the addition made on account of disallowance u/s. 40(a)(i) of the Act for non deduction of tax on commission payable to foreign agents of Rs.4,63,62,693/-?”

3.

We have heard Ms. Mauna Bhatt, the learned Senior Standing Counsel for the Revenue.

4.

Ms. Bhatt fairly pointed out that in the case of the very same assessee with respect to the earlier Assessment Year, the Tax Appeal No. 265 of 2019 preferred by the Revenue came to be dismissed by this Court vide order dated 09.07.2019. Ms. Bhatt pointed out that the very same questions were proposed in the Tax Appeal No. 265 of 2019 as proposed in the present appeal. The Tax Appeal No. 265 of 2019 came to be dismissed in the following terms:- C/TAXAP/285/2020 ORDER “1. This tax appeal under Section 260A of the Income Tax Act, 1961[for short the Act, 1961] is at the instance of the revenue and is directed against the order passed by the Income Tax Appellate Tribunal,Ahmedabad Bench 'D'.

Ahmedabad

in ITA

No.355/AHD/2018, dated30/11/2018 for the A.Y 201415.2.The revenue has proposed the following questions of law: “Whether the Appellate Tribunal had erred in law and on facts in upholding the order of the CIT(A) deleting the addition made on account of disallowance of Rs.2,93,56,350/ under section 40(a) (ia)of the Act for non deduction of tax on commission payable to foreign agents.” 3.This tax appeal has something to do with the Section- 40(a)(ia) of the Act. The issue is with regard to the deletion of the addition made on account of the disallowance of Rs.2,93,56,350/ under section40(a)(ia)of of2018, dated 11/04/2018.4.The ratio of the decision of this Court, which has been applied by the tribunal is that a person paying interest or any other sum to a non- resident is not liable to deduct tax if such sum is not chargeable to tax under the Act. Ultimately, the tribunal C/TAXAP/285/2020 ORDER held as under:“The principles laid down in the above cited judgments are squarely applicable to the instant facts of the case. Thus, it can be safely concluded that the Commission income in the hands of foreign agent is not chargeable to tax in India in the given facts & circumstances. Once an income is not chargeable to tax in India then the question of deducting TDS under the provision of section 195 of the Act does not arise. Accordingly, we do not find any reason to interfere in the order of ld. CITA. Hence the ground of appeal raised by the revenue is hereby dismissed.”5.Having regard to the findings recorded by the tribunal relying on the decision of this Court referred to above, we are of the view that no error much less an error of law could be said to have been committed by the tribunal in passing the impugned order warranting any interference in the present appeal. There is no substantial questions of law in the present appeal. The appeal, therefore, fails and is hereby dismissed.”

5.

In view of the aforesaid, this appeal also fails and is hereby dismissed. (VIKRAM NATH, CJ) (J. B. PARDIWALA, J) A. B. VAGHELA

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