THE COMMISSIONER OF INCOME TAX vs. M/S.SOUTHERN BOREWELLS(P)LTD

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE TUESDAY, THE 10TH DAY OF DECEMBER 2013/19TH AGRAHAYANA, 1935 ITA.No. 205 of 2012 --------------------------- [AGAINST THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN I.T.A.NO. 415/COCH/2011 DATED 29-02-2012 FOR THE ASSESSMENT YEAR 2007-08] .................. APPELLANT/RESPONDENT: ---------------------------------------- THE COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM. BY SRI.JOSE JOSEPH, S.C. RESPONDENT/APPELLANT: ---------------------------------------- M/S.SOUTHERN BOREWELLS, SHREYAS, SASTRI JUNCTION, KOLLAM, PIN - 691 001.

THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 10-12-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Prv.

I.T.A. NO.205/2012: APPENDIX PETITIONER'S ANNEXURES: ANNEXURE A: COPY OF THE AGREEMENT BETWEEN THE ASSESSEE AND THE AFRICAN COMPANY, M/S. MOZAMBIQUE HOLDINGS LTD. ANNEXURE B: COPY OF THE ASSESSMENT ORDER U/S. 143 (3) DT. 30/12/2009. ANNEXURE C: COPY OF THE ORDER OF THE COMMISSIONER OF

INCOME TAX (APPEALS) DTD. 25/03/2011. ANNEXURE D: COPY OF THE ORDER OF THE INCOME TAX APPELLATE - TRIBUNAL DTD. 29/02/2012 WITH A COPY. RESPONDENT'S ANNEXURES: NIL. //TRUE COPY// P.A. TO JUDGE. Prv.

MANJULA CHELLUR, CJ & A.M.SHAFFIQUE, J. * * * * * * * * * * * * * I.T.Appeal No.205 of 2012 ---------------------------------------- Dated this the 10th day of December 2013

J U D G M E N T SHAFFIQUE,J Appeal is filed by the revenue with reference to the order passed by the Income Tax Appellate Tribunal, Cochin Bench in I.T.A.No.415/Coch/2011. 2. The issue involved in the above appeal is with reference to non-deduction of tax at the time of making payment to a foreign company as agency commission. The assessee entered into a contract for providing marketing support to win the contract for construction of bore wells in a foreign country. The agent was M/s.Mozambique Holdings Ltd. does not have a permanent establishment in India and the agency commission had to be paid in a foreign country.

I.T.A.No.205 of 2012 2 The assessing officer found that an amount of Rs.5,02,05,613/- is debited as agency commission in the accounts. The agency commission payable as on 31/3/2007 is Rs.4,26,26,195/-. It is found that the said amount is not fully paid and therefore it is not an allowable deduction. Assessment was therefore completed disallowing the said amount in addition to certain other expenditure. 3. The assessee preferred an appeal before the Commissioner of Income Tax (Appeals). With reference to agency commission, the appellate authority found that the amount paid as agency commission is an income which is needed to have accrued in India and therefore the assessee was liable to deduct tax on such payments in the foreign country. The assessee preferred a further appeal before the Tribunal. The Tribunal found that the agency commission was payable in foreign exchange. Reference was made to Clause III, the responsibilities under the contract which reads as under:

I.T.A.No.205 of 2012 3 “Clause III Responsibilities of the Contractor 3.1 The Contractor agrees to provide the consultant all necessary technical input on the proposal made to the National Directorate of Water and respond to all queries on the project within the time frame. 3.2 The Contractor is committed to provide authorizations for the consultant to represent the Contractor in negotiations related to the contract. 3.3. The Contractor undertakes to fulfill all financial obligations of the agreement within the provisions of the agreement.”

I.T.A.No.205 of 2012 4 payment made outside the country cannot be construed as income accrued in India and therefore no part of the income of M/s.Mozambique Holdings Ltd. in India is taxable under the Income Tax Act. The Tribunal referred to the judgment of the Supreme Court in GE Technology Centre pvt.Ltd. v. Commissioner of Income Tax [(2010) 327 ITR 457(SC)] and found that the assessee is not liable to deduct tax since no part of the payment made to M/s.Mozambique Holdings Ltd. is liable to tax in India. 5. On behalf of the Revenue the main contention urged is the applicability of the GE Technology case (supra) to the facts of the present case. In the aforesaid judgment the Supreme Court while considering the scope of Section 195(1) especially the expression “sum chargeable under the provisions of the Act” observed that the payer becomes an assessee in default only when he fails to fulfill the statutory obligation under Section 195(1). If the payment does not contain the element of income the payer cannot be made

I.T.A.No.205 of 2012 5 liable. Further it is held that when the payer remits an amount to a non resident out of India, he claims deduction or allowances under the Income tax Act for the said sum as an expenditure. The Supreme Court referred to the amendment made to the Finance Act 2008 with effect from 1st April 2008 and observed that since the provision has been brought into force only from 01/04/2008, it will not apply for the period prior to the same. It is based on the said view that the Tribunal came to a finding that the assessee is not liable to deduct tax with respect to the above transaction. 6. Delhi High Court also in EON Technology Services [(2012) 246 CTR (Del) 40] has taken a similar view. Apparently, the amendments made by Finance Act 2012 will have no application to the facts of the case as the payment relates to the assessment year 2007-08. No grounds have been raised in the appeal which warrants interference. We do not think that any substantial

I.T.A.No.205 of 2012 6 question of law arises for consideration and accordingly we dismiss the appeal. (sd/-)

(MANJULA CHELLUR, CHIEF JUSTICE) (sd/-) (A.M.SHAFFIQUE, JUDGE) jsr

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