THE COMMISSIONER OF INCOME TAX vs. SESA GOA LTD.

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TXA/19/2013HC BombayHCBM05002290201327 February 2020Author: HON'BLE SHRI JUSTICE M. S. SONAK,HON'BLE KUM. JUSTICE NUTAN D. SARDESSAI4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that for the first substantial question of law, the matter was covered by the Supreme Court decision in GE India Technology Centre (P) Ltd. vs. CIT, which stated that the duty to deduct tax at source arises only when remittance to non-residents contains wholly or partly taxable income under Section 195. This view was reiterated in CIT vs. Toshoku Ltd. and followed by the Bombay High Court in Gujarat Reclaim & Rubber Products Ltd. and Sesa Goa Ltd. Therefore, commission earned by a non-resident foreign agent for selling Indian goods outside India is not deemed income accrued or arisen in India, negating the requirement for TDS under Section 195. The first question was answered against the Revenue. For the second substantial question, the High Court noted concurrent findings of fact by the lower authorities (Commissioners Appeals and ITAT) that the commission was incurred wholly and exclusively for the assessee's business. No perversity was pointed out. The ITAT had also relied on various rulings. Thus, the second question was also answered against the Revenue. The appeal was dismissed.

What were the facts?

The appeal was filed by the Commissioner of Income Tax (Revenue) against an order passed by the Income Tax Appellate Tribunal (ITAT). The assessee is M/s. Sesa Goa Ltd. The appeal concerns assessment years not explicitly stated but implied to include AY 2005-2006 and AY 2009-10. The dispute revolves around the addition made by the Revenue towards payment of commission to foreign agents where Tax Deducted at Source (TDS) was not deducted under Section 40(a)(ia) and the disallowance of commission under Section 37. The ITAT had ruled in favour of the assessee on both counts. The High Court admitted the appeal on two substantial questions of law.

What were the issues?

1. Whether the ITAT was correct in deciding the addition towards payment of commission to foreign agents where TDS was not deducted under Section 40(a)(ia), ignoring decisions in Rajiv Malhotra (AAR) and SKF Boilers and Driers Pvt. Ltd.? 2. Whether the ITAT was correct in law in holding that the disallowance of commission under Section 37 was incorrect, as the commission was incurred wholly and exclusively for the assessee's business? Assessee's arguments: Not explicitly recorded for the first issue, but impliedly that TDS was not required. For the second issue, the commission was incurred wholly and exclusively for business purposes. Revenue's arguments: Not explicitly recorded for the first issue, but impliedly that TDS was mandatory. For the second issue, the disallowance under Section 37 was justified.

Which sections of the Income-tax Act were involved?

Section 40(a)(ia),Section 37,Section 195

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
1 IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO.19 OF 2013 The Commissioner of Income Tax, Aaykar Bhavan, Patto Panaji-Goa. .... Appellant. V/s. M/s. Sesa Goa Ltd. Sesa Ghor, 20 EDC Complex, Patto Plaza, Panaji – Goa, 403001. PAN: AACCS7101B …. Respondent Ms. Susan Linhares, Advocate for the appellant. Mr. R. G. Ramani, the learned Senior Counsel along with Ms. S. Patil, Advocate for the respondent. Coram : M. S. SONAK & NUTAN D. SARDESSAI, JJ. Date : 27th February, 2020.

Oral Judgment: (Per M.S. Sonak, J.) : Heard Ms. Susan Linahres, the learned Standing Counsel for the Income Tax Department – appellant and Mr. R. G. Ramani, the learned Senior Counsel appears along with Ms. S. Patil, the learned Counsel for the respondent.

2.

By our Order dated 15.10.2013, this appeal was admitted on the following substantial questions of law.

2 “i. Whether ITAT is correct in deciding the addition towards payment of commission to foreign agents where TDS was not deducted u/s. 40(a)(ia) ignoring the decision of AAR in the case of Rajiv Malhotra INRE(AAR) 284 ITR 564 and SKF Boilers and Driers Pvt. Ltd.? ii. Whether ITAT is correct in law in taking a view that the disallowance of commission under Section 37 is incorrect since the Commission has been incurred by the Assessee wholly and exclusively for the purpose of business of the Assessee?”

3.

Insofar as the first substantial question of law is concerned we find the matter is entirely covered by the decision of the Hon'ble Apex Court in the case of GE India Technology Centre (P) Vs. CIT,1. In this decision, the Hon'ble Apex Court has held that the duty to deduct tax at source arises only when remittance to non-residents contain wholly or partly taxable income, i.e. income chargeable under Section 195 of the Income Tax Act, 1961. 4. The view taken in GE India Technology (P) Limited (supra) was once again reiterated in another decision of the Hon'ble In Commissioner of Income Tax–10 Vs. Gujarat Reclaim & Rubber Products Ltd., Income, Tax Appeal No.2116 1(327 ITR 456) 2(125 ITR 525)

3 Limited (supra) to reiterate that the commission earned by non- resident (foreigner) agent who carried on the business of selling Indian goods outside India, cannot be said have deemed to be income which has accrued and/or arisen in India so as to require any tax deduction at source under section 195 of the ITR.

6.

For all the aforesaid reasons, the first substantial question of law is required to be answered against the appellant - Revenue and in favour of the respondent - assessee.

7.

Insofar as the second substantial question of law is concerned, we find that both the Commissioners (Appeals) as well as the ITAT have recorded concurrent findings of fact that the commission have been incurred by the assessee wholly and exclusively for the business of the assessee. No perversity is pointed out in the business so as to give arise to any substantial question of law.

8.

Besides, we find that the ITAT has also relied upon

4 several rulings of the Apex Court and other Courts in order to answer this question in favour of the assessee. The record indicates that for the A.Y 2005-2006 and A.Y 2009-10, as well similar view was taken in favour of the assessee.

9.

For the aforesaid reasons, we answer even the second substantial question of law against the appellant – Revenue and in favour of the respondent - assessee.

10.

Resultantly, this appeal is required to be dismissed and is hereby dismissed. There shall be no order as to costs. NUTAN D. SARDESSAI, J. M. S. SONAK, J. af*

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