RANGSONS SCHUSTER TECHNOLOGIES PRIVATE LIMITED ,MANDYA vs. DCIT,CIRCLE-1(1)& TPS , MYSORE

Aggrieved from the above Order, assessee filed appeal before the Tribunal. The learned Counsel relied on the submissions made before the learned CIT(A) and he strongly contested that as per ground No.3, Assessment Order passed by the AO in case of non-existent entity is bad in law and void- ab-initio and he further submitted that this company has merged with Rangsons Aerospace Pvt. Ltd., (RAPL) (amalgamated company) vide NCLT Order No.CP (CAA) No.20/BB/2020 dated 07.09.2020 wherein it was held that parties counsel present from the income tax department by the representative and entire assets and liabilities have been transferred to the amalgamated company. He submitted that notice under section 148 of the Act was issued to the assessee. In response to the notice, assessee filed ITR on 27.04.2022 declaring total loss of Rs.2,68,00,213/-. Accordingly, notice under section 143(2) of the Act and subsequently various statutory notices Page 3 of 7 were issued to the assessee but there was no response. Therefore, AO passed Order under section 144 of the Act. Further, on merits of the case, he submitted that the provision of section 195 of the Act is not applicable to the assessee since the entire works were carried out outside India and there is no business connection and permanent establishment in India. Therefore, the income received out of India towards rendering of services is not taxable in India. Therefore, the said provision of section 195B of the Act will not be applicable and he further submitted that RSTPL manufactures and exports High Tech Aviation Tubes. During the Financial Year 2017-18, RSTPL entered into a contract with Israel Aerospace Industries (IAI), Israel to supply aviation tubes. The said tubes had to be manufactured adhering to the standards issued by the Federal Aviation Administration (FAA.), Israel. Semi-finished tubes after being manufactured at our plant were sent to Israel for further processing. After the required processing,the Finished High Tech Tubes were sent to the customer i.e. IAI at the final point of consumption. SATLis a Foreign Company registered in Israel and engaged in the business of providing engineering services, namely, swaging & plating on aviation tubes. Entire activity is carried out in Israel and is not liable to tax in India. The said processes are essential for any tube to be approved as fit to use as per the standards laid out by the Federal Aviation Administration (FAA). Further, it was submitted that RSTPL entered into contract with Schuster Aviation Tubes Limited which was approved under FAA to process the tubes so as to complete the order and deliver the finished Aviation Tubes to Israel Aerospace Industries (IAI). A sum of USD 77,884.94/- (Rs. 49,39,498/-) was remitted as Advance and Semi-finished tubes were sent to SATL for further processing and final delivery to IAI post further processing. The services rendered by Schuster Aviation Tubes Limited, Israel not being in the nature of technical or managerial services were rendered outside India and the vendor does not have any permanent-establishment or business connection in India. The profits of the services rendered outside India cannot be taxed in India unless the non-resident has permanent establishment/or business connection in India as envisaged in Sec. 9(1) of the Act. It was further submitted that the recipient of Income is a Foreign Company which is not Page 4 of 7 chargeable to tax inIndia as it does not have Permanent Establishment in India, hence the question of deduction of TDS by payer will not arise.Further, in support of his arguments, he relied on the judgment of Co-ordinate Bench in the case of Late Shri Motilal Hastimaji Bhothra Vs. ITO in ITA No.2316/Mum./2023, Order dated 16.10.2023 and PCIT, New Delhi Vs. Maruti Suzuki India Ltd., reported in (2010) 107 taxmann.com 375 (SC).

On the other hand, learned DR relied on the Order of lower authorities and he submitted that the legal issued raised by the assessee regarding assessment framed in the case of non-existent entity is not valid ground and submitted that NCLT has passed Order on 07.09,2020 w.e.f. 04.01.2019 since the company was not in existence in spite of that assessee has filed return of income in pursuance to notice issued under section 148 of the Act dated 27.04.2022 and claimed loss. The assessee has filed return in the name of amalgamating Company which was not in existence, accordingly the AO was bound to pass the assessment order in the name of assessee company. Insteated of filling return of income it could have been informed by the successor company that the company is not in existence then the AO would take appropriate action as per law. While filing return in pursuance to notice under section 148 of the Act, assessee should have informed income tax department that the assessee is not in existence and merged with RAPL w.e.f. 01.04.2019. However, the entire assets and liabilities and demands were transferred to the amalgamated company. Once the Assessment Order has been passed, it cannot be expunged and it was the duty of the assessee to inform the AO. Even after filing return of income, assessee did not participate in the income tax proceedings as well as first appellate proceedings. Therefore, the case law relied on by the learned Counsel does not support the case of the assessee. Further, on merits of the case, learned DR relied on the Order of the AO.

The issue on merits is that the assessee has made payment to foreign company SATL but it has not deducted TDS in terms of section 195 of the Act. As per the statement submitted by the assessee before the learned CIT(A) that SATL is a foreign company registered in Israel and engaged in the business of providing engineering services including swaging and planting on aviation tubes. The RSTPL entered into contract with IAI to supply aviation tubes. The said tubes had to be manufactured on behalf of the standards issued by the FAA, Israel. Semi-finished tubes after being manufactured at our plant were sent to Israel for further processing. After the required processing,the Finished High Tech Tubes were sent to the customer i.e. IAI at the final point of consumption. In this regard, during the Financial Year 2017-18, a sum of Rs.49,39,498/- was remitted as advance and semi-finished tubes were sent to SATL for further processing and final delivery to IAI post further processing. The entire works are done outside India. From the submissions of the assessee it was noticed that the services rendered by SATL are not being in the nature of technical or managerial services but were taken Page 6 of 7 outside India and does not have any permanent establishment or business connection in India. In this regard, the learned DR could not bring any cogent material that assessee has business connection in India. The learned Counsel also relied on the judgment in the case ofGE Technology Centre Vs. CIT [2010] 327 ITR 456 (SC) in which it has been held that the profits of the services rendered outside India cannot be taxed in India unless the non-resident is a permanent establish or has business connection as envisaged in section 9(1) of the Act. The learned Counsel further submitted that in the case of Turbo Energy Private Limited Vs. DCIT in to 205/CHNY/2014, Order dated 03.05.2017 has held that profits of the services rendered outside India cannot be taxed in India unless the non-resident is a permanent establish or has business connection as envisaged in section 9(1) of the Act.

During the course of hearing, the learned DR could not bring any adverse materials to controvert the facts of the case filed before the learned CIT(A). Accordingly, we hold that submissions made to Israel company as advance payment is out of purview of section 195 of the Act for the applicability of TDS provision. Therefore, the disallowance made by the AO under section 40(a)(i) of the Act does not warrant. Accordingly, we delete the addition made by the AO. Since we have decided the issue on merits of the case, the legal issue raised by the assessee are left open.