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Income Tax Appellate Tribunal, “ D ” BENCH, AHMEDABAD
Before: SHRI S.S. GODARA & 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 appellate order of the Commissioner of Income Tax(Appeals)-I, Vadodara [CIT(A) in short] dated 20/05/2015 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961
ITA No.2265/Ahd/2015 ACIT vs. M/s.Honest Enterprise Ltd. Asst.Year – 2011-12 - 2 - (hereinafter referred to as "the Act") dated 13/03/2014 relevant to Assessment Year (AY) 2011-12.
The captioned appeal involves solitary issue towards applicability of section 195 and consequently section 40(a)(i) towards foreign remittances to non-residents aggregating to Rs.33,65,658/- towards freight charges and cargo handling services (including for inspection and logistics service charges). In the course of assessment proceedings under s.143(3) of the Act, it was observed by the Assessing Officer (AO) that the aforesaid payments towards expenses incurred have been made without deduction of tax at source in terms of section 195 of the Act. It was claimed by the assessee that income-tax is not deductible on the aforesaid payments to non-residents for the reason that services were rendered by them outside India and in the absence of any permanent establishment in India, the recipients are not chargeable to tax in India on the payments received as income neither accrues or arises in India nor the same is deemed to have so accrued or arisen in India. The AO however, did not find any justification in the plea of the assessee for non- deduction as contemplated under s.195 of the Act. Consequently, provisions of section 40(a)(i) of the Act was invoked to deny the deductions claimed towards expenditure incurred where TDS was not deducted on remittances made.
ITA No.2265/Ahd/2015 ACIT vs. M/s.Honest Enterprise Ltd. Asst.Year – 2011-12 - 3 -
Aggrieved, the assessee preferred appeal before the CIT(A). The CIT(A) after examining the facts in detail, reversed the action of the AO and granted relief towards such disallowance. It was observed by the CIT(A) that expenses have been incurred in foreign currency and the same have been remitted to non-residents outside India for the services rendered outside India. The relevant operative paras of the order of the CIT(A) are reproduced hereunder.
“5. I have considered the facts of the case, submissions of the appellant and the AO’s observations. The AO in the assessment order has mentioned that the appellant company during the year under consideration has made payments of Rs.33,65,658/- in foreign currency to non-residence and details of such payments are given by the AO in the assessment order. The AO was of the opinion that TDS was required to be made on these payments of Rs. 33,65,658/- which was made to the foreign parties on account of freight charges and cargo handling charges. The AO has referred to section 195 r.w.s. 40(a)(i) of the Act in his assessment order and has held that amount of foreign remittances of Rs.33,65,658/- without TDS to non-residence was disallowable. As per the AO the circular quoted by the appellant during the course of appellate proceedings namely 723 dated 19/09/1995 was related with the provisions of section 172 which were related with the, mode of levy and recovery of tax in case of any ship belonging to or chartered by a non-residence, which carries passengers, live stock, mail or goods shipped at a port in India. In view of this fact the AO disallowed the above amount of foreign remittances of Rs.33,65,658/- as the tax at source was not deducted on such amount and added the same to the total income of the appellant.
ITA No.2265/Ahd/2015 ACIT vs. M/s.Honest Enterprise Ltd. Asst.Year – 2011-12 - 4 - 5.1 But in my opinion, the AO is not correct in making disallowance of above payments of Rs.33,65,658/- as made by the appellant to Shenzhen Uni-Grandocean International Logistic Co. Ltd. and ABS Co. Ltd. on account of freight charges, cargo handling services, inspection and logistic charges. The fact is that the expenditures of Rs.33,65,658/- were incurred by the appellant in foreign currency and the same were remitted to the non-residents on account of freight charges and cargo handling services, inspection and logistic charges. These non-residents i.e. Shenzhen Uni-Grandocean International Logistic Co. Ltd. and ABS Co. Ltd. had rendered their services outside India and they had no permanent establishment in India or any agent in India. Thus, it cannot be said that the income of Rs.33,65,658/- were accrued to or arisen to these two parties in India. Since the income in question, (i.e. the foreign remittances of Rs. 33,65,658/- made by the appellant to the above parties) was not taxable in India and therefore the same was not subject to TDS u/s 195 of the IT Act and therefore section 40(a)(i) was not applicable in the case of appellant. I agree with the submission of the appellant as reproduced in earlier paragraphs of this appeal order on this issue. In my opinion, the appellant has correctly placed reliance on decisions of Hon'ble ITAT, Delhi in the case of DCIT, Circle-3(1), New Delhi v. Chandabh Impex (P.) Ltd. [(2013) 40 taxmann.com 310 and on decision of Hon'ble ITAT, Mumbai in the case of UPS SCS (Asia) Limited v. ADIT (International Taxation)-2(2) [(2012) 18 taxmann.com 302. The Hon'ble ITAT, Delhi in the case of DCIT, Circle-3(1), New Delhi v. Chandabh Impex (P.) Ltd. has held that where assessee paid freight charges to foreign parties outside India, the income did not accrue or arise in India and therefore the assessee was not liable to deduct tax at source while making said payments. Similar view is held by Hon'ble ITAT, Mumbai in the above case of DCIT, Circle-3(1), New Delhi v. Chandabh Impex (P.) Ltd. In view of these facts it is held that the AO is not correct in making disallowance of expenses of Rs.33,65,658/- and therefore the same is deleted. Thus, the ground of appeal of the appellant is allowed.”
The CIT(A) accordingly found merit in the claim of the assessee towards non-applicability of section 195 of the Act to such remittances
ITA No.2265/Ahd/2015 ACIT vs. M/s.Honest Enterprise Ltd. Asst.Year – 2011-12 - 5 - to non-residents and accordingly deleted consequential disallowance made under s.40(a)(i) of the Act.
Aggrieved, the Revenue preferred appeal before the Tribunal. 5.
We have heard the rival submissions. With the assistance of the Ld.DR for the revenue and Ld.AR for the assessee, we observe that the CIT(A) has rightly concluded that the freight charges and cargo handling charges paid by the assessee in foreign currency to non-residents for services rendered outside India is not susceptible to provisions of section 195 of the Act. It is an admitted position that the recipients did not have any permanent establishment in India or any agent in India. Consequently, the chargeable income thereof under s.4 did not accrue or arise in India in the hands of the non-residents having regard to section 5 r.w.s.9(1) of the Act. Accordingly, where the income in the hands of non-residents in question i.e. foreign remittances made by the assessee was not taxable in India, the remittance was not susceptible to withholding of taxes (TDS) under s.195 of the Act. In the absence of abligation cast upon the assessee to deduct TDS under s.195, section 40(a)(i) has no application in the instant case for disallowance of the expenses. The CIT(A) has rightly concluded the issue in favour of assessee. Without further elaboration, we do not see any warrant to interfere with the order of the CIT(A).
ITA No.2265/Ahd/2015 ACIT vs. M/s.Honest Enterprise Ltd. Asst.Year – 2011-12 - 6 - 7. In the result, appeal of the Revenue is dismissed.
This Order pronounced in Open Court on 23/ 02/2018
Sd/- Sd/- (एस.एस.गोदारा) (�द�प कुमार के�डया) �या�यक सद�य लेखा सद�य ( PRADIP KUMAR KEDIA ) ( S.S. GODARA ) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 23/ 02/2018 ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-1, Vadodara �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation ..21.2.18 (dictation-pad 9- pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member …21.2.18 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S…………….. 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S…….23.2.18 7. Date on which the file goes to the Bench Clerk…………………23.2.18 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………