BUHLER (INDIA) PVT LTD,BENGALURU vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(2), BENGALURU

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE BEFORE SHRI N. V. VASUDEVAN, VICE PRESIDENT AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER

ITA No.95/Bang/2018 Assessment Years : 2011-12 M/s. Buhler India Pvt. Ltd., Vs. Deputy Commissioner of 13-D, 12-D, 13C and 13-B, Income-Tax, KIADB Indl. Area, Attibele, Circle 1(1)(2), Bangalore – 562 107. Bangalore. PAN : AAACB 5987 A APPELLANT RESPONDENT

Assessee by : Shri. Keerthi Narayanan, CA Revenue by : Shri. Vikas Suryavamshi, Addl. CIT

Date of hearing : 16.07.2019 Date of Pronouncement : 02.08.2019

O R D E R Per Jason P. Boaz, A.M. This appeal by the assessee is directed against the order of CIT(A) - 1, Bangalore, dated 31.08.2017 for Assessment Year 2011-12.

2.1 The assessee, a company engaged in business of manufacture, trading, servicing and maintenance of food processing machines, filed its return for Assessment Year 2011-12 on 28.11.2011 and subsequently a revised return of income on 24.08.2012 declaring income of Rs.11,82,67,813/-. The case was

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Page 2 of 8 taken up for scrutiny for this Assessment Year and the assessment was concluded under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) vide order dated 23.03.2015 wherein the assessee’s income was determined at Rs.26,49,55,970/-. The assessee’s appeal was disposed off by the CIT(A)-1, Bangalore vide order dated 31.08.2015.

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Page 4 of 8 5. (II) Ground Nos.2 to 5 – Disallowance under section 14A of the Act

5.1 In these grounds (supra), the assessee, inter alia, contends that the CIT(A) erred in upholding the disallowance of Rs.9,28,747/- under section 14A of the Act r.w.Rule 8D(2)(iii) of the Income Tax Rules, 1962, made by the AO. Before us, the learned AR for the assessee submitted that in the year under consideration, the assessee has admittedly earned exempt dividend income of Rs.5,46,848/- and therefore contended that, without prejudice to the other arguments put forth, the CIT(A) ought to have restricted the disallowance under section 14A of the Act to the extent of exempt income i.e., Rs.5,46,848/-. In this regard, the learned AR placed reliance on the decision of the Co-ordinate Bench of this Tribunal in the case of ACIT Vs. Mantri Technology Constellations Pvt. Ltd., in ITA No.744/Bang/2018 dated 03.04.2019; which followed the decisions of the Delhi High Court in the case of Joint Investments (P) Ltd., Vs. CIT (372 ITR 694) (Del) and CIT Vs. Holcim Indi Pvt. Ltd., in 272 CTR 282 (Del).

5.2 Per contra, the learned DR for Revenue supported the orders of the authorities below.

5.3 We have heard and considered the rival contentions and perused the material on record and the judicial pronouncements cited in this regard. In the case on hand, admittedly the assessee earned exempt dividend income of Rs.5,46,848/- in the year under consideration. In the order of assessment, the AO made disallowance of Rs.9,28,747/- under section 14A r.w.r. 8D(2)(iii)). On appeal, the CIT(A) upheld the aforesaid disallowance u/s 14A r.w.r. 8D. Before us, the assessee / learned AR were unable to controvert the orders of the authorities below to support its claim that no disallowance was called for u/R 8D(2)(iii) and therefore the following alternate argument was put forth by the learned AR. According to the learned AR, the alternate argument of the assessee

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Page 5 of 8 is that disallowance under section 14A of the Act cannot exceed the exempt income earned by the assessee. In this regard, the Hon’ble Delhi High Court in the case of Joint Investments (P) Ltd., Vs. CIT (372 ITR 694) has taken the view that the disallowance u/s 14A of the Act cannot exceed the exempt income. Similar view has been expressed by the Hon’ble High Court in the case of CIT Vs. Holcim India Pvt. Ltd., (272 CTR 282) (Del HC). These decisions were considered and followed by the Mumbai Bench of the Tribunal in the case of Future Corporate Resources Ltd., Vs. ACIT (ITA No.4658/Mum/2015 dated 26.07.2017 and by the Co-ordinate Bench of this Tribunal in the case of Lamina Suspension Products Ltd., in ITA Nos.336 & 337Bang/2018 dated 11.01.2019 wherein it was held that the disallowance u/s 14A of the Act cannot exceed the exempt income. Respectfully following the aforesaid judicial pronouncements (supra), we hold that the disallowance u/s 14A of the Act in the case on hand should be restricted to the exempt dividend income of Rs.5,46,848/- earned by the assessee in the year under consideration. We hold and direct accordingly. Since the assessee’s alternate argument put forth in the course of appellate proceedings has been allowed and there is no merit in the grounds raised at Sl. Nos. 2 to 5, the same are rejected.

6.1 In these grounds (supra), the assessee assails the order of CIT(A) in upholding the disallowance of commission expenses amounting to Rs.68,68,580/- paid by the assessee to M/s. Ameejee Valleejee and Sons (AV & Sons); a foreign agent; on the grounds that the assessee had not withheld tax on such payments. The learned AR contended that the said payments were not chargeable to tax under charging sections 4, 5 and 9 of the Act since no part of the income arises in India or is received by it / on its behalf in India or is deemed

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Page 6 of 8 to accrue or arise in India. According to the learned AR, since the agency activity of ‘A V & Sons’ was rendered outside India and payments were made outside India, therefore the said commission payments to ‘A V & Sons’ cannot be said to be taxable in India. It is contended that since no income accrues or arises in India or is deemed to accrue or arise in terms of section 5 r.w.s. 9(1)(i) of the Act, the aforesaid commission payments to ‘AV & Sons’ is not subject to the provisions for withholding tax thereon. In support of the assessee’s contentions, the learned AR placed reliance on the decisions of the Co-ordinate Bench of this Tribunal in the assessee’s own case in ITA No.2167/Bang/2016 dated 17.11.2017 for Assessment Year 2010-11 on the very same issue.

6.2 Per contra, the learned DR for Revenue placed reliance on the orders of the authorities in the matter.

6.3.1 We have considered the rival contentions / submissions and perused the material on record; including the judicial pronouncements cited / relied on. We find that the similar issue of taxability of payments of commission to ‘A V & Sons’ foreign agents for services rendered outside India and payments of commission also paid outside India was considered by a Co-ordinate Bench of this Tribunal in the assessee’s own case in immediately preceding year i.e., Assessment Year 2010-11; and therein following the decisions of other Co-ordinate Benches in the cases of Exotic Fruits (P) Ltd., Vs. ITO (IT) (2013) 40 taxmann.com 348 (Bang – Trib.) and Puma Sports India Pvt. Ltd., Vs. DCIT in IT(TP)A No.1611/Bang/2017 dated 28.09.2017; held as under at para 3.5.3 thereof:-

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6.3.2 Respectfully following the aforesaid decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case for Assessment Year 2010-11 (supra), we also hold that the payment of commission to non-resident agent ‘AV & Sons’ in the case on hand cannot be considered as having been accrued or arisen or deemed to accrue or arise in India as the services were rendered outside India and the payment of commission was also outside India. In this view of the matter, the assessee was not obliged to effect any deduction of tax on the commission payments to the foreign agent ‘AV & Sons’ who is stationed outside India. Consequently grounds 6 to 11 raised by the assessee are allowed.

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Page 8 of 8 7. IV Ground No.12 – Short grant of credit in respect of TDS by Rs.2,68,927/-

7.1 In this ground (supra), the assessee contends that the AO has not granted it TDS credit to the extent of Rs.2,68,927/- as reflected in the 26AS of the assessee. In the circumstances, as contended above, we direct the AO to examine / verify the assessee’s claim that of short grant of credit for TDS to the extent of Rs.2,68,927/- in accordance with law. Consequently, ground No.12 of assessee’s appeal is allowed for statistical purposes.

Pronounced in the open court on 02nd August, 2019.

Sd/- Sd/- (N. V. VASUDEVAN) (JASON P. BOAZ) VICE PRESIDENT Accountant Member Bangalore. Dated: 02nd August, 2019. /NS/* Copy to:

Assistant Registrar, ITAT, Bangalore.