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Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: Ms. Annapurna Gupta & Shri T.R. Senthil Kumar
Appellant by : Shri V.K. Singh, Sr. D.R. Respondent by : Shri Karan Shah, A.R. Date of hearing : 27-07-2022 Date of pronouncement : 03-08-2022 आदेश/ORDER C.O. No. 26/Ahd/2022 A.Y. 2016-17 Page No 2 DCIT vs. M/s. Excel Chemicals India Pvt. Ltd. PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
The present appeal has been filed by the Revenue against the order dated 13.08.2019 passed by the Commissioner of Income Tax (Appeals)-2, Ahmedabad, as against the Assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2016- 17. The assessee has filed the Cross Objection.
The brief facts of the case is that the assessee company is engaged in the business of wholesale trading of chemicals of various types/kinds. The assessee has also engaged in the business of export of chemicals as well as seas transactions. For the Assessment Year, 2016-17, the assessee filed its Return of income declaring income of Rs. 76,47,740/- and book profit u/s. 115JB of Rs. 71,37,243/-. The case was selected for scrutiny assessment and the Assessing Officer completed the assessment disallowing the expenditure claimed under the head “Commission expenses” amounting to Rs. 2,14,03,441/- paid to non-residents and added back to the total income of the assessee for non- deduction tax at source u/s. 40(a)(i) of the Act. The assessee also initiated penalty proceedings for furnishing inaccurate particulars of income by the assessee.
This assessment order was challenged by the assessee before the Ld. CIT(A)-2, Ahmedabad. The contention of the Assessing Officer is that the assessee has only submitted copy of the ledger accounts and invoices, but has not submitted justification with regard to the C.O. No. 26/Ahd/2022 A.Y. 2016-17 Page No 3 DCIT vs. M/s. Excel Chemicals India Pvt. Ltd. sales on which commission has been paid. On the other hand, the assessee submitted that it has paid export commission for the sale of chemical items to various countries for the services provided by the parties outside India, in connection with the export made by the assessee. None of the above parties have permanent establishment or have any business connection in India and services were rendered outside India and therefore the provisions of Section 195 are not applicable. The assessee also submitted the evidences to the effect that none of the commission agents have permanent establishment in India and submitted Tax Residency certificate in form No. 10F, For No. 15CA & 15CB, copy of agreements and bank details for which commission payments were being made. The assessee further submitted that the similar commission payment has been made to the above parties in the preceding years and the same has been allowed by the Ld. CIT(A).
3.1. On Revenue’s further appeal before the ITAT, the Tribunal dismissed the appeal filed by the Revenue and allowed the commission paid to the parties outside India. Further, the Hon’ble Gujarat High Court in the case of Pr.CIT-2 vs. Komal Amin Exports Pvt. Ltd. in Tax Appeal No. 1397 of 2008 decided on 18.02.2019 on similar facts and deleted the additions on the commission paid by the assessee.
3.2. In view of the above, the disallowance made by the Assessing Officer of Rs. 2,14,03,441 was deleted by Ld. CIT(A).
C.O. No. 26/Ahd/2022 A.Y. 2016-17 Page No 4 DCIT vs. M/s. Excel Chemicals India Pvt. Ltd.
Aggrieved against the same, the Revenue is in appeal before us and raising the following Grounds of Appeal:
1. The learned CIT(A) has erred, in law and on facts, in deleting the disallowance of Rs 2,14,03,441/- made on account of disallowance of commission expenses under section 40(a)(i) of the Act, without properly appreciating the facts of the case and material on record,
2. Without prejudice to the above, the learned CIT(A) has erred, in law and on facts in deleting-the commission to foreign agents amounting to Rs 2,14,03,441/- without appreciating the fact that the assessee was unable to produce evidences to prove the genuineness of such payments and also the factum of actual rendering of services by such recipients.
5. The Ld. Senior D.R. Mr. V.K. Singh appearing for the Revenue fairly conceded this matter has been covered in assessee’s own case for the Assessment Year 2013-14 in and C.O. No. 207/Ahd/2016 wherein Co-ordinate Bench of this Tribunal dismissed the Revenue’s appeal. Respectfully following the above judgment, the present appeal also liable to be dismissed.
5.1. The ld. Counsel for the assessee submitted that the commission paid to the same parties as that of the earlier years, there is no change in payment of commission made to the non- residents. Therefore the order passed in the assessment year 2013- 14 will be squarely applicable for the present assessment year also.
6. We have given our thoughtful consideration and perused the materials available on record. We find that for the Assessment Year 2013-14, the Co-ordinate Bench have followed assessee’s own case for the earlier Assessment Year 2012-13 and Co-ordinate Bench decision dated 29.07.2016 wherein held as follows:
C.O. No. 26/Ahd/2022 A.Y. 2016-17 Page No 5 DCIT vs. M/s. Excel Chemicals India Pvt. Ltd.
"4. We have heard the rival contentions, perused the material on record and duly considered the facts of the case as also the applicable legal position.
The basic contention of the Assessing Officer is that in view of the scope of deeming fiction under section 9(1 )(i), which inter alia holds that any income 'arising directly or indirectly from any business connection in India' will be deemed to accrue or arise in India, read with the scope of charging Section 5(2), which enables taxability of a non-resident in respect of "income accruing or arising or deemed to accrue or arise, in India,, income arising in the hands of the non-resident commission agent is taxable in India. What he overlooks, however, is the impact of Explanation 1 to Section 9 (1)(i) which states that "for the purpose of this clause [i.e. 9(1)(i)], in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India". Only if he was to take into account the scope of Explanation 1 to Section 9(1 )(i), coupled with the fact that admittedly no part of operations of the non-resident commission agent were carried out in India, he would have realized that even though deeming fiction under section 9(1 )(i) is triggered on the facts of this case, on account of commission agent's business connection in India, it has no impact on taxability in the hands of commission agent because admittedly no business operations were carried out in India, and, therefore Explanation 1 to Section 9(1)(i) comes into play. The seemingly erudite analysis by the Assessing Officer is based on a half- baked legal theory, and the conclusions, therefore, clearly fallacious.
As for the AAR ruling in the case of SKF Boilers and Driers (P.) Ltd. (supra), on which so much reliance has been placed by the Assessing Officer, we find that this decision merely follows the earlier ruling in the case of Rajiv Malhotra (supra) which, in our considered view, does not take into account the impact of Explanation 1 to Section 9(1 )(i) properly. That was a case in which the non- resident commission agent worked for procuring participation by other non- resident entities in a food and wine show in India, and the claim of the assessee was that since the agent has not carried out any business operations in India, the commission agent was not chargeable to tax in India, and, accordingly, the assessee had no obligation to deduct tax at source from such commission payments to the non-resident agent. On these facts, the Authority for Advance Ruling, inter alia, opined that "no doubt the agent renders services abroad and pursues and solicits exhibitors there in the territory allotted to him, but the right to receive the commission arises in India only when exhibitor participates in the India International Food & Wine Show (to be held in India), and makes full and final payment to the applicant in India and that the commission income would, therefore, be taxable under section 5(2)(b) read with section 9(1 )(i) of the Act". The Authority for Advance Ruling also held that the fact that the agent renders C.O. No. 26/Ahd/2022 A.Y. 2016-17 Page No 6 DCIT vs. M/s. Excel Chemicals India Pvt. Ltd.
services abroad in the form of pursuing and soliciting participants and that the commission is remitted to him abroad are wholly irrelevant for the purpose of determining situs of his income We do not consider this approach to be correct. When no operations of the business of commission agent is carried on in India, the Explanation 1 to Section 9(1)(i) takes the entire commission income from outside the ambit of deeming fiction under section 9(1 )(i), and, in effect, outside the ambit of income 'deemed to accrue or arise in India' for the purpose of Section 5(2)(b). The point of time when commission agent's right to receive the commission fructifies is irrelevant to decide the scope of Explanation 1 to Section 9(1 )(i), which is what is material in the context of the situation that we are in seisin of. The revenue's case before us hinges on the applicability of Section 9(1)(i) and, it is, therefore, important to ascertain as to what extent would the rigour of Section 9(1 )(i) be relaxed by Explanation 1 to Section 9(1 )(i). When we examine things from this perspective, the inevitable conclusion is that since no part of the operations of the business of the commission agent is carried out in India, no part of the income of the commission agent can be brought to tax in India. In this view of the matter, views expressed by the Hon'ble AAR, which do not fetter our independent opinion anyway in view of its limited binding force under s. 245S of the Act, do not impress us, and we decline to be guided by the same. The stand of the revenue, however, is that these rulings, being from such a high quasi-judicial forum, even if not binding, cannot simply be brushed aside either, and that these rulings at least have persuasive value, We have no quarrel with this proposition. We have, with utmost care and deepest respect, perused the above rulings rendered by the Hon'ble Authority for Advance Ruling. With greatest respect, but without slightest hesitation, we humbly come to the conclusion that we are not persuaded by these rulings.
7. In view of the above discussions, in our considered view, learned CIT (A) was indeed justified in holding that given the undisputed and uncontroverted facts of this case, the non-resident commission agents were not taxable in India in respect of their commission earnings from orders procured abroad.
It is also now well settled in law that when the payment made to a nonresident does not have an element of income, tax deduction source requirements under section 195(2) do not come into play at all. Hon'ble Supreme Court, in the case of GE India Technology Centre (P.) Ltd. v. CIT [2010] 327 ITR 456/193 Taxman 234/7 taxmann.com 18, has inter alia observed as follows: In our view, Section 195(2) is based on the "principle of proportionality". The said sub-Section gets attracted only in cases where the payment made is a composite payment in which a certain proportion of payment has an. element of "income" chargeable to tax in India. It is in this context that the Supreme Court stated, "If no such application is filed, income-tax on such sum is to be deducted and it is the statutory obligation of the person responsible for paying such 'sum' to deduct tax C.O. No. 26/Ahd/2022 A.Y. 2016-17 Page No 7 DCIT vs. M/s. Excel Chemicals India Pvt. Ltd.
thereon before making payment. He has to discharge the obligation to TDS". If one reads the observation of the Supreme Court, the words "such sum" clearly indicate that the observation refers to a case of composite payment where the payer has a doubt regarding the inclusion of an amount in such payment which is exigible to tax in India. In our view, the above observations of this Court in Transmission Corporation case (supra) which is put in italics has been completely, with respect, misunderstood by the Karnataka High Court to mean that it is not open for the payer to contend that if the amount paid by him to the nonresident is not at all "chargeable to tax in India", then no TDS is required to be deducted from such payment. This interpretation of the High Court completely loses sight of the plain words of Section 195(1) which in clear terms lays down that tax at source is deductible only from "sums charge able" under the provisions of the I. T. Act, i.e., chargeable under Sections 4, 5 and 9 of the I. T. Act. (Emphasis by underlining supplied by us) 9. Clearly, therefore, for application of Section 195, it is sine qua non that the payment to no-resident must have an element of income liable to be taxed under the Indian Income Tax Act, 1961. On the facts of this case, as we have already concluded, no part of the remittance to the commission agent was taxable in India. The assessee was, therefore, not under any obligation, on the facts of this case, to deduct any tax at source from the commission payments to the nonresidents. Since there was no obligation to deduct tax at source, the very foundation of impugned disallowance under sect/on 40(a)(i) ceases to hold good in law. Learned CIT (A) was, therefore, quite justified in deleting the impugned disallowance. We uphold his action, and dismiss the grievance raised by the Assessing Officer."
6.1. The ld. D.R. could not produce before us any further details against the above matter by the Revenue before the Higher Forums. Respectfully following the above decision of the Co-ordinate Bench of this Tribunal in assessee’s own case, we have no hesitation in confirming the order passed by the Ld. CIT(A) and no interference is called for.
6.2. In the result, the appeal filed by the Revenue is dismissed. As far as the Cross Objection filed by the assessee, the ld. Counsel for the assessee fairly accepted it merely supports the order of the Ld. C.O. No. 26/Ahd/2022 A.Y. 2016-17 Page No 8 DCIT vs. M/s. Excel Chemicals India Pvt. Ltd. CIT(A) and does not require any independent adjudication. Therefore the Cross Objection if also hereby dismissed.
In the result, appeal filed by the Revenue and the Cross Objection filed by the Assessee both are dismissed.
Order pronounced in the open court on 03-08-2022 Sd/- Sd/- (ANNAPURNA GUPTA) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 03/08/2022 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद