THE JT. CIT (OSD) KHEDA RANGE, NADIAD vs. ADF FOODS LIMITED, NADIAD

Since, in all appeals facts & circumstances & issues are common, therefore, for the sake of brevity, we would like to dispose of these matters by way of a common order. for A.Y. 2012-13 is taken as lead case for disposal of the above appeals.

The ground of appeal raised by assessee reads as under:

Trademark Registration, Listing Fees and 7,00,883 Legal Charges 2. Expenses paid to Non-Residents 96,92,838 3. Advertising & Exhibition Fees and 33,94,184 reimbursement of sales promotion expense to Non-Residents 5. The learned CIT(A) erred in fact and in law in confirming the action of the AO without properly considering the Double Tax Avoidance Agreements ("DTAA") with various countries.

The learned CIT(A) erred in fact and in law in confirming the action of the AO in initiating penalty u/s. 271 (1 )(c) of the Act.”

Ground Nos. 1 & 2 have not been pressed by the learned AR Shri Bhavin Marfatia.

Now, we deal with Ground No.3 wherein assessee has challenged disallowance of Rs.1,37,87,905/- invoking Section 40(a)(i) for non- deduction of TDS under S.195 r.w. Explanation 2 of the Act without appreciating the fact that the amount was not chargeable to tax in India.

In the course of assessment proceedings, assessee was asked to submit details in respect of payments made in foreign currency and whether TDS was deducted on the same. In this regard, assessee submitted the following details of the expenses incurred in foreign currency which are: foreign travelling expenses - Rs.1,56,68,591/- foreign advertisement - Rs.1,02,99,779/- & 3 Ors. [ADF Foods Limited] - 4 - legal & professional fees - Rs.1,03,93,721/- business promotion - Rs.33,94,184/- sales commission - Rs.38,79,422/- claims - Rs.58,22,416/- freight & forwarding charges - Rs.2,00,000/-, and repairs to machinery - Rs.11,17,678/- The assessee claimed that the payments are covered under the provisions of s.5 ,9, 195 of the Act and also under DTAA, hence TDS was not applicable. As assessee is engaged in the business of processing and, packaging various food items and its turnover is mainly from exports to to foreign countries. Hence, to improve its international market it had appointed various persons as 'Country Managers' in different countries. They were non residents and they provided all business & marketing related services abroad. It was submitted that the appointment of these country managers were reduced to in writing, stating: the terms & conditions and was a contract between the assessee and the country managers. The activities were governed by the various clauses of the contract which included liaisoning with existing distributors, appointing new distributors, take every step to increase the market share and develop sales, sign contract deeds etc. with the central and state governments & other authorities. For the various services rendered as per the terms of the contract the assessee company used to pay monthly retainer ship fees, commission on sales and reimbursement of various expenses. These expenses were booked under the head legal & professional fees. As payments were made in foreign currency and its persons are foreign resident and services rendered in foreign country, therefore, assessee cannot be held liable to deduct tax under S.195 of the Act. But, learned ITA Nos. 1169/Ahd/2017 & 3 Ors. [ADF Foods Limited] - 5 - AO did not agree to the contention of the assessee and made disallowance as TDS was not deducted on foreign payments Rs.1,78,09,835/-.

Against the said order, the assessee preferred first statutory appeal before the CIT(A) who confirmed the action of the learned AO on the ground that payments were made for legal and professional work including commission paid for sale support for marketing development amounting to Rs.1,03,93,721/- as business promotion expenses amounting to Rs.33,94,184/- deemed to accrue and arise in India since the same were in the nature of managerial and consultancy charges satisfying the fees for technical services and accordingly same were chargeable to tax in India. Since, assessee has failed to deduct tax at source under s.195(1) of the Act. Therefore, learned AO rightly made the disallowance.

In the result, all three appeals filed by the assessee as well as one appeal filed by the Revenue are set aside to the file of the learned CIT(A) to decide the matters as per law.

In the combined result, all four appeals filed, three by the Assessee and one appeal by the Revenue are allowed for statistical purposes.