C.KALYANAM & CO.,CHENNAI vs. ACIT, CHENNAI

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ITA 3484/CHNY/2016Status: DisposedITAT Chennai09 June 2017AY 2011-124 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal dismissed the ground regarding the applicability of Section 40(a)(ia) to amounts not outstanding as on March 31st. For the foreign agency commission, the Tribunal directed the AO to verify if the recipients had admitted and paid tax on the income, allowing the deduction if confirmed.

What were the facts?

The assessee firm paid effluent treatment charges and foreign agency commission without deducting TDS. The Assessing Officer disallowed these payments under Section 40(a)(ia). The CIT(A) upheld the disallowance for effluent treatment charges but allowed the foreign agency commission after a remand report.

What were the issues?

Whether disallowance under Section 40(a)(ia) applies to amounts not outstanding as on March 31st and if the recipient has paid tax on the income.

Which sections of the Income-tax Act were involved?

Section 40(a)(ia)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “C” BENCH, CHENNAI

Before: SHRI N.R.S. GANESAN & SHRI S. JAYARAMAN

Hearing: 01.06.2017Pronounced: 09.06.2017

आदेश /O R D E R

PER S. JAYARAMAN, ACCOUNTANT MEMBER:

1.

This is an appeal filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-5, Chennai in 5/13-14 dated 15.09.2016.

:-2-: I.T.A. N0. 3484/Mds/2016

2.

M/s. C. Kalyanam & Co., a firm, engaged in the business of tanning and exporting of finished leather, shoe uppers and leather goods. In the assessment made for assessment year 2011-12, the Assessing Officer found that the assessee paid Rs. 4,75,000/- towards effluent treatment charges to Pallavaram Tanners Industrial Effluent Treatment Co. Ltd., without deducting TDS and hence he disallowed the same u/s. 40(a)(ia). Further, the assessee made payment of Rs. 15,79,198/- towards foreign agency commission. The AO held that the services rendered by the foreign agent has the element of technical or professional skill & knowledge and hence, considered the payment as fee for technical services an income deemed to accrue or arise in India for the non-resident. Since, the assessee has not deducted TDS nor obtained Nil deduction certificate, the AO has disallowed Rs. 15,79,198/-.

Aggrieved, the assessee filed an appeal before the CIT(A)-5, Chennai. The CIT(A), on the issue of disallowance of effluent treatment charges, following the Jurisdictional ITAT decision in the case of Shri D. Umapathy, Chennai Vs. ITO in for assessment year 2008-09 dated 14.08.2015, upheld the disallowance. With regard to the issue of disallowance under the head of foreign agency commission, the CIT(A) called for a remand report from the AO. After considering the remand report and relying on the ITAT decision (Supra), he allowed the appeal partly. Aggrieved against the CIT(A) order, the assessee filed this appeal broadly on two grounds (i) that the CIT(A) erred in his finding that the provisions of section :-3-: I.T.A. N0. 3484/Mds/2016 40(a)(ia) would apply even in respect of amounts which are not outstanding and payable as on 31st March and (ii) in any event in as much as the recipient has admitted such income and paid tax thereon the provisions of section 40(a)(ia) would not apply.

3.

There is a delay of 7 days in filing the appeal and the assessee filed a petition for condonation of delay stating, inter alia, that the CIT(A) order was sent to its Authorised Representative Shri A. Sekar, CA by M/s. B.B. Naidu & Co., immediately on such receipt. The said AR had a health set back on account of coronary artery disease and hospitalised after undergoing coronary angiogram. The appellate order which was sent to his resident was misplaced by him and by the time it was traced and necessary appeal papers were prepared, the due date for filing the appeal is expired. However, the appellant managed to file the appeal on 28.02.2016 with a delay of 7 days.

The filing of appeal is not deliberate, un-intentional, un-avoidable and beyond the control of the petitioner. The petitioner would be put to extreme hardship and undue prejudice would be caused to him if the delay is not condoned etc.

We heard the rival contentions and condone the delay.

4.

The AR conceded that the first ground of appeal is covered by the Supreme Court decision in Civil Appeal No. 5512 of 2017 dated 03.05.2017 in the case of M/s. Palam Gas Service Vs. CIT and hence the ground no. 1 of the appeal is dismissed. On the second issue, the AR based on the Delhi High

:-4-: I.T.A. N0. 3484/Mds/2016 Court decision reported in 377 ITR 655 in the case of Ansal Landmark Township Pvt. Ltd., pleaded when the recipient has admitted such income and paid tax thereon, provisions of section 40(a)(ia) would not apply.

5.

We heard the rival submissions, gone through relevant material and find merit in the AR’s submission. The AO shall verify as to whether the impugned recipients have admitted such income and paid tax thereon. The AO shall require the assessee to furnish relevant material on the above plea and examine them. If the impugned recipients have admitted such income and paid the taxes, thereon, then the AO shall allow such deduction. To this extent, this ground is allowed.

6.

In the result, the assessee’s appeal is partly allowed.

Order pronounced on Friday, the 9th day of June, 2017 at Chennai.

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