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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEBER & SHRI B.M. BIYANI, ACCOUNTNT MEMBER
आदेश/ORDER
PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:-
These two appeals filed by assessee for A.Ys. 2015-16 & 2016-17 arise from order of the CIT(A)-13, Ahmedabad, dated 30-11-2017, in Appeal Nos. CIT(A)13/Intl. Taxn./Ahd/61/2016-17 & CIT(A)13/Intl. Taxn./Ahd/92/2016-17, in proceedings under section 201(1)/201(1A) of the Income Tax Act, 1961; in short “the Act”.
I.T.A Nos. 96 & 97/Ind/2018 A.Y. 2015-16 & 2016-17 Page No 2 Hershey India Pvt. Ltd. vs. ITO (IT & TP)
Since common issues are involved for both the years under consideration, the same are being disposed of by way of a common order by taking ITA No. 96/Ind/2018 for A.Y. 2015-16 as lead case and its finding will be applicable for assessment year 2016-17 as well.
The brief facts of the case are that the assessee is an Indian company engaged in the business of producing, processing and selling food and beverages products including confectionery, fruit and vegetable drinks, juices etc. During the year under consideration, the assessee had purchased certain machinery from the M/s Reda, a company which was a tax resident of Italy, for a consideration of � 1, 50,66,666/-. At the time of payment, the assessee did not deduct taxes at source, on the ground that it was of the view that Reda, Italy did not have a PE/business connection in India and accordingly, there was no requirement to withhold tax at source on such payments. At the time of making the payment, the assessee obtained a “No PE (Permanent Establishment)” certificate from Reda, Italy and accordingly the, the assessee was of the view that it was not required to deduct tax at source on such payments made for purchase of machinery.
In the proceedings under section 201(1)/201(1A) of the Act, the AO held that Reda, Italy had business connection/PE in India on the following basis: - Reda, Italy was operating through “Repute Engineers”, an Indian entity, which is working as a dependent agent of Reda, Italy in India. - Repute Engineers has “deemed authority” to conclude contracts on behalf of Reda, Italy.
I.T.A Nos. 96 & 97/Ind/2018 A.Y. 2015-16 & 2016-17 Page No 3 Hershey India Pvt. Ltd. vs. ITO (IT & TP)
- Activities carried out by Repute Engineers cannot be said to be done in the ordinary course of business.
For the above purpose, the AO relied upon the documents and other details submitted by Repute Engineers in response to notice under section 133 (6) of the Act. Accordingly, the TDS Officer held that assessee was liable to deduct tax at source (TDS) on such payments for purchase of machinery and therefore, the assessee has defaulted in not deducting TDS at the time of making payment for purchase of machinery to Reda, Italy.
In appeal, Ld. CIT(Appeals) dismissed the assessee’s appeal, primarily on the following three counts:
- The website of Repute Engineers clearly depicts it’s association with Reda, Italy for distribution of plant and machinery for food applications. The assessee was dealing extensively with aforesaid agent i.e. Repute Engineers and was therefore under a legal obligation to ascertain whether the agent has a PE/ Business Connection in India - On perusal of the copy of the International Distribution Agreement dated 6 August 2013 between Reda, Italy and Repute Engineers, it is very clear that Reputation Engineers is carrying out its activities in India under the comprehensive control and detailed instructions and guidance of Reda, Italy and it is not working in an independent status. Hence it is not legally independent of Reda, Italy - On perusal of the party -wise details of commission income earned by Repute Engineers earned from the overseas entities (submitted by the
I.T.A Nos. 96 & 97/Ind/2018 A.Y. 2015-16 & 2016-17 Page No 4 Hershey India Pvt. Ltd. vs. ITO (IT & TP)
assessee vide letter dated 25 September 2017), it can be observed that Repute Engineers earned approximately 56% of the total commission income from Reda, Italy during Assessment Year 2015-16. This implies that Repute Engineers is economically dependent on Reda, Italy for business survival - The agreement between Reda, Italy and Repute Engineers imposes various restrictions on the Indian agent, particularly that the Indian agent is required to act exclusively for Reda, Italy and it is prohibited from doing any business with any other company that competes with Reda, Italy. Therefore, the Indian agent is not having independent status and the Indian agent did not act in the ordinary course of business of an independent agent.
5.1 In view of the above, the Ld. CIT(Appeals) held that Repute Engineers is not an independent agent of Reda, Italy and is both legally as well as economically dependent upon Reda, Italy, as can be seen from the terms of the contract. Accordingly, Ld. CIT(Appeals) held that AO was liable to deduct taxes on such payments made to Reda, Italy towards purchase of machinery and dismissed the assessee’s appeal accordingly.
The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals) holding that the assessee was an assessee in default in not withholding taxes on payments made to Reda, Italy. Before us, the counsel for the assessee made an application for admission of additional evidence under Rule 29 of the Income Tax Appellate Tribunal Rules and submitted that during the course of assessment proceedings, the TDS Officer did not correctly verify the “independent status” of the agent of Reda, Italy
I.T.A Nos. 96 & 97/Ind/2018 A.Y. 2015-16 & 2016-17 Page No 5 Hershey India Pvt. Ltd. vs. ITO (IT & TP)
i.e. Repute Engineers. The counsel for the assessee submitted that the assessee has managed to obtain the copies of audited statement of Repute Engineers Private Ltd, Pune, directly from the party. He further submitted that the assessee also wants to place on record “purchase orders” raised by the assessee on foreign suppliers. The counsel for the assessee submitted that these documents are critical in establishing that the alleged agent of Reda, Italy i.e. Repute Engineers was economically and legally independent and hence in the instant set of facts, the assessee was not liable to deduct tax at source, since Repute Engineers did not constitute a business connection/PE of the assessee in India.
6.1 Keeping in view the submissions made by the counsel for the assessee, in our considered view, in the interests of justice, we are setting aside the issue to the file of Ld. CIT(Appeals) so that he can analyse the documents placed on record by the counsel for the assessee in detail, to be able to understand whether the agent of Reda, Italy in India i.e. Repute Engineers qualifies as having an “independent status” in the instant set of facts. The DR also did not object to the matter being set aside to the file of Ld. CIT(Appeals) to enable him to analyse the aforesaid details, in the interests of justice.
6.2 Accordingly, the matter is being set aside to the file of Ld. CIT(Appeals) for fresh adjudication after giving due opportunity of hearing to the assessee. We are accordingly not adjudicating on the other Grounds of Appeal relating to profit estimation, grossing up of TDS amount and levy of interest u/s. 201(1A) of the Act.
I.T.A Nos. 96 & 97/Ind/2018 A.Y. 2015-16 & 2016-17 Page No 6 Hershey India Pvt. Ltd. vs. ITO (IT & TP)
In the result, the appeal of the assessee is allowed for statistical purposes.
In the combined result, both the appeals filed by the assessee are allowed for statistical purposes.
Order pronounced in the open court on 02 -12-2022
Sd/- sd/- (B.M. BIYANI) (SIDHHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 02 /12/2022 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,
Sr. Private Secretary, Income Tax Appellate Tribunal, Indore
I.T.A Nos. 96 & 97/Ind/2018 A.Y. 2015-16 & 2016-17 Page No 7 Hershey India Pvt. Ltd. vs. ITO (IT & TP)
Strengthened preparation & delivery of orders in the ITAT 1) Date of dictation 01/12/2022 formatting and reproduction 2) Date on which the typed draft is placed before the 02/12/2022 Dictating Member & Other Member
3) Date on which the approved draft comes to the Sr. /12/2022 P.S./P.S. 4) Date on which the fair order is placed before the /12/2022 Dictating Member for pronouncement 5) Date on which the fair order comes back to the Sr. /12/2022 P.S./P.S. 6) Date on which the file goes to the Bench Clerk /12/2022 7) Date on which the file goes the Head Clerk 8) Date on which the file goes to the Assistant Registrar for signature on the order 9) Date of Dispatch of the order a.k