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Income Tax Appellate Tribunal, DELHI BENCH “E”: NEW DELHI
Before: SHRI H.S.SIDHU & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 01. This is an appeal filed by the revenue directed against the order of the ld. CIT (A)-IX, New Delhi dated 31.05.2013 for the Assessment Year 2009-10. The revenue has raised the following grounds:-
“1. The order of the learned CIT (APPEALS) is erroneous and contrary to facts & law.
2. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) has erred in restricting the disallowances made under section deduction the TDS, of Rs.16,84,727/- to Rs.6,75,9067- entirely on the submission of the assessee and despite the fact that the assessee failed to submit evidence of claim of reimbursement of expenses amounting to Rs. 10,08,823/-.
3. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) erred in deleting the addition made u/s 40(a) (i) for non-deduction of TDS on Export Commission amounting to Rs. 73,95,1 107- on the ground that income has not accrued in India completely ignoring the retrospective amendment made vide finance Act, 2010 which inserted an explanation to the section 9 w.e.f. 01.06.1976 which is given below:- "Explanation - For the removal of doubts, it is hereby declared that for the purpose of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or Clause (vi) or Clause (vii) of sub-section (1) and shall be included in the total income of the non- resident, whether or not,-
Page 2 of 6 (i) The non-resident has a residence or place of business of connection in India; or (ii) The non-resident has rendered services in India. " 4. That the order of the Ld. CIT (A) is erroneous and is not tenable on the facts and in law. 5. That the grounds of Appeal are without prejudice to each other.”
The facts in brief of the case are that the assessee filed return of income on 28.09.2009 declaring total income of Rs.11,78,930/-. The return was processed u/s 143(1) of the Income Tax Act, 1961. The case was selected for scrutiny after approval of CCIT, CASS and statutory notice u/s 143(2) dated 19.08.2010 was issued and duly served upon the assessee. Detailed questionnaire along with notices u/s 143(2) and 142(1) was issued and duly served upon the assessee asking for clarification on various issues. In response to the notices, Shri Vinay Bahl, Advocate of the assessee company attended the proceedings from time to time and furnished written replies to questionnaire and requisitioned documents/ confirmations and bank statements. Books of accounts produced which were put to test checks and the case was discussed with him. The assessment was completed u/s 143(3) of the Act vide order dated 22.12.2011 by the Assessing Officer at the income of Rs.33,20,230/- making certain addition to the returned income. Assessee Company has claimed London Office expenditure incurred with regard to payment of salary of Rs 1684727/- to Shri Iswinder Singh Brara, the brother of the director of the assessee company for rendering the services to the assessee abroad. No TDS was deducted on the salary paid to him. The AR of the assessee was asked to explain as to why the salary paid to the aforesaid employee, should not be disallowed as no tax was deducted as source on salary. Further assessee has paid Rs. 675906/- was on account of salaries paid in London Office to local staff and other expenditure. Same was also disallowed u/s 40a (i) of The Income tax Act. Further assessee has incurred an expenditure of Rs. 73,95,110/- as export commission which was paid to Mr. Ishwainder Brara for rendering his services to USA at USA .Assessee has not deducted tax at sources as the services were rendered outside India and also the payments have been accounted in USA Branch. This amount was also disallowed u/s 40a (i) of the income Tax Act. Aggrieved the assessee filed appeal before the learned Commissioner of Income-tax (Appeals). The learned Commissioner of Income-tax (Appeals) partly allowed the appeal of the assessee. Aggrieved with the order learned Commissioner of Income-tax (Appeals) the revenue is before us.
The first ground of appeal is general and hence dismissed.
Page 3 of 6 04. The second ground of appeal is against restricting the disallowance made u/s 40(a)(iii) for non-deduction of TDS of Rs.16,84,727/- to Rs.6,75,906/- despite no evidence being submitted claim of reimbursement of expenses amounting to Rs.10,08,823/-.
5. The ld DR submitted that the learned Commissioner of Income-tax (Appeals) has deleted this addition without discussion and despite there being no evidence of the expenses incurred by the assessee pertaining to the alleged expenses and therefore disallowance wrongly deleted by the learned Commissioner of Income-tax (Appeals).
The ld AR submitted that the assessee has incurred this expenses regarding payment of salary of Rs.16,84,727/- to Mr. Iswinder Singh Brara, who has rendered this service outside India in London and therefore it is not chargeable to tax. In view of the provision of section 9 of the Income Tax Act and the same did not accrue or arise in India.
We have carefully heard the rival contention. According to the AO as per the provision of section 40a(iii) any salary paid which is chargeable to tax and is paid outside India to a non resident is disallowable if no tax is deducted thereon. Therefore salary paid to Mr. Brara, disallowed. As per assessee Mr. Brara is an employee of the company has not worked in India and therefore admittedly provision of section 5 (2) shall not be applicable to him and it is admittedly such salary is not received or accrued to him in India. Only aspects required to be examined is whether the salary was paid would be chargeable to tax as income u/s 9(1)(ii) only. According to that section income earned in India is deemed to accrue or arise in India and is chargeable to tax in the hands of the non-resident if it is earned in India. As per the explanation to that section the service rendered in India shall be regarded as income earned in India. In this case it is admitted fact that the employee did not render any service in India and hence the deletion of disallowance of Rs.1684727/- made by the AO is correct. We confirm the order of learned Commissioner of Income tax (Appeals) on this ground.
Ground No.3 of the appeal is against the deletion of disallowance u/s 40(a)(i) for non- deduction of TDS on export commission amounting to Rs. 73,95,110/- on the ground that in view of the retrospective amendment made vide Finance Act, 2010 by insertion of explanation to the Section 9 w.e.f. 01.06.1976 such deletion of disallowance is improper. The assessee has paid an amount of Rs. 73,95,110/- as a export commission and non-deduction of tax at source thereon. This amount was disallowed of the assessee being a technical management consultancy division for non deduction of tax at source. 3
Page 4 of 6 09. Ld DR submitted that w.e.f. 01.06.1976 an explanation has been added below the section 9 of the Income Tax Act vide Finance Act 2010, which provides that income of non-resident shall be deemed accrue or arise in India as interest, royalty or fees for technical services irrespective of such non-resident as resident or place of business communication in India or the non-resident has rendered services in India. This particular provision has been overlooked by learned Commissioner of Income-tax (Appeals) while deleting the disallowance but the ld DR submitted that as it retrospective amendment learned Commissioner of Income-tax (Appeals) ought to have confirmed the disallowance.
The ld AR on the other hand submitted that income on commission did not accrue or arise in the hands of the non-resident person as they do not have any business communication in India and learned Commissioner of Income-tax (Appeals) has rightly deleted the disallowance. For this, the ld AR relied upon the decision of the Hon’ble Delhi High Court in the case of CIT Vs. Angelique International Ltd. 219 Taxmann 104, DCIT Vs. Panlafa Electical Ltd. 227 Taxmann 351.
We have carefully considered the rival contentions. Firstly It is an admitted fact that assessee has paid commission to Mr. Ish Brara for rendering services in USA. It is also not in dispute that he has provided services to the company outside India and no part of services have been rendered in India. Further there is no clarity on the amount of commission paid on which provisions of section 40a (i) is applied by ld AO. At some part of the order the amount is mentioned as Rs. 21,83,306/- and ultimately the amount disallowed is Rs. 7395110/-. For verification of this amount CIT (A) has set aside the issue for determination of amount to the file of AO. On merits CIT (A) has held that as the services have been rendered outside India and no part of services are rendered in India by nonresident. According to the provision of section 5 (2) rws 9 (1) of the Income Tax Act this sum is not chargeable to tax in India. Now the revenue has raised the ground that by virtue of introduction of explanation to section 9 w.e.f. 1.6.1976 by the Finance Act 2010 it is provided that irrespective of residence or place of business or business connection in India of Non resident and irrespective of whether services have been rendered India or not , for interest, Royalty and fees for technical services shall not be relevant. Identical issue has been considered by the coordinate bench in Deputy Commissioner of Income-tax, Circle-52, Kolkata v. Subhotosh Majumder [2016] 65 taxmann.com 42 (Kolkata - Trib.) where in following the decision of Honourable Delhi high court in CIT v. Angelique International Ltd. [2013] 359 ITR 9/219 Taxman 104/38 taxmann.com 425 (Delhi) has held that :-
Page 5 of 6 “20. From the above facts and circumstances of the case and also precedents cited above, we are of the view that till amendment in Explanation to sec. 9(2) of the Act, the prevailing legal position was that unless the technical services were rendered in India, the fees for such services could not be brought to tax under Section 9(1)(vii) of the Act. The law amended was undoubtedly retrospective in nature but so far as tax withholding liability is concerned, it depends on the law as it existed at the point of time when payments, from which taxes ought to have been withheld, were made. The tax deductor is not expected to know how the law will change in future. A retrospective amendment in law does change the tax liability in respect of an income, with retrospective effect, but it cannot change the tax withholding liability, with retrospective effect. The tax withholding obligations from payments to non-residents, as set out in Section 195 of the Act, require that the person making the payment "at the time of credit of such income to the account payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rates in force". When these obligations are to be charged at the point of time when payment is made or credited, whichever is earlier, such obligations can only be discharged in the light of the law as it stands that point of time. Section 40(a)(i) of the Act provides that inter alia, notwithstanding anything to the contrary in sections 30 to 38 of the Act, any amount payable outside India, or payable in India to a non-resident, shall not be deducted in computing the income chargeable under the head "profits and gains of business or profession" on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted. Accordingly, the assessee cannot be faulted for not deducting TDS and consequently, the deletion of disallowance by CIT (A) is confirmed. This common issue of all the three appeals of revenue is dismissed.”
Concurring with the views of coordinate bench, we also hold that assessee cannot be held to be liable to deduct tax at source relying on the subsequent amendments made in the Act with retrospective effect. In this case, Explanations to sec. 9(2) was inserted by the Finance Act, 2010 with retrospective effect from 1.6.1976 and it was impossible for the assessee to deduct tax in the financial years 2008-09 relevant to AY 2009-10 when as per the relevant legal position prevalent in that year, the obligation to deduct tax was not on the assessee. Law cannot compel a person to do something, which is impossible to perform. Our view also gets support from decision of Honourable supreme court in case of Krishnaswamy S. Pd v. Union of India [2006] 281 ITR 305/151 Taxman 286, wherein the said legal Maxim was accepted by the Hon'ble Supreme court as under :-
“17. The maximum of equity, namely, actus curiae neminem gravabit - an act of court shall prejudice no man, is founded upon justice and good sense which serves a safe and certain guide for the administration of law. The other relevant maxim is, lex non cogit ad impossibilia - the law does not compel a man to do what he cannot possibly perform. The law itself and its administration is understood to disclaim as it does in its general aphorisms, all intention of compelling impossibilities, and the administration of law must adopt that general exception in the consideration of particular cases - UP SRTC v. Imtiaz Hussain [2006] 1 SCC 380, Shaikh Salim Haji Abdul Khagumsab v. Kumar [2006] 1 SCC 46, Mohammad Gazi v. State of MP [2000] 4 SCC 342 and Gursharan Singh v. New Delhi Municipal Committee [1996] 2 SCC 459.” 5
In view of above observations we confirm the order of CIT (A) in deleting the disallowance of Rs. 7395110/- u/s 40a (i) of the Income tax Act.
In the result appeal of revenue is dismissed.
Order pronounced in the open court on 15.01.2016.