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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: MS. SUCHITRA KAMBLE & SHRI B.M. BIYANI
आदेश / O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by appeal-order dated 31.10.2019 passed by learned Commissioner of Income-Tax (Appeals)-13, Ahmedabad [“Ld. CIT(A)”], which in turn arises out of the order dated 27.04.2016 passed by learned ITO (IT&TP), Bhopal [“Ld. AO”] u/s 201(1)/(1A) read with section 195 of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2015-16, the assessee has filed this appeal on following effective ground:
“That in the given facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in confirming the demand raised by the Ld. AO treating the assessee in default within the meaning of section 195 of the Act and has erred in raising the demand against the assessee as per the provisions of section 201(1)/(1A) of the Act of Rs. 52,13,815/-.” Page 1 of 9
Maan Aluminium Ltd. Assessment year 2015-16 2. Heard the learned Representatives of both sides at length and case- records perused.
A.O.’s Order:
The brief facts are such that the assessee is engaged in the business of manufacturing aluminum profiles and other related activities. During the year under consideration, the assessee made payments to following non- resident suppliers for purchase of scrap without tax deduction at source (TDS):
Sr. Name of the supplier Total Amount Name of the Indian Agent No. Remitted in through which transaction Rs. done 1 Cupral Global Trading FZE, 3,99,100 Australia 2 Cupral Global Trading FZE, 16,74,223 Mr. Suresh Menon, proprietor UAE of M/s Damodar Sons 3 Cupral International Pty Ltd, 2,78,78,285 Agency, Cochin Australia 4 Suberg Ltd, UK 24,45,245 5 Scholz Singapore Pte Ltd, 3,25,78,365 Singapore
Ld. AO observed that the assessee has made transactions through Indian agents of non-resident payees, as mentioned in last column of the above Table; therefore the non-residents payees were having a Business- Connection (“BC”) in India in terms of section 9 of the Income-tax Act, 1961 as well as a Permanent-Establishment (“PE”) in terms of Double Taxation Avoidance Agreements (DTAA) which obligated the assessee to deduct TDS u/s 195 but the assessee has not deducted. Accordingly, Ld. AO show- caused the assessee u/s 201(1)/(1A) of the Act for non-deduction of TDS. Thereafter, Ld. AO also raised queries to assessee from time to time. In response, the assessee submitted replies dated 12.01.2016, 08.02.2016 and 11.03.2016 which are extracted by Ld. AO in his order. Finally Ld. AO, after considering replies of assessee and the facts of issue in the light of Maan Aluminium Ltd. Assessment year 2015-16 applicable provisions of Income-tax Act, 1961, DTAA and certain judicial rulings, held that the assessee was liable to deduct TDS and having not deducted so, there was a failure on the part of assessee. Accordingly, Ld. AO treated the asssessee as defaulter in terms of section 201(1)/(1A) and created demand of tax and interest as per working made in Para No. 8 of his order.
CIT(A)’s Order:
During first-appeal, Ld. CIT(A) made an initial observation that section 90(4) of the Act requires production of Tax Residency Certificate (TRC) for claiming benefit of DTAA. But the assessee has not produced TRC either before Ld. AO or before Ld. CIT(A); therefore there is no need to discuss any benefit available under DTAA. Thereafter, Ld. CIT(A) observed:
(i) That the assessee has accepted in his reply to AO:
“The process is that after raising enquiries their agents/residential sales representatives will contact us personally or telephonically and after negotiations the price will be finalised and the contract may be converted in the form of purchase order or sale agreement”. [Page No. 41 of order of CIT(A)] Further, in response to the queries raised by AO, the assessee submitted reply dated 12.01.2016 stating as under:
“Most of the time the authorized person of company discussed with supplier agent to book a contract with specific party and they took the rate and discussed with us. After detail negotiations with seller agent, company booked the contract with specific party. Most of the time the authorized person of company discussed telephonically or emails with supplier agent to book a contact with specific party and they took the rate and discuss with us. After going through detail negotiations with supplier agent the company had booked the contract with specific party.” [Page No. 43 of order of CIT(A)]
Maan Aluminium Ltd. Assessment year 2015-16 Ld. CIT(A) held that such clear admission/submission by assessee demonstrates that Shri Suresh Menon, proprietor of M/s Damodar Sons Agencies of Kochi through which the assessee has done the impugned purchase transactions, was doing detailed negotiation and finalizing prices and after that the contract were converted into a form of purchase-order or sales-agreement. Thus, the contracts between assessee and non-resident payees had been negotiated by Indian Agent of the non-resident payees regularly and habitually; therefore there exists a BC or PE of non-resident payees in India. Ld. CIT(A) observed that the assessee has not given any evidence to show that the contracts were negotiated directly by non-resident payees.
(ii) That in response to the notice u/s 133(6), the agent has accepted that he is securing orders for non-resident vendors (Para No. 12 of order of first-appeal). Therefore, the agent is not an “independent agent” and benefit of proviso to Explanation 2 to section 9(1)(i) is also not available.
Finally, Ld. CIT(A) concluded twin-aspects, namely (i) There was an agent of non-resident in India, and (ii) The agent was not of independent status. Based thereon, he concluded that there was a BC or PE of non- resident payees in India making the income of non-residents chargeable to tax in India; therefore the assessee was liable to deduct TDS.
Assessee’s submissions:
During hearing before us, Ld. AR representing the assessee drew our attention to section 195 and submitted that the requirement of TDS under that section arises only if the income of non-resident is chargeable to tax in India. Then, Ld. AR carried us to section 9 and submitted that this is the only section which fixes chargeability in India. Ld. AR submitted that in the present case, section 9 is not applicable for following reasons:
Maan Aluminium Ltd. Assessment year 2015-16 (i) The contracts relating to impugned purchase-transactions were concluded by non-residents themselves and Mr. Menon did not have any kind of authority. Ld. AR submits that a certificate given by Mr. Menon (Paper Book Page No. 5) and a reply given by him to Ld. CIT(A) in response to notice u/s 133(6) (Paper Book Page No. 77) very clearly confirms this factual aspect.
(ii) Alternatively, Mr. Menon was in that line of business since 2006; he is a proprietor of a business organization titled “M/s Damodar Sons Agencies” which is duly registered with VAT Department of Ernakulum (Paper-Book Page No. 1); he has filed his own income-tax return showing income; he has given a certificate confirming that he was an independent agent and he had no authority to conclude contracts on behalf of non-residents (Paper-Book Page No. 5); therefore he is an agent of “independent status” and benefit of Proviso to Explanation 2 to section 9(1)(i) applies.
Ld. AR also relied upon CBDT Circular No. 23 dated 23.07.1969 to convince that the situation does not give rise to taxable income in India in present case. He further relied upon the decision of ITAT, Indore in D&H Secheron Electrodes (P) Ltd. Vs. ITO, order dated 06.03.2020.
Revenue’s submissions:
9. Replying to above, Ld. DR representing the revenue argued that the non-resident payees had BC or PE in India which is clear from following facts:
(i) The assessee has not paid any commission to Mr. Menon. Mr. Menon has himself confirmed that he received commission in US Dollars from non-resident payees (Page No. 77 of the Paper-Book).
Maan Aluminium Ltd. Assessment year 2015-16 (ii) Various replies made by assessee to Ld. AO clearly demonstrate that Mr. Menon has undertaken detailed negotiations and finalisation of price and only thereafter the contracts were converted in the form of purchase order or sales agreement.
Our analysis:
We have heard rival contentions of both sides and perused the material on record.
The first issue for consideration before us is whether in the instant set of facts, it can be held that the non-resident payees have BC/PE in India on account of the activities carried out by its agent in India. The learned AR has primarily relied upon the certificate given and reply filed by Mr. Menon in response to notice u/s 133(6) in which he has mentioned that he did not any authority to conclude contracts on behalf of non-residents. However, notably, during the course of proceeding before AO, the assessee has himself accepted in his reply that “The process is that after raising enquiries their agents/residential sales representatives will contact us personally or telephonically and after negotiations the price will be finalised and the contract may be converted in the form of purchase order or sale agreement”. Further, in response to the queries raised by AO, the assessee submitted reply dated 12.01.2016 stating:
Most of the time the authorized person of company discussed with supplier agent to book a contract with specific party and they took the rate and discussed with us. After detail negotiations with seller agent, company booked the contract with specific party. Most of the time the authorized person of company discussed telephonically or emails with supplier agent to book a contact with specific party and they took the rate and discuss with us. After going through detail negotiations with supplier agent the company had booked the contract with specific party.
Therefore, the certificate given/reply filed by Mr. Menon in response to notice u/s 133(6) in which he has denied his role in concluding contracts is not correct; hence the same cannot be relied upon. Our conclusion is also Maan Aluminium Ltd. Assessment year 2015-16 fortified from the very fact that Mr. Menon has received entire commission in US Dollars from non-resident payees and not a single penny from assessee. In fact, the very submission by assessee that the contracts were booked after going through detailed negotiation with agent coupled with the factum of receipt of commission in US Dollars from non-resident payees, leads to an obvious conclusion that Mr. Menon was acting for and on behalf of non- resident entities and was having an authority to negotiate and conclude contracts on behalf of non-residents, though such authority may be oral and undocumented.
Now we proceed to examine the alternate argument of the Ld. AR that the agent was having “Independent status” and hence the assessee is saved by Proviso to Explanation 2 to section 9(1)(i). For this purpose, it would be useful to refer the relevant provision of section 9(1)(i):
(1) The following incomes shall be deemed to accrue or arise in India :— (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India. XXX Provided that such business connection shall not include any business activity carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent having an independent status is acting in the ordinary course of his business:” 13. It can be seen that the term “independent status” is qualified with the words “acting in the ordinary course of his business”. However, from the facts, we observe that the assessee has not placed any material/supporting documents to substantiate that the Indian agent was having “independent status” economically and legally from its overseas non-residents payees it represented. Though Ld. AR has filed copies of VAT registration and income- tax return of Mr. Menon but they are the compliances of Indian tax laws and cannot prove the independence of Mr. Menon. Further, the Maan Aluminium Ltd. Assessment year 2015-16 certificate/declaration given by Mr. Menon is also self-serving and also found to be inconsistent with the replies made by assessee during original proceedings before Ld. AO; therefore they do not help the assessee.
In view of above discussion and for the reasons stated therein, we are of the considered view that Ld. CIT(A) has not erred in facts and in law in holding that the assessee was liable to TDS in India u/s 195 and non- compliance thereof attracted section 201(1)/(1A). The CBDT Circular and the judicial decision relied upon by Ld. AR are clearly distinguishable on the facts and do not help the assessee. Therefore, the ground raised by assessee is dismissed.
Resultantly, this appeal of assessee is dismissed.
Order pronounced as per Rule 34 of I.T.A.T. Rules, 1963 on 31/03/2023. Order pronounced in the open court on ….../……/2023.