MADALBAL GOA EXPORTS PVT. LTD,MIRAMAR vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -1(1), PANAJI

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER

I.T.A. No. 363/PAN/2018 Assessment Year: 2007-08

Madalbal Goa Exports Pvt. Ltd., Vs. The Asstt. Commissioner of GI, Sri Chinmoy Apts, Lane 1, Income Tax, Circle 1(1) Panaji Goa ST. Mary’s Colony, Miramar - Goa. [PAN: AADCM 8789Q] (Appellant) (Respondent)

Appellant by : Sh. Sandip Bhandare, CA Respondent by: Smt. Rijula Uniyal, Sr. DR Date of Hearing: 05.04.2022 Date of Pronouncement: 27.06.2022

ORDER Per Anikesh Banerjee, JM:

The instant appeal was directed against the order of the learned Commissioner of Income Tax (Appeal) – 2, Panaji {in brevity CIT(A)} bearing IT

No-437/CIT(A)-2/PNJ/2017–18, order dated 21.06.2018, passed under section 250(6) of the Income Tax Act, 1961 (in brevity the Act) for assessment year 2007– 08. Instant appeal was generated from the order of the learned Assistant

2 ITA No. 363/PAN/2018 Madalbal Goa Exports Pvt. Ltd. v. Asstt. CIT Commissioner of Income Tax, Circle 1(1), Panaji order passed under section

143(3) r.w.s. 147 of the Act, date of order 26/02/2013.

foreign party, Wing Shing International Trading Co Ltd, Hong Kong amount to

Rs.9,82,962/–, for which the foreign party had fully done the work abroad and it

had no permanent establishment in India. The learned AO disallowed the

expenditure incurred on commission to a foreign party by invoking the provision

of section 40(a)(ia) of the Act. According to the learned AO, the appellant made

payments of commission to non-resident without deduction of tax at source as per

provisions of section 195 of the Act. The payment was made to a single party, so

the addition was made for violation of section 195 r.w.s section 40(a) (ia) of the

Act. As per the revenue the assessee violated the article 12 of the DTAA. That fees

for technical/consultancy services arising in a contracting states and paid a resident

of other contracting states may be taxed in that other state. It further states that

however, such royalties and technical/consultancy fees may also be taxed in the

contracting states in which they arise and according to the laws of the state. As per

the law of our state the professional and consultancy services even though rendered

outside India deemed to accrue or arise in India irrespective of the fact whether the

party who render services is having permanent establishment in India or not. The

retrospective amendment made by the finance act 2010 makes this position very

3 ITA No. 363/PAN/2018 Madalbal Goa Exports Pvt. Ltd. v. Asstt. CIT clear. Accordingly, the revenue authorities offered the addition of commission

amount to rupees 982962/– for violation of section 40(a)(ia) read with Section 195

of the Act. Aggrieved assessee filed an appeal before us for further adjudication

after rejection of the appeal by the CIT(A).

which is kept in the record. Counsel the assessee argued that the payment was

made in foreign party which had no establishment in India and not even visited

India during execution of work. The commission was paid on sale. This is not

technical service or any royalty. This amount was not prefixed before execution of

the contract. Accordingly, the assessee filed the confirmation and invoices which is

in paper book from page number 1 to 10. The learned counsel referred two

judgments. Principal Commissioner of Income Tax-5 & Others versus Puma Sports

India Private Limited, (2021) Tax Corp. (DT), 8455 (Karnataka) & DCIT-8 (2)(1),

Mumbai versus Shamrock Pharmachemi Private Limited, (2020) Tax Corp (AT),

86705 (ITAT-Mumbai). As per the learned Counsel this particular payment made

to foreign party was not attracted section 195 for deduction of TDS. So, the

violation of section 40(a)(ia) of the Act is not for the assessee.

4 ITA No. 363/PAN/2018 Madalbal Goa Exports Pvt. Ltd. v. Asstt. CIT 5. We heard rival submissions and relied on the documents available in the

record. The section 40(a)(ia)will be applicable if the liability is raised in India for

deduction of tax under section 195. Moreover, where a non-resident has no

permanent establishment in India, there can be no liability either under domestic

law or under Double Taxation Avoidance Agreement (in brevity DTAA). In any

case, even if a non-resident Indian did have a permanent establishment, but income

was on without availing of such permanent establishment, the income for services

rendered abroad could not have been liable for tax deduction at source. Income by

way of fees or technical services payable by a person, who is resident, is taxable

income except where the fees are payable in respect of services utilized in a

business or profession carried on by such person outside India or for the purpose of

making or earning any income from any source outside India u/s 9(1)(vii)(b) of the

Act. In view of explanation (2) to section 9(1)(i), technical services mean any

consideration, including lump-sum consideration, for rendering of any managerial,

technical or consultancy services, including the provision of services of technical

or other personal, but does not include consideration for any commission related to

sale. Related commission there is no managerial, technical or consultancy service.

In GE India technology Centre Private Limited Supreme Court clearly held that no

tax is deductible under section 195 of the Act on commission payments and

consequently the expenditure on export commission payable to non-resident for

5 ITA No. 363/PAN/2018 Madalbal Goa Exports Pvt. Ltd. v. Asstt. CIT services rendered outside India becomes a liable expenditure. So, this particular

commission paid to foreign party is not attributable to tax in India and no

deduction is required under section 195. Accordingly, the expenses dis-allowed

under section 40(a)(ia)of the Act is liable to be quashed.

Order pronounced in the open court on 27.06.2022

Sd/- Sd/- (Dr. M. L. Meena) (Anikesh Banerjee) Accountant Member Judicial Member

*GP/Sr. PS* Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The CIT(A), (4) The CIT concerned (5) The Sr. DR, I.T.A.T. (6) The Guard File