Income Tax Appellate Tribunal - Kolkata
The Ananda Bag Tea Co. Ltd., Kolkata vs Department Of Income Tax on 13 January, 2012
आयकर अपीलीय अधीकरण, Ûयायपीठ - " ऐ" कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH: KOLKATA
(सम¢)Before ौी महावीर िसंह, Ûयायीक सदःय एवं/and ौी, ौी लेखा सी.डȣ.राव सदःय)
[Before Sri Mahavir Singh, JM & Shri C. D. Rao, AM]
आयकर अपील संÉया / I.T.A Nos. 1932&1945/Kol/2010
िनधॉरण वषॅ/Assessment Years : 2002-03 & 2003-04
&
आयकर अपील संÉया / I.T.A Nos. 2008 & 2044/Kol/2010
िनधॉरण वषॅ/Assessment Years : 2002-03 & 2003-04
Deputy Commissioner of Income-tax, Vs. M/s. The Ananda Bag Tea Co. Ltd.
Circle-4, Kolkata. (PAN:AABCK 2127 L)
(अपीलाथȸ/Appellant) (ू×यथȸ/Respondent)
Date of hearing: 13.01.2012
Date of pronouncement: 13.01.2012
For the Appellant: Shri A. K. Pramanik
For the Respondent: Shri S. M. Surana
आदे श/ORDER
Per Mahavir Singh, JM ( महावीर िसंह, Ûयायीक सदःय)
सदःय All these four appeals by revenue are arising out of separate orders of CIT(A), Kolkata in Appeal Nos.35&34/CIT(A)-IV/2008-09 and 16&14/CIT(A)-IV/09-10 all dated 24.12.2009. Assessments were framed by ACIT, Circle-4, Kolkata u/s.147/143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Years 2002-03 and 2003-04 vide his separate orders dated 03.12.2007. Penalties in dispute were imposed by DCIT, Circle-4, Kolkata u/s. 271(1)(c) of the Act vide his order separate orders dated 30.06.2008.
2. First we take up ITA Nos. 2008 & 2044/K/2010 (quantum appeal). The only issue in these appeals of revenue is against the order of CIT(A) deleting the disallowance of commission being illegal payment to Iraqi politician in 'oil for food scheme' detected by United Nations appointed Volcker Committee. For this, revenue has raised following two grounds:
"1. That on the facts and circumstances of the case, Ld. CIT(a) has erred in law in allowing illegal commission payment amounting to Rs.29,60,513/- to some Iraqi politician without appreciating the facts that U.N.O. appointed Volcker Committee which 2 ITA 1932,1945,2044&2008/K/2010 Ananda Bag Tea Co. Ltd. . A.Y.02-03 & 03-04 identified the assessee in question who had made illegal payment of Iraqi politician in the name of commission.
2. That on the facts and circumstances of the case, Ld. CIT(A) has erred in law in mentioning that section 40(a)(ia) does not apply in this case without appreciating the facts that assesee did not deduct tax from payment of foreign agents u/s. 195."
3. Both these appeals have been delayed by 23 and 31 days respectively. Revenue has filed affidavits explaining the reasons for delay in Assessment Years 2002-03 & 2003-04 separately, which are as under:
For Assessment Year 2002-03:
"Date Reasons
12.10.2010 to 28.10.2010 : Application for filing second appeal was not communicated.
29.10.2010 : Application for filing second appeal communicated.
30.10.2010 to 31.10.2010 : Saturday and Sunday.
01.11.2010 to 03.11.2010 : The papers were being processed for filing.
04.11.2010 : The papers are being filed for second appeal.
For Assessment Year 2003-04:
12.10.2010 to 07.11.2010 : Application for filing second appeal communicated.
08.11.2010 : Application for filing second appeal communicated.
09.11.2010 to 11.11.2010 : The papers were being processed for filing.
12.11.2010 : The papers are being filed for second appeal."
When this was pointed out, the Ld. Counsel fairly conceded the position. In view of the fact that Ld. Counsel conceded that there is reasonable cause, we admit the appeal and adjudicate the issue.
4. Brief facts leading to the above issue are that assessee claimed commission payment to foreign agent at Rs.13,66,167/- in each of the assessment years. The Assessing Officer disallowed the commission payments as assessee's name was appearing in the report of Volcker Committee, wherein it is mentioned that commission paid to parties outside India in respect of sale of goods to Iraq is unethical. The sale of such goods was as per UN sponsored 'oil for food' programme on humanitarian ground and according to Assessing Officer any commission or kick back on such supply was unlawful and he disallowed in both the assessment years. Aggrieved, assessee preferred appeals before CIT(A), who allowed the claim of assessee by giving following finding in para 9, 10, 10.1 and 10.2 of his appellate order:
"9. The appellant also drew my attention to the fact that the name of the company appears in page 168 of Table VII of the Volcker Committee report. In the footnote it was 3 ITA 1932,1945,2044&2008/K/2010 Ananda Bag Tea Co. Ltd. . A.Y.02-03 & 03-04 mentioned that no specific information was available with the committee regarding payment of freight charges. The appellant also mentioned that regarding ASSF (After Sales Service Fee), the agent was paid commission for providing service to the seller and not to the buyer. Commission was paid by the assessee for procuring orders and ensuring payment.
9.1. Further, the appellant also contended that the provision of Section 40(a)(i) is not applicable in their case as the TDS is not to be deducted on the commission paid to foreign party i.e. Al-Douh Jordanian Est. Jordan for service rendered outside India.
9.2. The appellant has relied on the circular no 23 dated July 23, 1969 issued by CBDT - A foreign agent of Indian exporter operates in his own country and no part of his income arises in India. His commission is usually remitted directly to him and is, therefore, not received by him or on his behalf in India. Such an agent is not liable to income-tax in India on the commission"
9.3. Further, the circular no 786 dated February 7, 2000 issued by the Income Tax Department clearly states that the payment made to non resident agent operating from outside India is not taxable in India as no part of his income arises in India. Since, the payment is usually remitted directly abroad it cannot be held to have been received by or on behalf of the agent in India. Hence, the same is not to be considered taxable in India. Therefore, no tax is deductible under section 195 and consequently, the expenditure on export commission and other related charges payable to a non-resident for services rendered outside India becomes allowable expenditure.
In my opinion the commission was not after sales service fee and there being no specific information available with Volcker Committee regarding payment.
9.4. It was submitted that there are no evidences to show that the payment made by the appellant was of the nature of a kick-back as alleged; nor would it have made any difference in the matter of allowability of the expenses concerned in the IT Assessment of the pair even if those facts had been correct. There may be legal bar in payment of kick- back in the matter of purchase of goods or articles by the Government of India or even any Company under the control of the Government. No such restriction applies in the case of payment made by a private party for furthering its business interests. The Volkar Commissions report mostly concerns and other who are public servants in the eye of law. A bar imposed by U.N. on supply of goods to Iraq also cannot debar and Indian party to do so unless the restriction is imposed by the Government in India through a legal process. In the present case, there was no such restriction to supply of goods and material to Iraq imposed by the Government of India.
10. My predecessor while deciding the appeal in case M/s. Northern Project Ltd., vide appeal no. 47/CIT(A)-IV/06-07 dated 23.05.2008 as under:
"I had occasion to deal with a similar issue of disallowance of the commission paid to Overseas Agents in respect of Export of Tea to Iraq in the case of another Exporter to Tea also wherein I had occasion to examine the issue in greater detail. After comprehensive examination of the facts and the law on the subject, I held in that case that the payment of commission in respect of Export of Tea to Iraq was an allowable business deduction (order dtd.31.03.2008 in Appeal No.54/CIT(A)-IV/06-07 for Asst. Yr. 2003-2004 in the case of M/s. Limtex (India) Ltd. After considering the facts and submissions of the appellant and on appreciation of the facts and also the legal principles involved in this case I am inclined to agree with the arguments of the Id. A/Rs in this case. No material has been brought on record by the A.O. to show that there was payment by the 4 ITA 1932,1945,2044&2008/K/2010 Ananda Bag Tea Co. Ltd. . A.Y.02-03 & 03-04 appellant in the nature of kickbacks or there was any illegal payment involving infraction of any law. Mere appearance of the name of the appellant-company in the Volcker Committee's Report could not lead to an adverse inference against the appellant because the appellant itself has admitted to have made export of Tea against sale contracts procured from the Govt. of Iraq and payment of commission therefor. I do not find any illegality in the payment of commission by the appellant for the services rendered in procuring the sale contracts and for facilitating smooth execution of the sale contracts. The appellant has produced ample material in support of the reasonableness and legality of the payment of commission. The legal formalities required to be observed for remittance of the commission abroad were observed and the commission was paid through the normal Banking channel. At no point of time any question was raised that the payment by the appellant was illegal. The appellant has established that the payment of commission was made for the purpose of business on grounds of business expediency and there was no element of illegality in making the payment".
10.1. On the basis of the facts narrated by A.O. and after carefully considering the submission of the appellant, respectfully following the decision of my predecessor and decision of Hon'ble Tribunal, Kolkata in case of Kotsons (P) Ltd in 1TA NO. 2315/Kol/2005, Northern Projects Ltd. in ITA No. 1424/Kol/2008 & TIL Limited reported in 16 SOT page 33. I hold that the payment of commission of Rs. 13,66,167/- by the appellant was not illegal and is an allowable business expenditure. The disallowance made by the A.O. in this regard is deleted.
10.2. Further, I would like to mention that Section 40(a)(i) shall not be applicable in the given case since there is no liability on the appellant to deduct taxes at the time of payment of the commission to an agent outside India and deposit the same with the tax authorities. Since, section 40(a)(i) does not apply in the instant case as there is no violation of Section 195, this ground of appeal is allowed accordingly."
5. We find that this issue is squarely covered in favour of assessee and against the revenue by the decision of this Tribunal in the following cases:
"1. ITA No.1424 & 1425/Kol/2008, Assessment Year. 2003-04, DCIT Vs. M/s. Northern Projects Ltd. & M/s. V. N. Enterprise Ltd. dated 26.12.2008.
2. ITA No.993 & 811/K/2008, Assessment Year 2003-04, DCIT Vs. Limtex Tea & Indus. Ltd. dated 18.09.2009.
3. ITA No.2315/K/2007, Assessment Year 2004-05, ACIT Vs. M/s. Kotsons (P) Ltd. dated 24.10.2008.
In M/s. Kotsons (P) Ltd. (supra), the Tribunal has held vide para 20 to 25 as follows :
"20. We have carefully considered the submissions of the Id. Representatives of both the parties and the orders of the authorities below. We have also gone through the relevant pages of the paper book. During the course of hearing, the ld. A .R. referred the paper book extensively to substantiate his submission that there were agreements entered into by the assessee and the concerned payees in respect of exports made by the assessee in the assessment year under consideration, The reference to the relevant pages to draw our attention during the course of hearing has already been referred hereinabove.
5 ITA 1932,1945,2044&2008/K/2010 Ananda Bag Tea Co. Ltd. . A.Y.02-03 & 03-04
21. In respect of the commission paid to Mr. Kubaisi, we observe that the assessee entered into agreement with the Agency and Representation dated 01.07.2001. There was another Memorandum of Understanding dated 26.07.2001. We also observe that the assessee contacted Mr. Khalid J. Al Kubaisi on the suggestion of the then Indian Ambassador in Iraq to avail his services to supply transformers to Iraq. We observe that in the agency and the representation agreement followed with the Memorandum of Understanding, it was specifically stared that Mr. Kubaisi would be entitled to commission at the rate of 12.5% of the invoice value in respect of the supplies made by the assesee within the territory assigned for the said agent Mr. Kubaisi. The Department has not disputed the fact that the assessee received two purchase orders for supply of transformers to the Ministry of Electricity, Baghdad with the efforts of Mr. Kubaisi. The Department has not controverted the submission of the Ld. A.R. that Mr. Kubaisi was to ensure that the due approval of UNO was received by the assessee, the Letters of Credit are sent by the concerned Iraqi Department at the earliest so that the assessee company could complete the maximum supply under the two purchase orders. Mr. Kubaisi was to arrange internal approval of such supplies by the Ministry of Electricity, Iraq. Therefore, we are of the considered view that the assessee-company has paid commission to Mr. Kubaisi for the services rendered by Mr. Knbarsi to the assessee company. The payment of commission is on account of business consideration.
22. Further, we observe that a part of the supplies/consignments was in transit. The war broke out in Iraq and due to that the Port of Iraq was badly damaged. It was not possible to take the containers from Dubai to that port. The assessee had to make interim arrangement for storage and security arrangement. In this regard, the assessee took the help of M/s. NTE International. Pursuant to the agreement entered into between the assessee and the NTE International, the assessee paid commission/service charges at the rate of 5% on the invoice value of the 51 containers containing 722 pieces of transformers of the aggregate value of Euro 2130368.80, which were in transit. We observe that M/s. NTE International for the aforesaid services to also meet all out of pocket and other actual expenses in unloading, storing, making security arrangements and also reloading thereof through the appropriate shipping lines for onward transmission to the final port of destination as may be ultimately approved by UNDP. The copy of the agreement and the relevant correspondences are placed at pages 387 to 400 of the paper book. The Department has not disputed the above facts. In view of the above, we are of the considered view that the assesee has incurred the expenditure of Rs.57,65,839/- towards payment to M/s. NTE International due to business necessitated and for business consideration for the export made to Iraq.
23. Similarly we also observe that the assessee company availed the services of M/s. Cosmos International to enable supply 51 containers containing 722 pieces of transformers of the aggregate value of Euro 2130368.80, which was already in transit when the war broke out on 17.03.2003. M/s. Cosmos International was to revive and to regularize the purchase orders under UN Resolution No. 1483 dated 22.05.2003 to enable the assesee to make the shipment upto 21.11.2003. Not only this, M/s. Cosmos International was also to get full payments not only in respect of the earlier 51 containers which had already been shipped by the assesee prior to 26.08.2003, but also for further consignment of 143 containers covering 2055 transformers of the value of Euro 5517301.71. In this respect, the agreement was duly entered into between the assessee and M/s. Cosmos International, the copy of which is placed at pages 126 & 127 of the paper book and the other correspondences entered into which are placed at pages 128 to 133 of the paper book. The Department has not disputed the above facts. Therefore, we are of the considered view that the assesee has paid the commission to M/s. Cosmos International at the rate of 6% for the services rendered by M/s. Cosmos International and due to business necessity.
6 ITA 1932,1945,2044&2008/K/2010 Ananda Bag Tea Co. Ltd. . A.Y.02-03 & 03-04
24. In respect of the commission paid to M/s. Barbes Pougnet Ltd. of Mauritius and Dr. S. S. Mann of Mann International India Pvt. Ltd., we observe that the assessee paid the commission for export made to Mauritious and Nigeria respectively. There is no dispute to the fact that the commission was paid to M/s. Barbes Pougnet Ltd. with the approval of Reserve Bank of India and through normal banking channel. The relevant correspondent is placed at pages 409 to 423 of the paper book. Similarly the assessee also paid commission to M/s. Mann International India Pvt. Ltd. at the rate of 10% as per the agreement entered into for the supply made to M/s. Sam & Sam International of Nigeria against six invoices for the aggregate value of US Dollars 424776. In this regard, the agreement was duly entered into, the copy of which is placed at page 401 read with page 402 of the paper book. Therefore, we agree with the ld. A.R. that the payment of commission at the rate of 10% to Dr. S. S. Mann was for the services rendered to the assessee. It was paid for the business purposes and not for any extraneous consideration.
25. Further we also observe that the assessee company received appreciation for earning foreign exchange through export business and development export market. The Department has not disputed the above observation made by the Ld. CIT(A) in para 6.1 at page 16 of the impugned order. Considering the above facts and the relevant correspondence, referred hereinabove, we hold that the Ld. CIT(A) has rightly held that the assessee has paid the commission/service charges to the above parties for the purpose of business and it is a business expenditure. Accordingly, we uphold the order of the ld. CIT(A) in deleting the disallowance of Rs.65833921/-, which was disallowed by the A.O. on account of the payment of commission/service charges made to the above named five parties. In view of the above, the ground of appeal taken by the Department is rejected and the order of the Ld. CIT(A) is upheld."
The facts being identical for both the appeals of revenue, respectfully following the Tribunal's decision cited supra in all the three cases, we confirm the order of CIT(A) and this issue of revenue's appeal is dismissed.
5. In respect of penalty imposed u/s. 271(1)(c) of the Act for both the years, since we have rejected the revenue's appeal, the penalty is inconsequential and hence, the same are dismissed.
6. In the result, these four appeals of revenue are dismissed.
7. Order pronounced in open court.
Sd/- Sd/-
सी.डȣ
सी डȣ.राव
डȣ राव लेखा सदःय महावीर िसंह, Ûयायीक सदःय
(C. D. Rao) (Mahavir Singh)
Accountant Member Judicial Member
तारȣख)
तारȣख) Dated : 13th January, 2012
(तारȣख
वǐरƵ िनǔज सिचव Jd.(Sr.P.S.)
7 ITA 1932,1945,2044&2008/K/2010
Ananda Bag Tea Co. Ltd. . A.Y.02-03 & 03-04
आदे श कȧ ूितिलǒप अमेǒषतः- Copy of the order forwarded to:
1. अपीलाथȸ/APPELLANT - DCIT, Circle-4, Kolkata
2 ू×यथȸ/ Respondent, M/s. The Ananda Bag Tea Co. Ltd., 45C, J. L. Nehru
Road, Kol-71.
3. आयकर किमशनर (अपील)/ The CIT(A), Kolkata
4. आयकर किमशनर/CIT, Kolkata
5. वभािगय ूितनीधी / DR, Kolkata Benches, Kolkata
स×याǒपत ूित/True Copy, आदे शानुसार/ By order,
सहायक पंजीकार/Asstt. Registrar.