Income Tax Appellate Tribunal - Ahmedabad
Dy.Cit, Circle-4,, Ahmedabad vs Ghcl Limited, Ahmedabad on 28 April, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "I" BENCH
(BEFORE SHRI R.P. TOLANI, VICE PRESIDENT
& SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER)
ITA. No: 2589/AHD/2013
(Assessment Year: 2005-06)
The Deputy Commissioner V/S GHCL Limited GHCL
of Income Tax, Circle-4, House, Opp. Punjabi Hall,
Ahmedabad Navrangpura, Ahmedabad
(Appellant) (Respondent)
PAN: AAACG5609C
Appellant by : Shri Byomkesh Panda, Sr. D.R.
Respondent by : Shri S.N. Soparkar & Parin Shah
(आदे श)/ORDER
Date of hearing : 26 -04-2017
Date of Pronouncement : 28 -04-2017
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:
1. With this appeal, the Revenue has questioned the correctness of the order of the Ld. CIT(A)-XXI, Ahmedabad dated 19.09.2013 pertaining to A.Y. 2005-
06. 2 ITA No. 2589/Ahd/2013
. A.Y.2005-06
2. The only grievance of the revenue is that the ld. CIT(A) erred in deleting the disallowance of Rs. 143.46 lacs disallowed by the A.O. u/s. 40(a)(ia) of the Act.
3. During the course of the scrutiny assessment proceedings, the A.O. noticed that the assessee has paid Rs. 143.46 lacs as export commission in foreign currency. The A.O. was of the opinion that the provisions of section 195 of the Act squarely apply on such payment. Since no tax was deducted at source, the A.O. was of the firm belief that the same is disallowable u/s. 40(a)(ia) of the Act.
4. The assessee was asked to show cause why the commission payment of Rs. 143.46 lacs should not be disallowed as no tax had been deducted at source. The assessee filed its reply and pointed out that the payments were made outside India to Non-residents for services rendered outside India and, therefore, the amounts were not accruing or arising in India. Strong reliance was placed upon Circular No. 786 dated 07.02.2000 stating that tax is not deductible on commission in foreign currency as the same were paid outside India in respect of services rendered outside India.
5. The contention of the assessee did not find any favour from the A.O. who completed the assessment by disallowing 143.46 lacs u/s. 40(a)(ia) of the Act.
3 ITA No. 2589/Ahd/2013. A.Y.2005-06
6. Assessee carried the matter before the ld. CIT(A) and reiterated its contention.
7. After considering the facts and the submissions, the ld. CIT(A) was of the opinion that the assessee was not required to deduct tax at source u/s. 195 of the Act. Since the CBDT Circular No. 786 dated 07.02.2000 was operative, when payment of commission was made. The ld. CIT(A) directed the A.O. to delete the impugned disallowance.
8. Aggrieved by this, the revenue is before us. The ld. D.R. strongly relied upon the findings of the A.O. The ld. Senior Counsel drew our attention to the decision of the Hon'ble Jurisdictional High Court of Gujarat in the case of ABM Steels Pvt. Ltd. in Special Civil Application No. 3777 of 2011.
9. We have given a thoughtful consideration to the facts in issues before us. It is not in dispute that the commission has been paid in foreign currency to Non-residents for services rendered outside India. It is also true that Circular No. 786 dated 07.02.2000 was in operation, when payment of commission was made. The decisions of the Hon'ble Jurisdictional High Court of Gujarat in the case of ABM Steels Pvt. Ltd. (supra) squarely apply on the facts of the case. The relevant part of the said judgment reads as under:-
12. The Central Board of Direct Taxes have issued circulars dated 23rd July, 1969 being Circular No. 23 and one another Circular No. 786 dated 7.2.2000, whereby, it has been clearly mentioned that such export commission is to be treated as outside the net of tax deduction at source as laid down under Section 195 of the Act and therefore, this being the effect of circular having binding effect upon the 4 ITA No. 2589/Ahd/2013 . A.Y.2005-06 respondent-authority, the step of reopening of assessment could not have been undertaken and these circulars having been brought to the notice by the assessee, the order could not have been passed rejecting the request to drop the proceedings. These circulars are attached to the petition compilation at page Nos.40 and 41 respectively and as such, the conjoint effect of these circulars would clearly indicate that where the non resident agent operates outside the country, no part of income arises in India and 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 and such payments were, therefore, held to be not taxable income. The subsequent circular dated 7.2.2000 is in clarification of earlier Circular No. 23 which is specifically clarifying that no tax is deductible under section 195 of the Act. For immediate perusal, the same is reproduced herein after.
1314. Clarification regarding taxability of export commission payable to non- resident agents rendering services abroad.
"1. In their Audit Report for 1997-98 [D.P. NO. 79(I.T.)] the Comptroller & Auditor General (C & A G) raised an objection that the Assessing Officer in computing the profits and gains of business or profession, in a case in Mumbai charge, had wrongly allowed a deduction in respect of a payment to a non-resident where tax had not been deducted at source. The nature of the payment of this case was export commission and charges payable for services rendered outside India. In the view of C & A.G. the expenditure should have been disallowed in accordance with the provisions of section 40(a) (i) of the I.T. Act, 1961. It has come to the notice of the Board that a similar view, on the same set of facts has been taken by some Assessing Officers in other charges.
2. The deduction of tax at source under section 195 would arise if the payment of commission to the non-resident agent is chargeable to tax in India. In this regard attention to CBDT Circular No. 23 dated 23rd July. 1969 is drawn where the taxability of 'Foreign Agents of Indian Exporters' was considered along with certain other specific situations. It had been clarified then that where the non-resident agent operates outside the country, no part of this income arise in India. Further, since the payment is usually remitted directly aboard it cannot be held to have been received by or on behalf of the agent in India. Such payments were therefore held to be not taxable in India. The relevant sections, namely section 5(2) and section 9 of the income -tax Act, 1961 not having undergone any change 5 ITA No. 2589/Ahd/2013 . A.Y.2005-06 in this regard, the clarification in Circular No. 23 still prevails. No tax is therefore 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. On being apprised of this position, the Comptroller and Auditor General have agreed to drop the objection referred to above".
10.Relying upon the aforementioned decision of the Hon'ble Jurisdictional High Court, we do not find any error or infirmity in the findings of the first Appellate Authority.
11. In the result, the appeal filed by the revenue is accordingly dismissed.
Order pronounced in Open Court on 28 - 04- 2017
Sd/- Sd/-
(R. P. TOLANI) (N. K. BILLAIYA)
VICE PRESIDENT True Copy ACCOUNTANT MEMBER
Ahmedabad: Dated 28 /04/2017
Rajesh
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad