Income Tax Appellate Tribunal - Lucknow
Shri Sanjiv Gupta, Kanpur vs Addl. Commissioner Of Income Tax-2, ... on 17 January, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
LUCKNOW BENCH"A", LUCKNOW
BEFORE SHRI. T.S. KAPOOR, ACCOUNTANT MEMBER
AND SHRI PARTHA SARATHI CHAUDHURY,JUDICIAL MEMBER
ITA No.591/LKW/2016
Assessment Year:2012-13
Shri Sanjiv Gupta v. ACIT-2
84/21, Fazalganj Kanpur
Kanpur
TAN/PAN:ADLPG3870G
(Appellant) (Respondent)
Appellant by: Shri Swarn Singh, C.A.
Respondent by: Shri R. K. Vishwakarma, D.R.
Date of hearing: 16 01 2018
Date of pronouncement: 17 01 2018
ORDER
PER PARTHA SARATHI CHAUDHURY, J.M:
This appeal preferred by the assessee emanates from the order of the ld. CIT(A)-I, Kanpur dated 1/7/2016 on the following grounds of appeal:-
1. That the Ld. C.I.T.(A)-!, Kanpur has erred in law and on facts in dismissing the following grounds taken before him and challenging the legality of assessment order:-
a) that the notice u/s 143(2) dated 18.09.2012 was issued by DCIT-2, Kanpur in contravention to the binding circular/notification no. 4/2007 dated 16.05.2007, therefore, the said notice is illegal , without jurisdiction and void ab-
initio. Hence, the whole assessment is void ab-initio and liable to be quashed.
b) That the assumption of jurisdiction by the Additional Commissioner of Income Tax, Range-2, Kanpur from ACIT-
ITA No.591/LKW/2016 Page 2 of 152, Kanpur is in contravention to the provisions of Income Tax Act, 1961 and binding circular/instruction of the CBDT therefore the whole assessment is without proper jurisdiction and is liable to be quashed and consequently the impugned assessment order is void ab-initio and liable to be quashed.
c) That the impugned assessment order of the learned Assessing Officer is illegal and without jurisdiction since notice u/s 143(2) was issued after the expiry of limitation provided in the said section.
2. That the Ld. C.I.T.(A)-I, Kanpur has erred in law and on facts in holding that the Counsel of the assessee has decided not to press the grounds of appeal on technical issues taken before him.
3. That the Ld. C.I.T.(A)-I, Kanpur has erred in law and on facts in sustaining the disallowance of Rs.67,58,143/- claimed as commission paid to Foreign Agent(s) without appreciating that no TDS was deductible under section 195 of the Income Tax Act, 1961 and also as per the provisions contained in Article 7 of India
- Sweden DTAA.
4. That while sustaining the addition/disallowances of Rs.67,58,143/-, the Ld. CIT(A)-I, Kanpur failed to appreciate and consider the detailed written submissions filed by the appellant before him.
5. That the Ld. C.I.T.(A)-I, Kanpur has also failed to appreciate that the issue of disallowance of Rs.67,58,143 has been squarely decided in favour of the appellant by the Hon'ble I.T.A.T. Lucknow Bench in appellant's own case for the assessment year 2007-08, reported in 135 T.T.J. 641 [2011].
ITA No.591/LKW/2016 Page 3 of 156. That the Ld. C.I.T.(A)-I, Kanpur has erred in law and on facts in arbitrarily sustaining the adhoc addition of Rs.2,70,000/- under the head "Income from House Property."
7. That the Ld. C.I.T.(A)-I, Kanpur has erred in law and on facts in giving directions to the Ld. A.O. to re-examine the facts relating to the addition of Rs.31,86,920/- made under the head "Capital Gains."
8. Without prejudice to the above grounds, the order dated 01.07.2016 passed by the Ld. C.I.T.(A)-I, Kanpur is arbitrary, unsustainable and deserves to be deleted.
9. That any other reliefer reliefs as your honour may deem fit in the facts and circumstances of the case, be granted.
2. Grounds No.1 & 2 are not pressed by the ld. A.R. of the assessee, therefore, the same are dismissed as not pressed.
3. Grounds No.3, 4 and 5 relate to disallowance of Rs.67,58,143/- claimed as commission paid to the foreign agents/nationals.
4. The brief facts relating to this issue are that the assessee had been exporting his products to Sweden and other European countries for the last several years through his agent, M/s Jabolaget AB, Helgovagen 35, SE-352 5-0 Vaxjo, Sweden, who is responsible for procurement of orders for the assessee. The Selling Agent Agreement is renewed year after year. The assessee has submitted Selling Agent Agreement dated 9-5-2010 valid upto 8-5-2011 and dated 9-5-2011 valid upto 9-5-2012, covering the year under consideration i.e. 1/4/2011 to 31/3/2012. The same is also annexed at pages 10 & 11 of the paper book filed before us. The job of the agent is confined to procurement of ITA No.591/LKW/2016 Page 4 of 15 order on the basis of samples exchanged between the assessee and the buyer. The agent has no authority to confirm the order. The agent is acting on behalf of the assessee. There is no managerial service or consultancy provided by the agent. As per the agreement, commission is accrued to the agent on procurement of orders. The orders are procured from foreign buyers who are located in Sweden and other European countries. The services were rendered outside India. Thus, the commission was neither accrued nor deemed to accrue or arise in India. As per the agreement, rate of commission is accrued maximum at 10% of the invoice value of goods exported against the orders booked by the agent. However, the assessee has paid commission at maximum rate of 7.5% and the complete details of the same were furnished before the authorities below. The said commission was disclosed in shipping bill and directly remitted to the foreign agent. This commission was neither received nor deemed to be received by them in India. M/s Jabolaget AB was tax resident of Sweden and had no permanent establishment in India. The copy of tax residency certificate for the year under consideration is also placed before us, which are appearing at pages 12 and 13 of the paper book. The ld. A.R. of the assessee also submitted that identical issue was considered by this Bench of the Tribunal in the assessee's own case and decided in favour of the assessee as per details given below:-
(1) Dy. CIT-II, Kanpur vs. Sanjiv Gaupta for assessment year 2007-08 (copy of order is placed at pages 129 to 137 of the paper book).
(2) Dy. CIT-II, Kanpur vs. Sanjiv Gaupta for assessment year 2008-09 (copy of order is placed at pages 138 to 144 of the paper book).ITA No.591/LKW/2016 Page 5 of 15
(3) Sanjiv Gupta vs. Addl. CIT-2 for assessment year 2010-11 (copy of order is placed at pages 145 to 155 of the paper book).
5. We have perused the case record, analysed the facts & circumstances of the case and considered the judicial precedence placed before us. We find that this issue is squarely covered by the order of the Lucknow Bench of the Tribunal in the assessee's own case for assessment year 2010-11 in ITA No.357/LKW/2016 wherein the Tribunal, by following its earlier order dated 7/1/2011 in the assessee's own case for assessment year 2007-08, has decided the issue in favour of the assessee. The relevant portion of the order dated 17/10/2016 of the Tribunal in ITA No.357/LKW/2016 is reproduced hereunder:-
"6. We have heard both the parties and perused the record. We take note that the assessee is engaged in the business of manufacturing and export of leather bags and other articles, and was selling its products through non-resident commission agent. During the year under consideration, the assessee paid commission amounting to Rs.42,09,056/- to its non-resident agent. The Assessing Officer has disallowed the same which was confirmed by the ld. CIT(A). We have gone through the selling agency agreement which is reproduced at page 4 of the assessment order. A perusal of the same reveals that the agent Ms. Jeanette Albertsson has been appointed as the agent to book orders exclusively on behalf of the exporter-assessee for their products namely Leather Bags, Canvas Bags, Wallets, and Belts & Leather garments. In the said agreement it is specifically said that the agent would procure orders from Sweden, Denmark, Norway, Finland, Switzerland, France Spain, Germany, UK & all other European countries and any country which exporter- assessee and the agent mutually consent. The selling agency agreement reveals that the assessee-exporter to pay a commission of maximum 10% of the invoice value of goods ITA No.591/LKW/2016 Page 6 of 15 exported against orders booked by the agent to countries mentioned above and it is specifically stated that the commission will accrue on procurement of orders. The agreement has been made w.e.f. 9.5.2008 which is valid for two years. The Assessing Officer's observation that the agent has to ensure that the assessee's products are highly personalized items to cater to the fashion trends and taste of the conscious and selective overseas customers does not come out from a perusal of the Sales Agreement. It is nothing but a figment of imagination and the find that there is a business connection with the agent in India is not on the basis of any material. The opinion of the ld. CIT(A) that the processing of export order is not a simple mechanism of taking order is also not borne out of any material or evidence and at the best can be termed as based on surmises and conjectures which cannot stand in the scrutiny of law.
7. The assessee contended that the issue of commission to foreign agent is squarely covered by the order of this Bench of the Tribunal in the assessee's own case reported as DCIT vs. Sanjiv Gupta in 135 TTJ 641 (2011) wherein the Tribunal has dealt with the issue relating to commission to foreign agent and decided in favour of the assessee. The relevant portion of the order of the Tribunal (supra) is reproduced hereunder for the sake of reference:-
7. We have heard the rival submissions. Shri P.K. Bajaj, learned Departmental Representative heavily relied on the order of the AO. On the other hand, Shri Vikas Garg, chartered accountant and Shri Swarn Singh, chartered accountant, learned counsel for the assessee reiterated the submissions made before the lower authorities. It was further submitted that the issuance of Circular No. 7 of 2009, dt. 22nd Oct., 2009 withdrawing the Circular Nos. 23 of 1969, 163 of 1975 and 786 of 2000 will be operative only from 22nd Oct., 2009 and not prior to that date. Reliance was placed on the decision of the Tribunal, Mumbai Bench in the case of Dy. CIT vs. Siemens Aktiengesellschaft (supra). We find that as per the CBDT Circular No. 23, dt. 23rd July, 1969 and Circular No. ITA No.591/LKW/2016 Page 7 of 15 786, dt. 7th Feb., 2000, the assessee was not required to deduct the tax at source under s. 195 with regard to payment of commission to foreign agent. Relevant part of the Circular No. 23, dt. 23rd July, 1969 reads as under :
"4. Foreign agents of Indian exporters 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."
Circular No. 786, dt. 7th Feb., 2000 reads as under :
"Circular No. 786, dt. 7th Feb., 2000 TDS under s. 195 and the taxability of export commission payable to non-resident agents rendering services abroad' Clarification regarding.
In their audit report for 1997-98 [D. P. No. 79 (IT)], the Comptroller and Auditor General (C&AG) raised an objection that the AO 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 in this case was export commission and charges payable for services rendered outside India. In the view of C & AG the expenditure should have been disallowed in accordance with the provisions of s. 40(a)(i) of the IT 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 AOs in other charges.
2. The deduction of tax at source under s. 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, dt. 23rd July, 1969, is drawn, where the taxability of 'foreign agents of Indian exporters' was considered along with certain other ITA No.591/LKW/2016 Page 8 of 15 specific situations. It had been clarified then that where the non- resident agent operates outside the country, no part of his income arises in India. Further, 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. Such payments were, therefore held to be not taxable in India. The relevant sections, namely, s. 5(2) and s. 9 of the IT Act, 1961, not having undergone any change in this regard, the clarification in Circular No. 23 still prevails. No tax is, therefore deductible under s. 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 appraised for this position, the C & AG have agreed to drop the objection referred to above."
7.1 In the instant case, the assessment year involved is 2007-08 and the relevant previous year is 2006-07. Admittedly, return of income was filed on 30th Oct., 2007. At the time of filing of the return, Circular No. 7 of 2009, dt. 22nd Oct., 2009 was not in force by which the CBDT withdrew Circular No. 23, dt. 23rd July, 1969 with immediate effect. In our considered view, where a circular issued earlier created a vested right in the taxpayer and such right is sought to be curtailed or withdrawn by a subsequent circular, then such subsequent circular will not have a retrospective effect. While taking such a view, we are fortified by the decision of the Hon'ble Bombay High Court in the case of BASF (India) Ltd. & Anr. vs. W. Hasan, CIT & Ors. (2006) 201 CTR (Bom) 198 : (2006) 280 ITR 136 (Bom) wherein it has been held that circulars which are in force during the relevant assessment years are the circulars that have to be applied and subsequent circulars either withdrawing or modifying the earlier circulars have no application. Similar view has been taken in CIT vs. Geeva Films (1983) 141 ITR 632 (Ker) and CIT vs. B.M. Edward, India Sea Foods (1979) 12 CTR (Ker)(FB) 278 : (1979) 119 ITR 334 (Ker)(FB).
ITA No.591/LKW/2016 Page 9 of 157.2 In the case of Siemens Aktiengesellschaft (supra), while deciding a similar issue, the Tribunal held that it is axiomatic that a circular in operation through the relevant assessment year cannot be held to be in operational simply by reason of the fact that it has been withdrawn in the year 2009. The withdrawal of such circulars will be effective only after the said date of 22nd Oct., 2009 by which these circulars have been withdrawn 'with immediate effect'. Accordingly, the Mumbai Bench of the Tribunal held that issuance of Circular No. 7 of 2009 withdrawing the Circular Nos. 23 of 1969, 163 of 1975 and 786 of 2000 will be operative only from 22nd Oct., 2009 and not prior to that date. Thus, the withdrawal of earlier circulars w.e.f. 22nd Oct., 2009 has no bearing in the instant case. In our view, the above said decision is squarely applicable to the facts of the present case. It is worth mentioning that the previous year involved is 2006-07 relevant to the assessment year under consideration. At the relevant time, in view of the CBDT Circular No. 23, dt. 23rd July, 1969 and Circular No. 786, dt. 7 Feb., 2000, the assessee was not obliged to deduct the tax under s. 195 of the Act and the Circular No. 7 of 2009, dt. 22nd Oct., 2009 withdrawing the Circular No. 23 of 1969 and Circular No. 786 of 2000 will be operative only from 22nd Oct., 2009 and not prior to that date. We may also mention that the decision relied upon by the AO in the case of Van Oord ACZ India (P) Ltd. vs. Addl. CIT (supra) has been overruled by the Hon'ble Delhi High Court which is reported in (2010) 230 CTR (Del) 365 : (2010) 36 DTR (Del) 425 (supra), wherein the Hon'ble High Court has concluded as under :
"Obligation to deduct tax at source under s. 195 is attracted only when the payment is chargeable to tax in India; IT authorities having accepted : that the non-resident recipient is not liable to pay any tax in India, the assessee-payer was not liable to deduct tax at source under s. 195(1) in respect of the mobilization and demobilization costs reimbursed by it to the said non-resident company."ITA No.591/LKW/2016 Page 10 of 15
In view of the above discussion, we do not find any infirmity in the order of the learned CIT(A) on this issue and accordingly we uphold the same."
8. We take note that the Tribunal while deciding the issue relating to commission paid to non-resident recipient has held that section 195 is attracted only when the payment is chargeable to tax in India and non-resident recipient is not liable to pay any tax in India. However, we take note that the CBDT has withdrawn Circular No.786 of 2000 by Circular No.7/2009, the exemption provided to the assessee regarding payment to foreign nationals stands withdrawn and accordingly the tax is now liable to be deducted at source on the payments specified under the provisions of section 195(1) of the Act. The issue before us is whether the payments made to the non-resident agent, who is operating outside country, will attract the provisions of section 195(1) of the Act. The Hon'ble Supreme Court in the case of GE India Technology Centre Pvt. Ltd. vs. CIT and Another, 327 ITR 456 and Samsung (Civil appeal No.7765 and 7767/2010) has laid down the law that the payer is bound to deduct tax at source only if the sum paid is assessable to tax in India. The special Bench of Chennai Tribunal in the case of ITO vs. Prasad Production Limited (125 ITR 263) SB (Chennai) held that where the payer has a bona fide plea that no part of payment has income character, the provisions of section 195(1) of the Act would not apply and it is not mandatory for him to undergo the procedure of section 195(2) of the Act before making any payment to the non-resident. Only where part of payment is chargeable to tax, then the assessee need to apply before the AO as per the provisions of section 195(2) of the Act for deduction of tax at appropriate rate. The deduction of tax at source under section 195 of the Act would arise only if the payment of commission to the non-resident agent is chargeable to tax in India. Since non-resident foreign nationals operate outside country, no part of their income arises in India. Further, since the payment is usually remitted directly abroad, it cannot be held to have been received by or on behalf of foreign national in India. Therefore, no tax is liable to be deducted under ITA No.591/LKW/2016 Page 11 of 15 section 195 of the Act and consequently the expenditure shown on commission to foreign nationals becomes an allowable expenditure. The ld. D.R. could not point out any fact to show that the amount paid to the foreign nationals is assessable to tax in India. Therefore, we set aside the order of the ld. CIT(A) and allow grounds No.1 to 3 of the appeal of the assessee."
6. Respectfully following the order of the Co-ordinate Bench, we set aside the order of the ld. CIT(A) on this issue and allow grounds No.3, 4 and 5 of the appeal of the assessee.
7. Ground No.6 relates to the addition of Rs.2,70,000/- under the head "income from house property".
8. With regard to this issue, at the time of hearing, the ld. A.R. of the assessee submitted that that the ld. CIT(A) upheld the addition of Rs.2,70,000/- towards rental income in respect of assessee's property at Greater Noida and the addition was made ignoring the following facts:-
(i) that the house property was situated at Greater Noida and minimum required basic construction of two rooms were raised in compliance to the norms of Greater Noida Authority.
(ii) that the construction was raised with basic object of compliance of terms of allotment of Greater Noida Authority. However, later on in view of enquiries of students of nearby colleges at meager rent, these were let out with an idea that some income could be earned in addition to keep the same in habitable condition.
(iii) that the Department has accepted the same rent in earlier assessment years and copies of earlier years assessment orders for assessment years 2009-10, 2010-11 and 2011-12 along with computation were submitted and are placed in the paper book filed before us.
9. The ld. A.R. of the assessee further contended that the Assessing Officer has made addition on conjecture and surmises ITA No.591/LKW/2016 Page 12 of 15 assuming the fair rent to be @ Rs.8,000/- per month and reliance was also placed on the judgment of the Hon'ble Delhi High Court in the case of M/s John Tinson & Co. (P) Ltd. vs. CIT, 298 ITR 407 (Delhi), which is placed at pages 166 to 168 of the paper book. The ld. A.R. of the assessee pointed out that in this judgment it was held by the Hon'ble High Court that assessee is required to provide necessary details to the Assessing Officer so that he can discharge the obligation of calculating the standard rent of the property under section 23 of the Act. However, the Assessing Officer must calculate the standard rent. If the assessee has been remiss in furnishing requisite information, the standard rent so fixed may become impervious to an assault by the assessee. The Assessing Officer must be guided by the principles and methodology laid down in Rent laws.
10. The ld. D.R., on the other hand, placed reliance upon the orders of the authorities below.
11. We have perused the case record, analyzed the facts & circumstances of the case, heard the rival contentions and we find that in the order of the Assessing Officer it is stated that in the absence of details provided by the assessee, fair market rent of Rs.8,000/- per month is fixed for all the properties, which is minimum in the area. At the same time, we also find from the paper book filed by the assessee before us that assessee has furnished assessment orders for assessment years 2009-10, 2010-11 and 2011-12 wherein rental income was accepted by the Department as declared by the assessee. We, accordingly, in the interest of justice, set aside the order of the ld. CIT(A) on this issue and restore the same to the file of the Assessing Officer to decide this issue afresh taking into account earlier years assessments completed in the case of the assessee and after affording ITA No.591/LKW/2016 Page 13 of 15 reasonable opportunity of hearing to the assessee. Accordingly, ground No.6 is allowed for statistical purposes.
12. Ground No.7 relates to the addition of Rs.31,86,920/- under the head "Capital Gains".
13. The facts in brief with regard to this issue are that assessee's wife, Mrs Anu Gupta booked a two BHK flat No.C-1203 at Jaipuria Sunrise Green, Ghaziabad on 18/12/2004. As per details furnished before us in the paper book, she paid a sum of Rs.14,34,732/- upto August, 2005, the details of which are as under:-
Date Particulars Receipt Date Amount
of Payment No
18.12.04 Holding amount 1822 18.12.04 40000/-
21.12.04 Balance of 1903 21.12.04 40000/-
Booking amount
01.02.05 Basic 2199 01.02.05 1289732/-
20.05.05 Car Parking 3834 21.05.05 65000/-
Total 1434732/-
14. The payment to the builder by Smt. Anu Gupta was funded by Mr Sanjiv Gupta, the assessee which is evident from the bank statement placed at pages 94 to 99 of the paper book. Smt. Anu Gupta vide letter dated 6/9/2005 (placed at pages 100 & 101 of the paper book) requested the builder, M/s Jaipuria Infrastructure Developers Pvt. Ltd. to exchange the booking of flat No.C-1203 (two BHK) with flat No.C-1404 and also requested the change of name to her husband, Mr Sanjiv Gupta i.e. the assessee. In consideration of the same, assessee paid the entire booking amount of Rs.14,34,732/- to his wife, which is evident from the bank statements placed at pages 102 to 107 of the ITA No.591/LKW/2016 Page 14 of 15 paper book. In addition, assessee deposited the following amount from his bank account:-
Date Particulars Receipt Date Amount
of Payment No
15.09.05 Difference of Booking 5186 15.09.05 993821/-
Amount
15.09.05 For change in name 5185 15.09.05 3000/-
15.09.05 Basic 5187 15.09.05 452S5/-
17.03.08 Final payment 13441 17.03.08 498683/-
17.03.08 Final payment 13440 17.03.08 77974/-
Total 1618763
15. The assessee got confirmation also regarding No Dues in respect of his booking of flat No.C-1404 from the builder on 23/11/2009. Confirmation from Mrs. Anu Gupta is also obtained and submitted to the authorities below, which are placed at pages 102 to 107 of the paper book.
16. We have perused the case record, analysed the facts & circumstances of the case and perused the relevant details filed before us in the paper book. We are of the considered view that a detailed investigation is required in order to find out whether the money paid by Mrs Anu Gupta was refunded back to her before allotment of the flat. With this observation, we set aside the order of the ld. CIT(A) on this issue and restore the matter back to the file of the Assessing Officer to decide the same afresh after affording reasonable opportunity of hearing to the assessee. Accordingly, ground No.7 of the appeal is allowed for statistical purposes.
ITA No.591/LKW/2016 Page 15 of 1517. Grounds No.8 & 9 are general in nature which require no adjudication.
18. In the result, grounds No.1 & 2 are dismissed as not pressed; grounds No.3, 4 and 5 are allowed and grounds No.6 & 7 are allowed for statistical purposes.
Order pronounced in the open Court on 17/01/2018.
Sd/- Sd/-
[T.S. KAPOOR] [PARTHA SARATHI CHAUDHURY]
ACCOUNTANT MEMBER JUDICIAL MEMBER
DATED: 17th January, 2018
JJ:1601
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR