Rajasthan High Court - Jodhpur
Sumati Exports, Udaipur vs Union Of India And Anr on 13 December, 2024
Author: Pushpendra Singh Bhati
Bench: Pushpendra Singh Bhati
[2024:RJ-JD:50724-DB]
HIGH COURT OF JUDICATURE FOR RAJASTHAN AT
JODHPUR
D.B. Civil Writ Petition No. 9783/2014
Sumati Exports, through its Partner Sanjeev Modi, aged about
47 years, S/o Sh. Sursh Nathji Modi, 69, Saheli Nagar, Udaipur.
----Petitioner
Versus
1. Union Of India through the Secretary, Ministry of Finance,
Department of Revenue, North block, New Delhi.
2. The Deputy Commissioner of Income-Tax, Circle-3, Room
No.88, Ayakar Bhawan, Paota C Road, Jodhpur.
3. The Joint Commissioner of Income Tax, Range-3, Ayakar
Bhawan, Paota C Road, Jodhpur.
----Respondent
For Petitioner(s) : Mr.Anjay Kothari, Adv.
For Respondent(s) : Mr.Sunil Bhandari, Adv.
HON'BLE DR. JUSTICE PUSHPENDRA SINGH BHATI
HON'BLE MR. JUSTICE MUNNURI LAXMAN Judgment Judgment Reserved on : 09/10/2024 Judgment Pronounced on : 13/12/2024 [Per Hon'ble Mr. Justice Munnuri Laxman] :
1) The present writ petition has been filed with the following prayers:-
(i) Allow the above writ petition of the petitioner;
(ii) Quash impugned order dt. 21.11.2014 passed by the respondent No.2 rejecting the preliminary objection raised by the petitioner (Annex.5);
(iii) Quash the impugned notice u/s 148 dt.
17.09.2013 (Ann.-2) of the Income Tax Act, 1961 for the Assessment Year 2009-10 by issuing a writ of certiorari or any other appropriate writ, order or direction;
(iv) Restrain the respondents from taking any proceedings in pursuance of the impugned notice dt. 17.9.2013 (Annx.2) and impugned order dt. 21.11.2014 (Annex.5);
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(v) Hold that the re-assessment proceedings in question are illegal, void and without jurisdiction;
(vi) Quash the impugned order of sanction/approval dated 06.09.2013 granted by the Higher Authority (Annx.3)."
2) The case of the petitioner is that the petitioner is a Partnership Firm engaged in the business of trading and exports of marble. It is a regular income tax assessee. The petitioner filed e- return for the Assessment Year 2009-10 on 28.09.2009 declaring total income of Rs.79,99,670/-. Such return was taken up for scrutiny under Section 143(2) of the Income Tax Act, 1961 and a notice was issued on 18.08.2010. After scrutiny of all the facts material, documents and books of accounts produced by the petitioner, assessment order dated 30.11.2011 was passed under Section 143(3) of the Income Tax Act for the Assessment Year 2009-10. In the said assessment proceedings, the Assessment Officer called upon the petitioner to furnish details of commission amount of Rs.58,04,455/- and the petitioner has produced all the material in proof of commission. The Assessment Officer after satisfying the information furnished with regard to payment of commission accepted the deduction on account of commission paid for services obtained from the non-resident outside the India.
3) A notice under Section 148 of the Income Tax Act dated 17.09.2013 was issued against the petitioner and the Department had initiated the re-assessment proceedings on account of escaped income for the Assessment Year 2009-10. According to the petitioner, such notice is ex facie illegal, arbitrary and without jurisdiction. The further grievance of the petitioner is that having received a notice under Section 148 of the Income Tax Act, the (Downloaded on 13/12/2024 at 11:31:56 PM) [2024:RJ-JD:50724-DB] (3 of 12) [CW-9783/2014] petitioner made an application to furnish the reasons assigned preceded to the issuance of notice and there was no valid reasons recorded for the same. It is also the grievance of the petitioner that the sanction for proceedings under Section 148 of Income Tax Act for re-assessment was granted without speaking order supported by reasons.
4) In response to the notice, the petitioner submitted preliminary objections dated 24.10.2014. The objections raised by the petitioner have not properly been considered and resultantly, the impugned order dated 21.11.2014 was passed rejecting the preliminary objections.
5) The stand of the Department shows that for the Assessment Year 2009-10, there was an escapement of taxable income. As such, as per Section 195 read with Section 40(a)(i) of the Income Tax Act, the commission paid by the petitioner to the non-resident to the tune of Rs.58,04,455/-, which has a tax effect of Rs.29,05,101/- was mistakenly not taken note of, when the original assessment proceedings were taken up for scrutiny. Such mistake was tried to be rectified by way of the impugned notice and re-assessment order. It is also pleaded that prior to notice issued, there were reasons justified for issuance of notice. The Sanctioning Authority also having satisfied with the reasons given for issuance of proposed notice, has granted sanction, which is not suffered from any illegality. It is also pleaded that the writ petition against show-cause notice is not maintainable.
6) In the above circumstance, the present writ petition has been filed by the petitioner with the prayers indicated herein- above.
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7) Heard the learned counsel for both the sides.
8) The learned counsel appearing for the petitioner has submitted that the impugned notice issued by the Assessing Authority is without jurisdiction. According to him, the return filed by the petitioner for the Assessment Year 2009-10 was taken up for scrutiny and information sought by the Assessing Authority with regard to commission paid to non-resident for the services rendered outside India, were furnished to the Assessing Officer. The Assessing Officer after scrutiny of the material facts, documents and books of accounts submitted by the petitioner, had allowed the deduction of such amount. The present impugned notice initiating the re-assessment proceedings is a colourable exercise of power of review and change of opinion, which is impermissible and such proceedings are not result of any fresh material found subsequently.
9) It is also the submission of learned counsel for the petitioner that the obligation to deduct income tax at source in terms of Section 195 of the Income Tax Act would arise when the amount, which is paid to non-resident for services rendered outside India, are chargeable under the Income Tax. If such an obligation is casted on the person who is paying such commission, if deduction has not been made, then the consequences contemplated under Section 40(a)(i) of the Income Tax Act would follow. The assessment Officer failed to make out any provision under which such commission paid to the non-resident is chargeable under the provisions of Income Tax Act. According to the learned counsel for the petitioner, this is a settled law that such a commission is not chargeable under the Income Tax Act. (Downloaded on 13/12/2024 at 11:31:56 PM) [2024:RJ-JD:50724-DB] (5 of 12) [CW-9783/2014] In support of his arguments, learned counsel for the petitioner has relied upon the judgments rendered by the Apex Court in the cases (i) Joint Commissioner of Income Tax. Vs. Cognizant Technology Solutions India (P) Ltd., reported in (2023) 6 SLPCTO 63, (ii) Assistant Commissioner of Income Tax Vs. Marico Ltd., reported in (2020) 16 Supreme Court Cases 354,
(iii) Commissioner of Income Tax, Delhi Vs. Kelvinator of India Ltd., reported in (2010) 2 Supreme Court Cases 723, (iv) Calcutta Discount Co. Ltd. Vs. Income Tax Officer, Companies District Calcutta, reported in (1961) 41 ITR 191 and the judgments rendered by this Court in the cases (i) Commissioner of Income Tax Vs. Modern Insulators Ltd., reported in (2014) 369 ITR 138 (Raj.), (ii) Smt. Kiran Kanwar Vs. Union of India, [D.B.Civil Special Appeal (Writ) No.246/2016, decided on 02.08.2016, (iii) Shiv Lal Soni Vs. Union of India, [D.B.Civil Writ Petition No.9217/2015], decided on 09.09.2024.
10) The learned counsel appearing for the Department tried to justified the impugned notice contending that the Assessment Officer while accepting the return filed by the petitioner, mistakenly and inadvertently had not considered the provisions of Section 195 and Section 40(a)(i) of Income Tax Act and other provisions of the Act, which obligate the petitioner to deduct tax at source under Section 195 of the Income Tax Act. Admittedly, the petitioner has not deducted any tax at source as required under Section 195. Thus, the consequences contemplated under Section 40(a)(i) of the Income Tax Act would follow. The petitioner is not entitled for deduction and such deduction is required to be (Downloaded on 13/12/2024 at 11:31:56 PM) [2024:RJ-JD:50724-DB] (6 of 12) [CW-9783/2014] rectified as same was result of mistake. The impugned notice is not result of any change of opinion or review of the findings, but the mistake which occurred in the regular assessment order was sought to be rectified. The further contention of the learned counsel for the Department is that income payable by way of commission to the foreigner for the services rendered outside the India is also chargeable under the Income Tax Act.
11) In support of his arguments, learned counsel appearing for the Department has relied upon the judgments rendered by the Apex Court in the cases of (i) Income Tax Officer, Jodhpur Vs. Purushottam Das Bangur, reported in AIR 1997 Supreme Court 1372, (ii) Union of India (UOI) & ors. Vs. Coastal Container Transporters Association & Ors., reported in 2019(10) SCJ 179, (iii) State of Punjab Vs. Shiv Enterprises, reported in (2023) 2 Centax (S.C.), (iv) Commissioner of Income Tax, Gujarat Vs. Vijaybhai N.Chandrani, reported in 2013 AIR SCW 4675, (v) Commissioner of Income Tax Vs. Chhabil Dass Agarwal, reported in [2013] 261 CTR 113 (SC) and the judgments of this Court rendered in the cases of (i), Asstt. Commissioner of Income Tax, Circle Chittorgarh Vs. Banswara Syntex Ltd., [D.B.Civil Special Appeal (Writ) No.260/2004, decided on 22.09.2004, (ii) M/s Laxmi Cement Vs. Asstt. Commissioner, Commercial Taxes Department, [D.B.Civil Writ Petition No.3529/1999], decided on 21.03.2024,
(iii) Makemytrip (India) Pvt. Ltd. Vs. State of Raj., reported in 2021(50) G.S.T.L. 167, (iv) Banswara Syntex Ltd. Vs. Union of India & Ors., reported in 2008(2) WLN 320 (Raj.). (Downloaded on 13/12/2024 at 11:31:56 PM) [2024:RJ-JD:50724-DB] (7 of 12) [CW-9783/2014]
12) We have considered the rival submissions of both the parties and perused the impugned notice as well as material available on record.
13) In the light of the rival submissions of both the parties, it is apt to refer to Sections 195, 40(a)(i) and Section 9(1)(i) Explanation (1)(a) of the Income Tax Act. Section 195 of the Income Tax Act, reads as follows:
"195. Other sums. (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC or section 194LD) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force:
xxx xxx xxx]"
From a reading of Section 195 of Income Tax Act, it is clear that any persons responsible for paying to non-resident any other sum chargeable under the provisions of the Act, such a person responsible requires to deduct income tax on such amount at source at the rates in force.
14) Section 40(a)(i) of the Income Tax Act reads as follows:
"40. Amounts not deductible. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",--
(a) in the case of any assessee--
(i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for (Downloaded on 13/12/2024 at 11:31:56 PM) [2024:RJ-JD:50724-DB] (8 of 12) [CW-9783/2014] technical services or other sum chargeable under this Act, which is payable, (A) outside India; or (B) in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-
section (1) of section 139:
xxx xxx xxx "
Section 40(a)(i) of the Income Tax Act prescribes consequences for non-deduction under Section 195 of the Income Tax Act. This means any sum chargeable under this Act, which is payable outside India or in India to non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII-B but not deducted or after deduction has not been paid, such amount shall not be deducted in computing the income chargeable under the head of Profit and Gains of business or profession.
15) Section 9(1)(i) Explanation (1)(a) reads as follows:
"Income deemed to accrue or arise in India.
9. (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.
[Explanation 1].--For the purposes of this clause--
(a) in the case of a business, [other than the business having business connection in India on account of significant economic presence], of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India;(Downloaded on 13/12/2024 at 11:31:56 PM)
[2024:RJ-JD:50724-DB] (9 of 12) [CW-9783/2014] xxx xxx xxx"
From a reading of Section 9(1)(i) Explanation (1)(a), it is clear that if the business activity of which all operations are not carried out in India, the income of business deemed under this Clause to accrue or arise in India shall be only such a part of Income as is reasonably attributable to the operations carried out in India. This means, if the part of the operations are carried out in India and any income derived therefrom shall be deemed to accrue or arise in India. This implies that when the business operations were done outside India, such income shall not be deemed to accrue or arise in India.
16) The interpretation of above provision fell for consideration before the Apex Court in the case of Commissioner of Income Tax, Vs. Toshoku Ltd., reported in [1980] 125 ITR 525 (SC), which reads as follows:-
"The second aspect of the same question is whether the commission amounts credited in the books of the statutory agent can be treated as incomes accrued, arisen, or deemed to have accrued or arisen in India to the non-resident assessees during the relevant year. This takes us to s.9 of the Act. It is urged that the commission amounts should be treated as incomes deemed to have accrued or arisen in India as they, according to the Department, had either accrued or arisen through and from the business connection in India that existed between the non-resident assessees and the statutory agent. This contention overlooks the effect of cl. (a) of the Explanation to cl. (i) of sub-s. (1) of s. 9 of the Act which provides that in the case of a business of which all the operations are not carried out in India, the income of the business deemed under that clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. If all such operations are carried out in India, the entire income accruing therefrom shall be deemed to have accrued in India. If, however, all the operations are not carried out in the taxable territories, the profits and gains of business deemed to accrue in India through and from business connection in India shall (Downloaded on 13/12/2024 at 11:31:56 PM) [2024:RJ-JD:50724-DB] (10 of 12) [CW-9783/2014] be only such profits and gains as are reasonably attributable to that part of the operations carried out in the taxable territories. If no operations of business are carried out in the taxable territories, it follows that the income accruing or arising abroad through or from any business connection in India cannot be deemed to accrue or arise in India."
17) This means the commission if any paid for the services rendered by a person outside India is not chargeable under the Income Tax Act. Admittedly, in the present case as accepted by the regular Assessment Officer, the commissions paid by the petitioner were for the services rendered outside India. This factual position is also not denied by the Assessment Officer even in the present proceedings and in fact, show-cause notice was not issued on the ground that such commission was wrongly paid and such services were not outside India. Thus, the provision of Section 195 of the Income Tax Act would not apply and therefore, we are of the opinion that the present proceedings are without any jurisdiction. In the circumstances, the other judgments relied upon by the learned counsel for the parties are not required to be dealt with.
18) The contention of the learned counsel appearing of the respondent that the writ petition is not maintainable against the show-cause notice has no merit to stand. The reason is that there is no law that there is an absolute prohibition with regard to maintainability of writ against a show-cause notice. There are exceptions, under which a writ petition can also be entertained. The present petition is falling under the said exception. Therefore, such contention is rejected.
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19) Dealing with the other contention, the original assessment proceedings were result of the return being taken up for scrutiny. During the process of scrutiny, the petitioner submitted all the books of accounts, payment details to the Assessment Officer and the Assessment Officer having considered the details of the payment found that the deduction with regard to amount paid by way of commission to the services rendered outside India, were not chargeable and consequently, the returns were accepted. It is needless to say that the settled law is re-assessment proceedings is impermissible by way of review or by way of change of opinion. However, it is permissible to re-assess the income, if previous proceedings were result of mistake. Rectification of proceedings on ground of mistake cannot be said to be a change of opinion or an exercise of power of review. Mistakes can be rectified at any stage.
20) In the present impugned proceedings, allowance of deduction for the commission paid to the services rendered outside India to the non-resident cannot be said to be an act of mistake and in fact, it was result of adjudication and decision making. Therefore, the contention of the Department that they sought to invoke the proceedings to rectify the mistake, has no merit. On the above two grounds, the impugned notice and rejection of preliminary objections are liable to be set aside; and any consequential proceedings taken up is also liable to be quashed.
21) In the result, the writ petition is allowed. The impugned show-cause notice dated 17.09.2013 and the order of rejection of Preliminary Objections dt. 21.11.2014 are hereby quashed. (Downloaded on 13/12/2024 at 11:31:56 PM)
[2024:RJ-JD:50724-DB] (12 of 12) [CW-9783/2014] Consequently, the continuation of re-assessment proceedings is also quashed.
22) In the circumstances, no costs.
23) Pending interlocutory applications, if any, shall stand
disposed of.
(MUNNURI LAXMAN),J (DR. PUSHPENDRA SINGH BHATI),J
NK/
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