TaxTMI 
TaxTMI 
2018 (10) TMI 1714
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....ia. Further that, the confirmation of addition of Rs. 67,83,650/- towards suppression of sales in transit was also been challenged in the instant case by the assessee. 3. Ground No.1 : The assessee has filed its return of income on 27.11.2012 declaring total income of Rs. 43,80,17,520/-. Upon scrutiny, notice u/s.143(2) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") was issued on 08.08.2013 followed by notice u/s.142(1) of the Act dated 21.08.2014 followed by notice u/s.143(2) r.w.s. 129 of the Act dated 21.08.2015 and 22.12.2015 due to change of incumbent. It appears from the record that the assessee-company during the AY 2012-13 had entered into several international transactions with its associated enterprises. The Assessing Officer (AO) noticed that the assessee-company had paid total commission of Rs. 1,04,41,126/- out of which no TDS was deducted on the commission of Rs. 80,68,921/- paid to non-resident. Since in the previous assessment year, the AO had disallowed the payment of foreign commission u/s.40(a)(ia) of the Act, on that premise the assessee was asked to furnish explanation as to why similar additions/disallowances should not be made. The asse....
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....ion payments. It has been noticed that the appellant has made the commission payment to various commission agents of which details are noted as under:- Sl. No. Agent's name and address Commission US $ Commission Amount Rs. 1 AI Sanabeek Trading Corporation P.O.Box 10474, Jeddah-21433, Saudi Arabia C.R. 4030086374 $ 7500 341,250 2 AI Sanabeak Trading Corporation P.O. Box 10474, Jeddah -21433, Saudi Arabia C.R.4030086374 $20,000 1,001,000 3 AI Sanabeak Trading Corporation P.O. Box 10474, Jeddah -21433, Saudi Arabia C.R.4030086374 $5,885 294,544 4 AI Sanabeak Trading Corporation P.O. Box 10474, Jeddah -21433, Saudi Arabia C.R.4030086374 $8,335 417,617 5 AI Sanabeak Trading Corporation P.O. Box 10474, Jeddah -21433, Saudi Arabia C.R.4030086374 $4,000 200,200 6 AI Sanabeek Trading Corporation P.O. Box 10474, Jeddah-21433, Saudi Arabia C.R. 4030086374 $5,000 272,200 7 AI Sanabeak Trading Corporation P.O. Box 10474, Jeddah -21433, Saudi Arabia C.R.4030086374 $17,850 971,754 8 AI Sanabeak Trading Corporation ....
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....ervices have been rendered outside India. The provisions of section 195 were not applicable in the case of the appellant. On careful examination of the relevant facts, it is noted that the similar issue has been decided by me in the case of the appellant while deciding the appeal for A.Y 2009 - 10 vide Appeal No.CIT(A)- VIII/JC1T/R.4/141/12-13 order dated 31/12/2013, The facts of the present case are also identical to the earlier year. The commission has been paid to non-resident agents who have rendered the services abroad, the agents does not have any PE or any other establishment in India. For the sake of clarity the decision given by me in that appeal is reproduced as under: - "I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has disallowed the commission paid to foreign agents by holding that the income arising on account of commission payable to overseas agents was deemed to accrue or arise in India and was accordingly taxable under the Provisions of section 5 (2J(bj read with section 9 (1)(i) of Income Tax Act. It has further been observed by the AO that the appellant company had fai....
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....nt has rightly relied on the judgement of honourable Supreme Court in the case of Toshoku (supra) wherein it has been held that commission earned by the non-resident for acting as the selling agent for the Indian exporter, wherein such non-resident was rendering services from outside India does not accrue in India. In the present case before me also, the foreign selling commission agent is resident of foreign country, from where the procurement service has been provided for which the commission has been paid, and therefore, the issue is directly and squarely covered by the Apex Court decision. Regarding the observation of the AO that the income is deemed to accrue or arise in India by applying the provisions of section 9 (1)(i) it is seen that there is no fact on record to indicate that any of the agents had any permanent establishment in India. All the agents had their offices on the foreign soil and the correspondence which has been placed before me indicate that they had no PE in India. Further the assessing officer has also not pointed out any such fact in its order which indicate that there were any such offices which attract the deeming provisions. Further the observ....
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....er under section 195(2) for deduction of tax at a lower or nit rate of tax under a bona fide belief that no part of the payment made to the non-resident is chargeable to tax, then he is not under any statutory obligation to deduct tax at source on any part of thereof. While deciding the case the honourable bench has considered several cases which were relevant to the issue. In the present case the appellant did not deduct the tax or approached the AO for low/no deduction of tax certificate as there are several judicial pronouncements in support of the appellant which have been relied by it in the written submission. It has submitted that the commission paid to non-resident agent was not liable to tax under* the provisions of the Act when the services were rendered outside India, services were used outside India, payments were made outside India and there was no permanent establishment or business connection in India. The submission given by the appellant dearly demonstrates its bona fide belief. Therefore, considering the above discussion there was no liability on the part of the appellant to deduct tax under section 195 or approach the IT. Authorities for a no deduction t....
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....76 as discussed above. Reliance is also placed on the recent decision of Hyderabad ITAT in the case of IVAX Paper Chemicals Ltd 44 taxmann.com 173(2014) wherein similar issue has been decided in the manner indicated above. The ground of appeal is accordingly, partly allowed." 3.4. In view of the aforesaid discussion, the disallowance of commission payment to the aforesaid foreign agents at SI. No. 1 to 8 and 10, 11, 12 & 14 of the above table is found not correct and hence the same is deleted following the decision of CIT(A) in appellant's own case for A.Yrs. 2011-12, 2010-11 and 2009-10-subject to the following observations. It is worth here to mention that although there are no details available on record with regard to the foreign commission payments in respect of sales made by the agents noted at SI. No. 1 to 8 and 10, 11, 12 & 14 of the above table in India during the year under consideration of which commission income has been accrued in India, therefore, on such commission payments the assessee was liable to make the IDS and in absence of such non-deduction of IDS such commission payments are liable for disallowance. The AO is directed to verif....
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....low. 5. We have heard the respective parties and perused the materials on record. The judgment passed by the Ld. Tribunal following the decisions in respect of AY 2009-10 in assessee's own case observed as follows: "6. We have heard both the sides and perused the material on record carefully. We have noticed that the identical issue has been decided in the case of the assessee by the coordinate bench of the ITAT for the assessment year 2009- 10 in favour of the assessee. The relevant part of the decision is reproduced as under:- "22. We have duly considered rival contentions and gone through the record carefully. As far as genuineness of the transactions is concerned, the AO has not raised any dispute. The details of commission payments were produced before the AO. He compiled all these details in Annexure-A attached with the assessment order. The dispute between the parties relates to whether the TDS was to be deducted on commission payment or not. The AO was of the view that income arisen on account of commission payable to overseas agents was deemed to accrue or arise in India, and is accordingly taxable under section 5(2)(b) r.w.s 9(1)(i) of the Income Tax ....
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....d that the following statutory provisions are relevant in this context: Section 9- Incomes deemed to accrue or arise in India (1) The following incomes will 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, Explanation: For the purpose of this clause [i.e. 9(1)(i)], (a) in the case of a business 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; (b) (c) (d).....* (vii) income by way of fees for technical services payable by- (a) ..............* (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) ......
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....n the territory allotted to him, but the right to receive the commission arises in India only when exhibitor participates in the India International Food & Wine Show (to be held in India), and makes full and final payment to the applicant in India" and that "the commission income would, therefore, be taxable under section 5(2)(b) read with section 9(1)(i) of the Act". The Authority for Advance Ruling also held that "the fact that the agent renders services abroad in the form of pursuing and soliciting participants and that the commission is remitted to him abroad are wholly irrelevant for the purpose of determining situs of his income". We do not consider this approach to be correct. When no operations of the business of commission agent is carried on in India, the Explanation 1 to Section 9(1)(i) takes the entire commission income from outside the ambit of deeming fiction under section 9(1)(i), and, in effect, outside the ambit of income 'deemed to accrue or arise in India' for the purpose of Section 5(2)(b). The point of time when commission agent's right to receive the commission fructifies is irrelevant to decide the scope of Explanation 1 to Section 9(1)(i), which is what is m....
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....visions of the Income Tax Act as also the relevant tax treaty provisions. 8. Learned Departmental Representative nevertheless relies upon the stand of the Assessing Officer. For the detailed reasons set out above in these extracts from Welspun order (supra), his argument cannot be accepted. In any event, we see no reasons to take any other view of the matter than the view so taken by us above. Respectfully following the same, we uphold the relief granted by the CIT(A) and decline to interfere in the matter. 9. Ground no. 1 in revenue's appeal is thus dismissed." Respectfully following the decision of coordinate bench, we allow the appeal of the assessee and appeal of the revenue is dismissed." 5.1. We therefore do not hesitate to observe that the assessee is not liable to deduct tax on the commission paid to the non-resident. However, it appears that no details and evidences have been provided before the authorities below by the assessee in respect of payment mentioned in Sl.No.9, 13, 15 & 16 in order to establish that the said agents have not provided services in India or they have no business connection or permanent establishment in India. We, theref....
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....onsideration according to the observation made by the Ld. AO which was thus added to the total income of the assessee. The Learned CIT(A) in appeal confirmed the same on the basis of the order passed by his predecessor. Hence, the appeal preferred by the assessee before us. 9. At the time of hearing of the instant appeal the Ld. Representative of the assessee duly submitted before us that the said issue has already been dealt with and decided in favour of the assessee by the Coordinate Bench in ITA No. 2451/A/2015 for AY 2011-12 in assessee's own case. On the other hand, the Ld. Representative of the Revenue relied upon the orders passed by the authorities below. 10. We have heard the learned counsel appearing for the parties, perused the relevant materials available on record. We have also gone through the order passed by the coordinate bench following the order passed by the Ld. ITAT in assessee's own case for the AY 2004-05 to AY 2010-11 as relied upon by the Ld.Representative of the assessee the relevant portion whereof is as follows: "8. We have heard both the sides and perused the material on record carefully. We have noticed that the identical issue has be....
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....considered that sale was executed under FOB as per which the risk was transferred from the seller to the buyer when the goods put on ship or rail. In view of above, we are not inclined with the decision of the Ld. CIT(A) and we are of the view that when the sale was executed under FOB, CIF terms as per which the risk was transferred from the seller to the buyer when the goods put on ship or rail. Therefore, the appeal of the assessee is allowed on this issue." Respectfully following the decision of the coordinate bench of the ITAT as supra, the appeal of the assessee is allowed. Accordingly, the appeal of the assessee is allowed." 11. We find that the issue is entirely covered by the judgment as cited herein before and respectfully following the same delete the addition to the tune of Rs. 67,83,650/- made by the authorities below. In the result, the grounds of appeal filed by the assessee is allowed. 12. Ground Ns.3 & 4 are general in nature and do not require any adjudication. 13. In the result, Assessee's appeal in ITA No.462/Ahd/2017 for AY 202-13 is allowed. ITA No. 584/Ahd/2017 for Assessment Year 2012-13 14. Ground No.1: The revenue has come up in appe....
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....as been handed over to us by the Ld. Counsel appearing for the assessee. The Ld. Representative of the department, however, relied on the order passed by the Ld. Assessing Officer. 19. We have perused the said order, relevant portion whereof is as follows: "11. The brief fact to the issue under appeal is that on scrutiny the assessing officer has noticed that assessee has entered into services provided and non-competition agreement on 28th August, 2010. As per agreement a non-compete fees of Rs. 10.96 crore was payable to M.N. Patel. The assessee has claimed depreciation of this non-compete fees by treating the same as intangible assets. The assessing officer was of the view that claim of depreciation on non-compete fees is not justified because the payment of non-compete fees did not merely facilitate conduct of business as it would be a capital expenditure by merely because of capital expenditure it would not be necessary that it is eligible for depreciation. The assessing officer has further stated that as per provision of section 32(1)(ii) depreciation can be claimed in respect of know-how, patents, copy right trade-marks, license, franchise or any other business, c....
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....to be allowable the entire non-compete fee should be allowed as deduction under section 37(1) of the Act. On a careful consideration of entire facts of the case, it is noted that the salient features of the agreement between the appellant and Shri Patel, to whom non-compete fee has been paid are as under: - a. He shall not, directly or indirectly seek or accept employment or other work, in any capacity (including, without limitation, as agent), with any person, entity or business similar to, or which directly or indirectly is competitive with FMIL's existing business within India, Africa or the Middle East, (the "Restricted Territory"). b. He shall not conspire, plan or otherwise agree with any person, entity or business to organize or develop any business or entity that directly or indirectly is competitive with or engages in business similar to, the FMIL's existing business within the restricted territory. c. He shall not directly or indirectly own, manage, operate, control be employed by, or participate in the ownership, management, operation or control of any person, entity or business similar to, or which directly or indirectly is co....
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....m. A perusal of various judgments show that non-compete fee is a capital asset and same can be considered as an intangible asset and depreciation can be allowed on the same. In some cases, it has even been held that it was a revenue expenditure. The perusal of various judgments relied by the appellant clearly show that the rights which has been acquired by the appellant by restricting Shri Patel, directly or indirectly, participating in a business which are similar to that of appellant, from directly or indirectly soliciting or influencing clients, the customers and other similar activity which can create competition for the appellant in the business. The fee had been paid by the appellant to carry on the business without competition and indirectly confer a right to carry on business smoothly. This right is capital in nature and would also fall within the ambit of section 32(1)(ii) of the Act and consequently depreciation would be allowable. It is to be noted that agreement is only for three years. The appellant has rightly placed reliance on the following judgements and the relevant extracts from those judgements are quoted as under: - 1. In case of CIT Vs Ingers....
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....ghts of similar nature" have been additionally used, clearly demonstrates that the Legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets, which were neither feasible nor possible to exhaustively enumerate. In the circumstances, the nature of "business or commercial rights" cannot be restricted to only the aforesaid six categories of assets, viz., know-how, patents, trade-marks, copyrights, licences &r franchises. The nature of "business or commercial rights" can be of the same genus in which all the aforesaid six assets fall. All the above fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of the business. In the circumstances, it is observed that in the case of the assessee, intangible assets, viz., business claims; business information; business records; contracts; employees; and know-how, are all assets, which are invaluable and result in carrying on the transmission and distribution business by the assessee, which was hitherto being carried out by the transferor, without any interruption. The aforesaid intangibl....
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....the business which is being acquired. The right is acquired for carrying on the business and therefore it is a business right." Therefore that right which the assesses acquires on payment of non-compete fee confers in him a commercial or a business right which is held to be similar in nature to know-how, patents, copyrights, trade marks, licences, franchises. Therefore the commercial right thus acquired by the assessee unambiguously falls in the category of an 'intangible asset'. Their right to carry on business without competition has an economic interest and money value. The term 'or any other business or commercial rights of similar nature' has to be interpreted in such a way that it would have some similarities as other assets mentioned in Cl.(b) of Expln.3. Here the doctrine of ejusdem generis would come into operation and therefore the non-compete fee vests a right in the assessee to carry on business without competition which in turn confers a commercial right to carry on business smoothly. When once the expenditure incurred for acquiring the said right is held to be capital in nature, consequently the depreciation provided under Sec.32(1)(ii) is attracted an....
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....ereby stock exchange card was held to be intangible asset. If a stock exchange card is construed as intangible asset, we are of the view that the right acquired by payment of non-compete fee is definitely intangible asset. Moreover, this right (asset) will evaporate over a period of time of five years in this case because after that the protection of non-competition will not be available to the Assessee. This means, this right is subject to wear and tear by the passage of time, in the sense, that after the lapse of a definite period of five years, this asset will not be available to the assessee and, therefore, this asset must be held to be subject to depreciation." 3. In case of ITO Vs Medicorp Technologies India Ltd. 122 TTJ 0394, Hon'ble Chennai ITAT has observed that "if the business/commercial right of a patent, copyright trade mark, I/cense, and franchise, fulfils the conditions of 'being intangible asset', then surely the impugned business/commercial right acquired by the assessee also fulfils that condition, by way of a logical corollary". The ITAJ has held that "the impugned 'non-compete right' acquired by the assessee-company, was eli....
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....ether non-compete agreement/arrangement would fall within the ambit of clause (ii) of Section 32(1) of the Act". It further observed that "Learned counsel for the assessee contended that the non-compete is in effect an indirect licence. However, we are not inclined to agree with the said submission since non compete, at best could be a commercial right because that right is relatable to the transfer of trade mark, copy rights and patents and further held that the earlier transfer of the trade mark, patents and other rights in favour of the assessee was undoubtedly the transfer of intangible assets, which in terms of section 32(1 )(ii) of the Act would be a capital asset entitled to depreciation. 7. In case of DCIT Vs Weizmann Forex Ltd. 51 SOT 0525, Hon'ble Mumjpai ITAT noted that - 'The Id DR has submitted that the entire consideration for acquiring the network also includes the payment for non-compete fee. However, the assessee has not shown any bifurcation of the consideration paid for non-compete fee to AFL" The ITAT further observed that "The Hon'ble Delhi High Court in the case of Hindustan Coca Cola Beverages (P.) Ltd. (supra) has held in para 2....
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...., we do not find any reason to interfere in the decision of the Ld. CIT(A). Accordingly, the appeal of the revenue is dismissed. 14. In the result, the grounds of appeal 1 to 3 of the assessee are allowed and ground of appeal 1 to 2 of the revenue are dismissed. The grounds of appeal no. 3 to 5 of the revenue are general which do not require any adjudication." 20. Having heard the learned counsel appearing for the parties, having regard to the facts and circumstances of the case and the judgments cited by the Ld. Counsel appearing for the assessee, we are of the considered opinion that the identical issue of assessee has already been settled by the Co-ordinate Bench in the said order. We, therefore, find no infirmity in the order passed by the Ld. CIT(A) and following the said order we confirm the same. In the result, Revenue's appeal on this ground stands dismissed. 21. Ground Nos. 3 5o 5 are general in nature and do not require any adjudication. ITA No. 463 /Ahd/2017 AY 2013-14 22. The assessee has challenged the order passed by the Ld. CIT(A) in confirming the disallowance to the extent of Rs. 1,31,40,243/- out of the commission paid to nonresident agents to....