TaxTMI 
TaxTMI 
2022 (2) TMI 1203
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..../Ahd/2015 and ITA No. 2037/Ahd/2016 dated 23.08.2019 for assessment year 2012-13 and 2013-14 respectively. Copy of the said order was placed before us. Having noted the same, we shall now proceed to adjudicate the issues raised by the Revenue before us. Ground No. 1 reads as under: 1. The Ld. CIT(A) has erred in law and on facts in restricting the disallowance 80IC to Rs. 49,110/- without properly appreciating the facts of the case and the material brought on record. 3. As emanates from the order of the authorities below, the grievance of the revenue in this ground relates to the allowance of claim of deduction u/s. 80IC by the Ld. CIT(A) on incomes pertaining to Interest on Electricity Deposit, Recovery from Transporters and Sundry Balances of Vendors written off, which had been denied by the Assessing Officer (A.O.) holding that they were not in the nature of incomes derived from the business of the assessee for the purposes of being eligible to claim deduction of profits thereon. The quantum in relation to the said incomes is as under: (a) Interest on Electricity Deposit Rs. 16,18,184/- (b) Recovery from Transporters Rs. 11,37,585/- (c) Sun....
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....It is here to be mentioned that the AO has not granted the deduction on the aforesaid amounts by saying that none of the above income can be held to be generated from the manufacturing activities of the undertaking, and therefore, the nature of above incomes cannot be held as income derived from manufacturing activities. Thus, he held the same as non - eligible incomes for deduction under the provisions of section 80IC of the I. T. Act, 1961. 2.5. On the other side, the appellant submitted that all the aforesaid incomes have been derived directly or indirectly from the business of manufacturing as stipulated under the provisions of section 80IC of the I. T. Act, 1961. The appellant further claimed that as per the various decisions and judgements the income pertaining to the interest on electricity deposit, recovery from transporters and sundry balances of suppliers return back was held to be the income derived indirectly from the business / manufacturing activities of the appellant, and therefore, the same is eligible for the deduction u/s. 80IC of the I. T. Act, 1961. 2.6. It is seen from the facts of the case, that identical issue has been decided by this office....
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....e requirement of investment in the NSCs. There was no reason to make the investment in the NSC for the purpose of the eligible business and thus the interest derived there-from cannot form part of the eligible profits for deduction. Further, with regard to interest on staff loan also, which was one kind of income on the funds lent to the staff members. Thus, this income is neither directly or indirectly linked with the business activities of the appellant. Even the appellant has not provided any details and documents in support stating that the loans were given to the employees who were engaged in the eligible business for which income was deductible u/s. 80IC of the I. T. Act. Thus, In view of the aforesaid discussion, the AOs action for not granting the deduction on the interest on NSC and Interest on staff loan is confirmed and no deduction u/s. 80IC fs granted upon the same. 2.7. Further, with regard to the claim of deduction on interest on electricity deposits, it was found that it was mandatory on the part of the appellant to make the deposits as per the rules of the Electricity Board and without making such deposit, the electric connection was not available and in a....
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....ntitled to claim deduction under s. 80HH on the amount of interest earned by it on the fixed deposits." 2.8. Further, with regard to the recoveries from transporters, it is found that it was the recovery on account of loss of material in transit i.e. in the nature of recovery of goods. Thus, it is a direct income relating to the eligible business of the appellant for the reason that the shortage derived on account of loss of material was the trading loss /business loss and the recoveries made from the transporters against such loss is the reimbursement towards such losses. Thus, the recoveries being in the nature of business income are eligible for deduction u/s. 80IC of the I. T. Act. 2.9. Further, with regard to sundry balances written off in respect of the Kasar / Discount received from supplier / supplier parties is also having a direct connection with the purchases made by the appellant and to this extent the purchases would be reduced and accordingly the eligible profits would consequently be increased. Thus, it has the direct nexus with the eligible profits. In this regard, reliance is placed on the decision of Hon'ble Bangalore ITAT in the case of Wipr....
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....s. 3,834/-, the same is also not found derived from the manufacturing activities and hence the appellant is not entitled for the deduction u/s. 80IC of the I. T. Act, 1961. Thus, the disallowance of deduction by the AO is confirmed. 2.8. With regard to the other incomes such as interest on electricity deposit, penalties and fines recovered from transporters and sundry balances of vendors written back, the appellant is eligible for deduction u/s. 80IC of the I. T. Act, following the decision of the CIT(A) in the immediately preceding year and accordingly, the disallowance made by the AO on these incomes is deleted. The ground of appeal for this year is accordingly partly allowed." 2.6. On going through the above, it has been noticed that the deduction of the income on account of interest on NSC and interest on staff loan amounting to Rs. 15,9567- and Rs. 1,47,7457- respectively is not allowed for the reasons discussed in the aforesaid appellate order as the same cannot be said to be direct or indirect income from the business activities being derived out of manufacturing activities. Thus, the aforesaid two incomes are not eligible for deduction u/s. 80IC o....
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....an undertaking or an enterprise from any business referred to in sub-section (2) of section 80IC of the Act; sub-section (2) further contemplates that this section applies to an undertaking or enterprise which has begun or begins to manufacture or produce any article or things. There is no dispute that the assessee has begun to manufacture any article or thing. The question whether the alleged income sub-divided by the AO has nexus with the manufacturing activity or not. As far as interest income on fixed deposits made with electricity department is concerned, it has direct nexus with the manufacturing activity. Unless an electricity connection is there, no manufacturing activity would commence and for taking electricity connection, it is mandatory to give deposits. Similarly, the assessee had made recoveries from transporters on account of loss of material on transit. Therefore, it has a direct nexus with the manufacturing process. The goods manufactured or raw-materials purchased by it were lost in transit, which were compensated by the transporter. It has a direct nexus. Similarly, if the assessee get certain discount from the supplier, then it would reduce the purchase price of....
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....ents were identical to that in Assessment Year 2013-14 while in rest of the cases evidences had been filed by the assessee to show that the income did not accrue or arise in India nor any payment was made to them in India, accordingly, he deleted the disallowance made by the A.O. The relevant findings of the Ld. CIT(A) at para 4.3 4.5 & 4.6 is as under: 4.3. I have carefully considered the facts of the case, assessment order and submission of the appellant. The A.O. has disallowed the commission paid to foreign agents amounting to Rs. 4,55,58, 659/- 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(2)(b) read with section 9(1)(i) of Income Tax Act. 4.4 It is seen from the facts of the case, that identical issue has been decided by this office in appellant's own case for A.Y. 2013-14 vide Appellate Order in Appeal No. CIT(A)- 2/316/DC. Cir. 2(1)(1)/2015-16 dated 20.05.2016. The relevant findings given in the order are reproduced hereunder:- ........................ 4.5. In view of the above facts of the case, wr....
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....ng and trading of agro processing, maize processing, cotton spinning as well as generating powers through windmills. On verification of TDS details, and CA certificate for foreign remittances it revealed to the AO that the assessee has debited foreign commission expenditure of Rs. 1,56,17,547/-. He directed the assessee to explain as to why this commission be not disallowed. In response to the query of the AO, the assessee filed a detailed written submissions which was identically submitted before the ld.CIT(A), and we will be going to take note of the submission in the subsequent part. The AO has gone through the submissions of the assessee and rejected the same for two reasons. In the first fold of reasoning, he observed that the assessee has not provided the identity and the evidence of services rendered by foreign commission agent for which the commission was paid. In this regard, he observed that no copy of agreement or documentary evidence in support of commission payment etc. was given by the assessee. In the second fold of reasoning, he observed that the assessee failed to deduct TDS on this amount, and therefore, it is not entitled for deduction under section 40(a)(ia) of ....
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....ents are providing export orders to us by searching / inquiring export import from their countries. These overseas brokers / commission agents also provides services for negotiating the rates, freight, conditions for payments, opening LCs of importers in foreign countries and informing us, take care of deliveries of goods to the importers and follow up for final payments, etc. 4. As called for by your goodself detailed chart containing name & address of broker, name & country of buyer to whom export was made, item exported, billed quantity, export value in USD and realization in INR with brokerage in USD and brokerage in INR amounting to Rs. 156,17,547/- furnished Exb-1. 5. Along with above chart, broker wise payment evidences along with bank payment details, company payment advice, Form no. 15CA and 15CB, debit note from overseas broker / commission agent, invoice for export by company with commission contract and export contract furnished as evidences for justification of commission to overseas brokers / commission agents and genuineness of the payments through banking channel and certificates for non-deduction of tax as the same is not applicable (Form no. 15CB....
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....es. They work on behalf of many parties and on so many products / commodities independently. 3. As per provisions of section 5(2) of the IT Act, the total income of a person who is a non-resident is taxable in India, if it is received or is deemed to be received in India on behalf of such person or accrues or arises or is deemed to accrue or arise to him in India. In analogy, we submit that the commission payment to overseas brokers / commission agents is not falling either of the two conditions of section 5(2): (i) The payments are made to overseas brokers / commission agents in their countries through banking channel i.e. the payment is received by them in foreign country. (ii) The commission accrues / arises in foreign countries as the commission is payable only when the Indian company receives payment of export sales. Such realization of export proceeds are released by foreign importer and at this juncture the activity of overseas brokers / commission agents come to an end, as the export payment is made by foreign bank from foreign country and at the same time the commission accrue or arise in foreign country to the overseas brokers / commission agent....
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....provisions of section 195 of the IT Act. 5. In view of the above, it is submitted that the commission agent did not carry on any activity in India In the absence of any activity being carried in India by a non-resident commission agent, the commission does not accrue or arise in India. Therefore, such payments are not taxable in India. Accordingly, such payments do not require any deduction of tax or tax withholding. However, the company has taken certificate in Form no 15CB from Chartered Accountants, which also states that no TDS is require on payment of commission to the non¬resident commission agents. 6. It is further submitted that as per Double Taxation Avoidance Agreement (DTAA) with the countries where the non-resident commission agents resides, in Article 7: Business income, states that the income from business is liable to be taxed in the country where the person is having permanent establishment. None of the non-resident commission agents are having any PE in India, complete addresses of such non-resident commission agents are provided in letter dated 18-02-2015. In view of the above facts of the case and legal submission examining....
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....able in India, as they arc providing services from their countries and the payment is also received to them in their country. Thus, the commission is neither received / deemed to be received in India on behalf of such person nor accrues or arises / deemed to accrue or arise in India. Similarly, commission payment to overseas brokers / commission agents cannot be said as income deemed to accrue or arise in India in the light of above Explanations to the provisions of section 9(1 )(i) of the Act. (vi) The commission payment to overseas brokers /commission agents does not accrue or arise or deemed to accrue or arise in India as they had rendered services outside India and commission was also paid to them outside India. Thus, the assessee company was no whereunder obligation to deduct tax from such commission payments to overseas brokers A commission agents as per provisions of section 195 of the IT Act. (vii) As per Double Taxation Avoidance Agreement (DTAA) with the countries where the non-resident commission agents resides, in Article 7: Business income, states that the income from business is liable to be taxed in the country where the person is having permanent e....
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....has been carefully considered but the same is not found acceptable. The assessee has not' provided the identity and "the evidences of services rendered by the foreign commission agent for which commission was paid by the assessee. No copy of agreement or documentary evidences in support of commission payment etc. was given by the assessee which could justify the reasonableness of the commission payment to the nonresident as well as the genuineness of expenditure incurred for the purpo.se of business. Therefore, in absence of copy of agreement with the foreign commission agent, identity of commission agent and evidences pertaining to services rendered by the foreign commission agent having nexus with the business of the assessee, the payment of foreign commission expenses is not found genuine. The appellant company has furnished following evidences in connection to commission payments to non-residents: ' ; \ 1 \ (i) Copies of Contract with commission agent and contract with exporter. (ii) Copies of invoices / debit notes j raised by commission agent. | (iii) Copies of Form no. 15CA & Form no. 15CB for payment in foreign currency. (iv) Bank payment swift copy. ....
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....here the person is having permanent establishment. None of the non-resident commission agents are having any PE in India, complete addresses of such nonresident commission agents are provided in above details. 7.8 Thus, the assessee Company has also failed to comply with the provisions of section 195(2) of the Income Tax Act 1961 while deciding the issue of applicability or otherwise of withholding tax u/s 195 of the Income fax Act 1961. Having failed to make an application before the Assessing Officer as prescribed u/s 195(2) of the Act, to determine the chargeability and TDS liability, the assessee acted unilaterally by not deducting tax at source u/s 195 of the Act. The provisions of Act also give authorization to Chartered Accountants to issue Certificates in Form No. 15CB for payment in foreign currency, the appellant company complied with the same. As the foreign commission is not taxable in India, the appellant company instead of approaching to the AO, approached to the Chartered Accountant to issue Certificate, which comply the provisions. 7.9 It is clear that the assessee was under obligation to deduct tax at source as envisaged u/s 195 of the Act from th....
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....e disallowance in both the years. 16. With the assistance of the ld.representatives, we have gone through the record carefully. A perusal of the assessment order would indicate that the ld.AO has disallowed the claim of commission expenses on two counts viz. (a) the assessee failed o submit basic details i.e. identity of the agents, copies of invoices and the contract agreement with the commission agents etc., (b) it failed to deduct TDS under section 195 of the Income Tax Act. As far as first fold of reasoning is concerned, a perusal of the assessee's submissions which has been accepted by the ld.CIT(A) it is evident that this finding of the AO is factually incorrect. The submissions made in tabular form and extracted by us on page no.15 of this order would indicate that the assessee has demonstrated that all these details have specifically been filed. The assessee has filed certificate of the chartered accountant obtained in form No.15CA and 15CB with regard to foreign remittance. It has filed copies of contracts with the commission agent and contract with exporter. Thus, it has given all basic details demonstrating the fact as to how these agents have facilitated in mak....
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....f clients and financial information on clients, to provide advanced information about the tenders, gathering technical specifications of project and work incidental thereto, and to identify sub-contractors and logistic service provider, such as shippers and cargo handling agencies, to ensure the smooth execution of contracts. * During relevant year, the assessee made payment of export commission to commission agents without deducting tax at source. The assessee claimed that the export commission was not a service and if at all they are being construed as services, the same was being rendered outside India and was not taxable in India under section 5(2). Accordingly, the tax was not required to be withheld under section 195. * The Assessing Officer held that the responsibilities of agents showed that agents were required to render technical services, allow the use of information containing industrial, commercial and technical experience which was made available to the assessee, and that the consideration received for these services was nothing but fees for technical services. These payments according to the Assessing Officer were taxable under section 9(1)(vii). Th....
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....the counts, the ld.CIT(A) has allowed deduction of the above expenditure to the assessee in both these assessment years. On due consideration of the detailed finding, we do not find any merit in the grounds of appeal raised by the Revenue. Accordingly, ground no.2 is rejected in both the assessment years. 13. Further Ld. Counsel for the assessee pointed out from page 42 of the Ld.CIT(A) 's order that an analysis of commission paid to non residents for the impugned year and preceding years was filed which clearly brought out the new commission agents from point No.11-20 as under: SN. Broker Name, Address, City 2013-14 2012-13 2011-12 2010-11 USS INR USS INR USS INR US! INR 11 SHAHID TEXTILES LTD Room 2207-2208, 22/F, Phase 2 Metro Cenlre, 21 Lam Hlng SIreet Kowloon Bay, Kowllon HONG KONG 6682.03 383160 0 0 0 0 0 0 12 SINO-PAK TEXTILE #115,F-1236. Tawalla, Bansanwala Chuna Mandi LAHORE, PAKISTAN 3977.12 217250 0 0 0 0 0 0 13 KEYWIN TRADING LTD Room 702. Times International fluid. No. 167 Dong Feng West Road, Guang Zhou, CHINA 4557.42 267978 0 0 0 0 0 ....