TaxTMI 
TaxTMI 
TaxTMI 
2022 (2) TMI 1203
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....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) Sundry Balances of Vendors written off Rs. 22,28,062/- 4. As pointe....
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....rom 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 in appellant's own case for A. Y. 2012- 13 vide Appellate Order in Appeal No.CIT(A)-2/506/DC. Cir. 2(1)(1)/2014-15 dated 20/08/2015. The relevant findings given in the orde....
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....her, 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 absence of the same, the production was also impossible. Thus, this interest derived from such electricity deposit was indirectly connected with the eligible business profits, and therefore, the deduction u/s. 80IC is required to be granted rely....
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....s. 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 Wipro Information Technology Ltd. Vs. DCIT [2004] [88 TTJ 0778] which reads as under:- > Wipro Information Technology Ltd vs. Dv. CIT f2004) 88 TTJ 0778 (Bang-Trib): "34.4. We find from the facts of the case that total details in respect of miscellaneous income were furnished before the AO as well a....
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....ecovered 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 of the I. T. Act, 1961 and the disallowance of the deduction upon the same by the AO is confirmed. The disallowance @ 30% of the aforesaid income is confirmed. 2.7. 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 eligib....
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....ether 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 the material, which will enhance the profit, and therefore, deduction on such higher profit will be admissible. The ld.CIT(A) has rightly appreciated this aspect and granted the deduction to the assessee. We do not find any error in the order of the ld.CIT(A), and therefore, this ground of appeal is rejected in both the years. 6. On going through the above, it is abundantly ....
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.... 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, written submission filed by the appellant and the fact that identical issue has been decided by this officer in favour of appellant in appellant's own case for immediately preceding years i.e. A.Y. 2013-14 & 2012-13. 4.6. It has been noticed that although there were new commission agents in the year under consideration but in respect of such agents also the appellant has provided necessary details and documents to the A.O. a....
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....hich 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 the Act. Similar action was taken with regard to commission paid at Rs. 1,51,52,353/- in the Asstt.Year 2013-14. 12. Dissatisfied with the finding of the AO, the assessee carried the matter before the ld.CIT(A). It has filed detailed written submissions which has been reproduced by the CIT(A). For appreciating the facts and the stand of the assessee, we also deem it appropriate to take note of the submissions, which read as under: "6.2. Appellant's subm....
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.... 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) [Annexure 1 to 23]. In view of the above, it is submitted that the payments of commission to overseas brokers / commission agents is part of export of products and an important mediatory channel to book our export orders as well as to take care of realization of export proceeds. Thus, the commission to overseas brokers / commission agents is genuine and paid through banking channel on export orders procured and final realization of export proceeds. The same is expense for the purpose of business incurred by company in prudent way to increase export and....
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....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 agents, if the payment does not realize, there will be no commission at all payable to such non-resident commission agents. 4. As per provisions of section 9(1 )(i) of the IT Act. Income deemed to accrue or arise in India, 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 situated in India. Explanation - 1: Business of which all the operations are not carried out in India. It means: The overseas brokers / commission agents is not doing an....
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....r 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 the applicability of various provisions of the IT Act, it is submitted that the payments of commission to overseas -brokers / commission agents made overseas are not liable to TDS /tax withholding as per provisions of section 195 of the IT Act." 8.4 In this regard, in the appellate proceedings, the appellant company on the issue of commission payment on export sale to non-residents, submits following facts and explanations for your kind perusal: (i) The overseas brokers / commission agents are procuring export orders by searching / inquiring export - import from their countries. These overseas brokers / commission agents provide services for negotiating the rates, freight, c....
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....us, 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 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 above details. (viii) An analysis of commission to non-residents for the FY 2008-09, FY 2009-10, FY 2010-11 and FY 2011-12 furnished (Pg. no. 395 to 397), which shows that this is not a new payment, but paid from last so many years and allowed by IT Department in all past years. (ix) It is also submitted that in assessment proceedings, evidences with regard to identity and genuineness of non-residents commission agents: We have submitted most of evidences with regard to identity, services rendered by the foreign commission agent, payment evidences for foreign commission expe....
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....penses 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. (v) Copy of shipping bill for commission reference, etc. These documents are sufficient to prove genuineness of the commission payments and identity of commission agents. 7.6 Under section 9(1 )(i) of the Act, income accruing or arising directly or indirectly, through or from any business connection in India or source of income in India shall be deemed to accrue or arise in India. No doubt the agents must have rendered services abroad and have solicited orders there from, but the right to receive the commission arises in India when the order is executed by the assessee in India and therefore the income accrued i sourced in India. As per provisions of section 5(2) of the IT Act, commission income to non-residents is not taxable in India, as they are providing services from ....
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....t 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 the payments of commission made to nonresident agents towards the services rendered by them.*The assessee, however had failed to discharge the obligation. Therefore, the expendituretlaimed under the head Commission expenses paid.to nori residents is disallowed and added back to income u/s 40(a)(i) of Income Tax Act It was explained that neither services are rendered by nonresidents in India nor payments are made to nonresidents in India. Also the non-resident agents are not having any Permanent Establishment in India, therefore, the commission is not taxable under any provision of Income Tax Act, hence, no TDS was deducted from such commission payment to nonresidents for export sales. 8.6 In this regard, the appellant company on the issue of payment of commission to nonresidents, relies on following....
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....e 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 making sales outside India. 17. As far as second fold of reasoning is concerned, TDS under section 195 was required to be deducted if the income in hands of the alleged agents was taxable within India. The ld.CIT(A) has examined the issue elaborately and recorded the finding that these agents have no permanent establishment in India. They are not operating from India and alleged commission income received by them is not taxable in India. Thus, according to the CIT(A) on the strength of Hon'ble Supreme Court decision in the case of GE India Technology Centre P.Ltd. (supra) if the remittances do not contain element of income, then TDS was not required to be deducted. This aspect has been examined in host of decisions. Before us, the ld.counsel for the assessee put reliance upon the order of the ITAT in the case of DCIT Vs. Panchmahal Steel....
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....ow 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). Therefore, the assessee was liable for tax deduction at source from these payments under section 195. * On appeal, the Commissioner(Appeals) held that the payments could not be held to be FTS and they were in the nature of commission earned from services rendered outside India which did not have tax implications in India. 6. The Tribunal made elaborate discussion on all possible angles in this judgment, and thereafter concluded as under: "41. We are in considered agreement with the views so expressed by the coordinate bench. In view of these discussions, as also bearing in mind entirety of the case, we uphold well reasoning findings of the learned CIT(A) that the commission payments made to the non-resident agents did not have any taxability in India, even under the provisions of the domestic law i.e. Section 9. Once we come to the conclusion that the income embedded....
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....a, 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 0 14 BIDEWITEX TRADING L.L.C. All Bin Taleb Street, Dubai U.A.E 5657.60 360771 0 0 0 0 0 0 15 SHANGHAI JIUTIAN NDUSTRIAL CO.LTD Room 412, Building A, No. 4226 Ouzhuang, Minhang Area, Shanghai, CHINA 3778.51 234268 0 0 0 0 0 0 16 DEKA EXIM PTE LTD 04-04. KALLAN AVENUE 1 SINGAPORE 4295.48 266320 0 0 0 0 0 0 17 OPULENT INTERNATIONAL 38-Baber Block, New Garden Town, Lahore, PAKISTAN 2600.73 161245 0 0 0 0 0 0 18 SKYTEX TEXTILE CONNECTION 5-E. Architects Housing Society shore PAKISTAN 3535.44 219387 0 0 0 0 0 0 19 PARITAS TRADING CORPORATION Unit 605 Park Trader Center, 716 Investment Dirve Madrigal Business Park Ayala labag 1760Muntinlupa City HILIPPINES 5628.51 345695 0 0 8566,83 393507 0 0 20 XALTCO INTERNATIONAL 6NERAL TRADING LLC 0 No.22752, eira Tower Unit 215 uba! U.A.E 2224716.89 31797415 0 0 0 0 0 0 14. He further p....