2020 (9) TMI 1255 - HC - Income Tax

TDS u/s 195 - disallowance of BD commission - Tribunal remitting the issue of disallowance of BD commission without deciding whether the appellant was liable to deduct tax at source - Whether the appellant was not able to deduct tax source in respect of the BD commission paid by it considering the provisions of the Act and the DTAA between India and US particularly when the recipient did not have any permanent establishment in India? - HELD THAT - There can be no quarrel with regard to the aspect that the Tribunal is the final fact finding Authority. Nevertheless the jurisdiction of the Tribunal is confined to the lis before it and more particularly in the instant case it is the assessee s appeal and they cannot be worse off in their appeal and the Tribunal has no jurisdiction to direct the AO by virtually reopening the proceedings concluded under Section 201 of the Act pursuant to the order passed by the CIT(A) concerned. Tribunal ought to have referred to the said order and if in its opinion the order does not bind the Tribunal then adequate reasons ought to have been assigned by the Tribunal in that regard. We find that nothing was recorded by the Tribunal in the impugned order. Argument of Revenue of the impugned order will clearly show that the impugned order is an order of remand with a direction to the Assessing Officer to redo the matter and that no substantial question of law would arise in this appeal for the Court to interfere with the impugned order - We do not agree with the said submission since the legal position is that an order or a judgment has to be read in its entirety and cannot be read in a truncated fashion. Thus what flows from the observations and directions in paragraph 11 of the impugned order has to be read along with paragraph 13. In fact in paragraph 11 there are pointed observations to the Assessing Officer which appear to be wholly adverse to the assessee. Which we need to point out is that the Tribunal observed in paragraph 11 that the AO has to examine as to whether there was any concerted effort to shift profits by camouflaging it as commission on sales. This was never the case of the Revenue either before the AO or before the CIT(A) or for that matter before the Tribunal. The tenor of the observations gives a different impression to the transaction done by the assessee which in our considered view was not called for. In the light of the above discussions we hold that the Tribunal exceeded in its jurisdiction while remanding the matter to the AO which has the effect of reopening a concluded proceedings vide order dated 03.2.2014 passed by the concerned CIT(A). Accordingly the above tax case appeal is allowed and substantial question of law Nos.1 and 2 are answered in favour of the assessee.

Summary

Issues Involved:
1. Jurisdiction of the Tribunal in remitting the issue of disallowance of BD commission.
2. Directions provided by the Tribunal to the Assessing Officer regarding the examination of profit shifting.
3. Obligation to deduct tax at source concerning the BD commission under the provisions of the Income Tax Act and the DTAA between India and the US.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Tribunal in remitting the issue of disallowance of BD commission:
The primary issue revolves around whether the Tribunal exceeded its jurisdiction by remitting the issue of disallowance of the Business Development Commission (BDC) without deciding if the appellant was liable to deduct tax at source. The Tribunal's decision to remit the matter back to the Assessing Officer (AO) was challenged on the grounds that the issue of taxability had already attained finality through an order passed by the Commissioner of Income Tax (Appeals) [CIT(A)] on 03.02.2014. The Tribunal's jurisdiction is confined to the lis before it, and it cannot reopen concluded proceedings, especially when the Revenue did not appeal against the CIT(A)'s order. The Tribunal should have acknowledged the finality of the CIT(A)'s order and provided adequate reasons if it found the order non-binding.

2. Directions provided by the Tribunal to the Assessing Officer regarding the examination of profit shifting:
The Tribunal directed the AO to examine if there was any concerted effort to shift profits by camouflaging it as a commission on sales, which was not a matter initially raised by the Revenue at any stage. This direction was seen as an overreach and not relevant to the issue at hand, which was solely about the disallowance of the BDC for non-deduction of tax at source. The Tribunal's observations were considered wholly adverse to the assessee and unwarranted, as they introduced a new dimension to the transaction that was not previously contested by the Revenue.

3. Obligation to deduct tax at source concerning the BD commission under the provisions of the Income Tax Act and the DTAA between India and the US:
The assessee argued that the BDC paid to the US company was not taxable in India as the recipient did not have a permanent establishment in India, and thus, there was no obligation to withhold taxes under Section 195 of the Income Tax Act. The CIT(A) had previously ruled in favor of the assessee, stating that the BDC did not constitute fees for technical services or consultancy services under Section 9(1)(vi) of the Act or the DTAA between India and the US. This ruling was based on the nature of the services rendered, which were routine sales and marketing activities, and did not involve the transfer of technical knowledge or skills. The Tribunal's decision to remit the matter contradicted this established position, which had already attained finality.

Conclusion:
The High Court concluded that the Tribunal exceeded its jurisdiction by remitting the matter to the AO, effectively reopening a concluded proceeding. The Tribunal's directions and observations were deemed inappropriate and beyond the scope of the issues initially presented. Consequently, the appeal was allowed in favor of the assessee, and the substantial questions of law were answered accordingly, affirming the finality of the CIT(A)'s order dated 03.02.2014.