TMI Blog2010 (9) TMI 749X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of the assessee. - the ad-hoc disallowance is not justified. - ITA No. 442/Mum/2009 - - - Dated:- 7-9-2010 - SHRI R. S. PADVEKAR, JUDICIAL MEMBER J. AND SHRI R.K. PANDA, ACCOUNTANT MEMBER J. Assessee by: Shri K. Shivaram Revenue by: Shri Aarsi Prasad ORDER PER R. S. PADVEKAR, JM The Assessee has filed this appeal challenging impugned order of the Learned CIT (A)-XII Mumbai for the assessment year 2005-06 dated 3.11.2008. 2. The first issue is disallowance of Rs.38,41,257/- u/s.40(a) of the Income-tax Act, which was in respect of the payment of compensation under the arbitration award to non-resident company. The facts pertaining to the issue which reveal from the record are as under. 3. The assessee firm is engaged in the business of export import as well as trading in different commodities. The assessee had made the provision of Rs.38,41,257/- in respect of the compensation to be paid to foreign company namely M/S. Swissgen NV of London (UK) and claimed the same as an expenditure in the profit and loss account. The assessee has entered into a contract for supply of Indian Natural Whitish Sesame Seeds to M/s. Swissgen NV London, UK (in short fore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for compensation made in the Books for A.Y. 2005-06, which it has not done. 4. Assessee challenged the disallowance before the Learned CIT (A) but without success who confirmed the same by giving following reasons 2.3 I have considered the submission of the Appellant as well as the Asstt. order. The perusal of the Arbitration Award shows that the foreign buyer had contracted to purchase through Radhasons International. From the submissions made by the Appellant it could be seen that the Appellant was to pay 1% commission to Radhasons International in Mumbai. The Appellant is conveniently silent about the role played by Radhasons International. The status of Radhasons International as to its being a resident or a non-resident had not been clarified as to determine whether or not the foreign buyer had a permanent establishment through its agent Radhasons International. In view of the above, the Appellant s proposition that compensation paid cannot be held to accrue or arise in India is not acceptable. The compensation paid cannot be equated with the purchase of goods in India for the purpose of export as in the instant case there was no actual purchase of goods. The compensa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- (i) VAN OORD ACZ India (P) Ltd. vs. CIT 36 DTR 425 (Del) (ii) ITO vs. Proceed Petition Ltd. 3 ITR 58 (Trib)(SB)(Del) (iii) Mahindra Mahindra vs. Dy. CIT (SB) 313 ITR 263 (AT)(Mum) (iv) Royal Airways Ltd. vs. DDIT 98 ITD 259 (Del). 7. The Learned Counsel further argued that the Hon ble Special Bench has already considered the decision of the Hon ble High Court of Karnataka in the case of CIT vs. Samsung Electronics Ltd. 320 ITR 209. It is argued that, so far as the interest element in the compensation is concerned the same is merged with the compensation and it looses its original character and assumes the character of judgment debt. For the said proposition, he relied on the decision of Hon ble High Court of Bombay in the case of Islamic Investment Co. vs. UOI 265 ITR 254. Per contra, the Learned D.R. supported the order of the A.O. as well as the Learned CIT (A) and submitted that in the case of Samsung Electronics Ltd.(supra) it is held that whether the income of the non-resident made taxable in India or not cannot be determined by the assessee as the said authority has vested with the A.O. u/s.197 of the Act 8. We have already elaborately discussed the facts pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record, a contract was only supply of goods in India and nothing is there on record to suggest that M/s. Radhasons International was the dependent agent of the foreign buyer. The foreign buyer has no PE in India. As per Article 5(5) of DTAA, even if any business is carried out through a broker or general commission agent or any other agent of an independent status, then it cannot be said that the non-resident has PE in India. We, therefore, hold that as M/s. Swissgen NV London, UK has no PE in India and hence the compensation awarded under arbitration award was not taxable in India. So far as the decision of Samsung Electronics Ltd. (supra) is concerned, contrary view is taken by Hon ble Delhi High Court in case of VAN OORD ACZ India (P) Ltd. (supra). Moreover, the Special Bench of the Tribunal in the case of Prasad Production Ltd. (Supra) has considered the decision of the Hon ble Karnataka High Court in the case of Samsung Electronics Ltd. (supra). We, therefore, hold that there is no obligation on the assessee to deduct the tax u/s.195(1) of the Act. It is true that there is an element of the interest in the amount awarded, but this issue is also covered in favour of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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