TMI Blog2012 (9) TMI 285X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered as fees paid for services utilized in the business of the assessee outside India. Therefore, clearly Section 9(1)(vii)(b) applied and the income earned by such non-residents cannot be deemed to accrue or arising in India. Therefore, assessee had every reason to hold a bonafide belief that no part of the payment had any element of income which was chargeable to tax in India & assessee could not be put in a position where it can be visited with the rigours associated with non-deduction of tax at source. It cannot be fastened with any liability associated with non-deduction of tax at source on such payments - in favour of assessee. - I.T.A.No.349/Mds/2012 & 578/Mds/2012 - - - Dated:- 25-6-2012 - SHRI N.S. SAINI, AND SHRI V. DURGA RAO, JJ. Assessee by : Shri V.S.Jayakumar, Advocate Department by : Shri Shaji P. Jacob, Addl. CIT O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER These are cross appeals filed by the assessee and Revenue against the order of the CIT(A)-III, Chennai, dated 21.12.2011, passed in assessment year 2008-09. 2. In the assessee s appeal, the assessee has taken the following grounds of appeal: 1. The order of the CIT(A) is contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,78,814 76,090 11.33% 2,92,645 33.99% 5,86,168 Javed Ahmed 9,93,000 1,12,507 11.33% 3,37,520 33.99% 6,62,331 J. Muthukumar 9,37,082 1,47,419 11.33% 3,18,514 33.99% 6,25,033 Madhav Tilkulkar 11,66,000 1,32,108 11.33% 3,96,323 33.99% 7,77,722 Shashikanth 4,09,500 46,396 11.33% 1,39,189 33.99% 2,73,000 Umamaheshwar 2,60,000 53,520 11.33% 88,374 33.99% 1,73,333 Harsh 5,02.127 52,024 10.3% 1,70,672 33.99% 3,51,489 Jaimanohar Daniel 4,44,175 39,286 10.3% 1,50,975 33.99% 3,10,922 J. Muthukumar 13,57,776 1,53,836 11.33% 4,61,508 33.99% 9,05,184 Madhav Tilkulkar 14,36,003 1,62,699 11.33% 4,88,097 33.99% 9,57,335 61,19,632 Accordingly, an amount of Rs. 61 ,19,632 is disallowed u/s 40(a)(i) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of an assessment proceedings but it is in the nature of collection and recovery as assessee acts only as an agent/trustee for the Government to collect the tax and remit it to the account of the Central Government. It was further argued that it is not the case of assessee that those nine NRIs are not liable to income tax in India. The only question relates to the rate of tax for the purpose of TDS, in the impugned year in question. It was therefore, submitted that there was no violation of any of the provisions contained in Chapter XVIIB of the Income-tax Act warranting any disallowance much less a proportionate disallowance in the manner indicated by the Assessing Officer in the impugned order in question. 6. The CIT(A), after considering the submissions of the assessee, confirmed the action of the Assessing Officer on the ground that in assessment year 2007-08 in assessee s own case, the CIT(A) had confirmed the addition and dismissed the ground of appeal of the assessee. 7. The A.R of the assessee filed a copy of the order of the Chennai Bench of the Tribunal in assessee s own case for assessment year 2007-08 in I.T.A.No.2169/Mds/2010 and C.O.No.29/Mds/2011, dated 22.6.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of such business chargeable to tax under the head "profits and gains of business or profession". It is because the provision of section 44BB has quantified the deemed income of the non-resident assessee at 10 per cent, it has opened with the clause "Notwithstanding anything to the contrary" contained in sections 28 to 41 and sections 43 and 43A. The aggregate amounts are quantified in sub-section (2) of section 44BB to be the amount paid or payable, received or deemed to be received etc. As per the sub-section (3) of section 44BB the non-resident can claim a lower profit. It is for the purpose of claiming lower profits that the non-resident must file a return and prove the same with support of his regular books of account and other documents and by complying with other conditions specified therein. If no return is filed, section 44BB(1) deems that the profits and gains of the business of the non-resident at 10 per cent of the gross receipts. A perusal of the decision of the Hon ble Supreme Court in the case of GE India Technology Centre (P.) Ltd., (supra) clearly shows that the Hon ble Supreme Court has categorically held that the obligation to deduct TDS is limited to the appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome chargeable to tax in India. In the present case it is noticed that the assessee has deducted tax at the specified rate on the 10 per cent of the Bare Boat charges paid to the Norway company who is the non-resident, computed as per the provisions of section 44BB. In the circumstances, we are of the view that there is no violation of the provisions of section 195 in the assessee s case which calls for a disallowance by invoking the provisions of section 40(a)( i) of the Act. In the circumstances, the finding of the learned CIT(A) and that of the Assessing Officer stands reversed. 10. We find that the CIT(A) has not taken into consideration the above decision of the Tribunal for deciding the issue. We, therefore, set aside the orders of the lower authorities and restore the matter back to the file of the CIT(A) for deciding the issue afresh after taking into consideration the above cited decision of the Chennai Bench of the Tribunal and after allowing reasonable opportunity of hearing to both the parties. Thus, the grounds of appeal of the assessee are allowed for statistical purposes. 11. In the Revenue s appeal, the Revenue has taken the following grounds of appeal: 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td vs CIT, 327 ITR 356, has not categorically decided the issue but had only remitted back the matter to High Court for de novo consideration on merits. He also referred to the provisions of section 195 and disallowed Rs. 4,76,58,976/- u/s 40(a)(i) of the Act. 14. On appeal, before the CIT(A), the assessee strongly argued against the above disallowance made by the Assessing Officer u/s 40(a)(i). The assessee filed written submissions and contended that addition on similar issue was deleted by the CIT(A) in assessee s own case for assessment year 2007-08 and on further appeal by the Department, the Tribunal dismissed the ground of appeal of the Revenue. 15. The CIT(A), following the order of the Tribunal in assessee s own case for assessment year 2007-08, in I.T.A.No. 2169/Mds/2010, order dated 22.6.2011, allowed this ground of appeal of the assessee. 16. The DR fairly conceded before us that this issue is covered by the order of the Tribunal against the Revenue in assessment year 2007-08 in I.T.A.No. 2169/Mds/2010 and C.O.No.29/Mds/2011, order dated 22.6.2011. 17. On the other hand, the A.R of the assessee relied on the order of the Tribunal in assessee s own case for asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing the order of the Tribunal in assessee s own case for assessment year 2007-08 in I.T.A.No. 2169/Mds/2010, dated 22.6.2011. 21. The DR has fairly conceded that this issue is covered against the Revenue and in favour of the assessee by the said order of the Tribunal. We find that the Tribunal, while deciding the issue in assessment year 2007-08, has held as under: 11. Vide its ground No.3, Revenue is again aggrieved regarding deletion of disallowance made under Section 40(a)(i) of the Act by the Assessing Officer. But, here, the payments made by the assessee to non-residents were in respect of projects in Nigeria. 12. Short facts apropos are that assessee had paid consultancy fees to one Shri Sashi Kant and Shri Umamaheshwar for consultancy services rendered in Nigeria. When put on notice regarding non-deduction of tax at source, reply of the assessee was that the said consultants were used in the business of the assessee in Nigeria and therefore, subclause (b) of clause (vii) of sub-section (1) of Section 9 would apply. Assessee submitted before the A.O. that the payments were for services rendered by the consultants on account of its business abroad and hence, the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income, the payer cannot be made liable. He cannot be declared to be an assessee-in default. Further it held In our view, Section 195(2) is based on the principle of proportionality . The said sub-section gets attracted in cases where the payment made is composite payment in which certain portion of the payment has an element of income chargeable to tax in India. It also stated This interpretation of the High Court completely loses sight of the plain words of section 195(1) which in clear terms lays down that tax at source is deductible only from sums chargeable under the provisions of the Act, i.e. chargeable under sections 4, 5 and 9 of the Income-tax Act, 1961. It is absolutely clear from the above ruling of the Apex Court that section 195(2) springs into action only when the payment to the recipient contains an element of income chargeable to tax in India. It has already been discussed above that the payments made to the non-residents for services rendered outside India would not amount to income accrued or arising in India. Since the sum is not chargeable to tax in India, provisions of sec. 195(2) are not attracted. Hence, the disallowance u/s 40(a)(i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be considered as fees paid for services utilized in the business of the assessee outside India. Therefore, clearly Section 9(1)(vii)(b) of the Act applied and the income earned by such non-residents cannot be deemed to accrue or arising in India. Therefore, assessee had every reason to hold a bonafide belief that no part of the payment had any element of income which was chargeable to tax in India. When the assessee held such a bonafide belief, it is clearly covered by the decision of Hon'ble Apex Court in GE India Technology Centre Pvt. Ltd. (supra) and decision of Special Bench of this Tribunal in Prasad Productions Ltd. (supra). This being so, assessee could not be put in a position where it can be visited with the rigours associated with non-deduction of tax at source. It cannot be fastened with any liability associated with non-deduction of tax at source on such payments. In these circumstances, application of Section 40(a)(i) of the Act was not called for. Ld. CIT(Appeals) was right in deleting the addition. No interference is called for. Ground No.3 raised by the Revenue is dismissed. 22. The facts being identical, respectfully following the order of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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