2016 (3) TMI 1115 - AT - Income Tax

Addition of deduction u/s. 80IB - computation of deduction - Held that - As decided in assessee s own case for assessment years 2002-03 2003-04 each of the unit had to be separately considered for working out deduction under Section 80-IA or 80-IB or 80HHC of the Act once separate accounts were being maintained and there was no interlacing and interdependence. In the given case before us assessee had positive gross total income. Therefore each undertaking had to be considered separately for working out deduction under Section 80-IA of the Act since the gross total income. Tds u/s 195 - disallowance of commission paid to foreign agent without deduction of tax - Held that - As noted from records that nonresidents were only procuring orders for assessee and following up payments and apart from that no other services were being rendered - Non-residents were not providing any technical services to assessee payments made to them did not fall under category of royalty or fee for technical services under section 9(1 )(vi) . Even otherwise since commission paid to non-residents was not taxable in India assessee was not required to deduct tax at source while making said payments. See Faizan Shoes (P) Ltd case 2014 (1) TMI 440 - ITAT CHENNAI - Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of addition of deduction under Section 80IB of the Income Tax Act.
2. Deletion of disallowance of commission paid to foreign agents without deduction of tax under Section 195 of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Deletion of Addition of Deduction Under Section 80IB:

The Revenue contested the deletion of the addition made by the Assessing Officer (AO) concerning the deduction under Section 80IB of the Income Tax Act. The AO had disallowed the deduction by aggregating the losses of one unit with the profits of another unit, contrary to the assessee's method of claiming deductions based solely on the positive income of individual units. The AO relied on the earlier assessment order for the year 2006-07, which required the aggregation of both units' results for deduction purposes.

The Commissioner of Income Tax (Appeals) reversed the AO's decision, following the Tribunal's order in the assessee's own case for previous years, which stated that deductions under Sections 80IA and 80IB should be calculated independently for each unit without inter se adjustment of losses and profits. This was supported by judicial precedents, including CIT Vs. MEPCO Industries and CIT Vs. Macmillan India Ltd., which emphasized that each unit should be considered separately for deductions if they maintain separate accounts and there is no interlacing or interdependence.

The Tribunal upheld the Commissioner’s decision, affirming that the gross total income being positive, each unit should be considered independently for deduction under Section 80IB, and dismissed the Revenue's appeal on this ground.

2. Deletion of Disallowance of Commission Paid to Foreign Agents Without Deduction of Tax Under Section 195:

The AO disallowed the commission payments made to foreign agents, totaling ?47,36,182/-, on the grounds that the payments were made without deducting tax at source as required under Section 195. The AO argued that the services rendered by the foreign agents fell under the purview of taxability in India.

The Commissioner of Income Tax (Appeals) considered the evidence provided by the assessee, which showed that the foreign agents had no business presence in India, and the payments were made in foreign exchange through banking channels. The Commissioner relied on the Supreme Court and Jurisdictional High Court decisions, as well as the Co-ordinate Bench Tribunal decision in ITO vs. Faizan Shoes (P) Ltd., which held that commission payments to non-residents for procuring export orders were not taxable in India and thus not subject to tax deduction at source.

The Tribunal, following the decision in Faizan Shoes (P) Ltd., upheld the Commissioner’s order, confirming that since the foreign agents were only procuring orders and not providing technical services, the payments did not fall under the category of royalty or fees for technical services. Consequently, the disallowance under Section 40(a)(i) was deleted, and the Revenue's appeal on this ground was dismissed.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the Commissioner of Income Tax (Appeals) decisions on both issues. The Tribunal confirmed that the deduction under Section 80IB should be calculated independently for each unit, and the commission paid to foreign agents without deduction of tax was not disallowable under Section 40(a)(i). The judgment was pronounced on March 31, 2016, in Chennai.