2018 (10) TMI 1714 - AT - Income Tax

TDS u/s 195 - Disallowance of the commission paid to non-resident agents to the services rendered outside India - HELD THAT - The assessee is not liable to deduct tax on the commission paid to the non-resident. However, it appears that no details and evidences have been provided before the authorities below by the assessee in respect of payment mentioned in Sl.No.9, 13, 15 16 in order to establish that the said agents have not provided services in India or they have no business connection or permanent establishment in India. We, therefore, for the ends of justice set aside this part of the order to the file of the AO to verify the said aspect considering the evidences to be adduced by the assessee in this respect. We make it clear that the assessee be given a reasonable opportunity of hearing positively by the Ld. Assessing Officer while adjudicating the matter and to pass orders in accordance with law. Addition towards suppression of sales in transit - HELD THAT - As gone through the order passed by the coordinate bench following the order passed by the Ld. ITAT in assessee s own case for the AY 2004-05 to AY 2010-11 it is held Section 26 of the Act provides that unless otherwise agreed, the goods remain at the seller risk. In case of FOB contracts the goods are delivered free on board the ship once the seller has placed the goods safely on board at his cost and thereby handed over the possession of the goods to the ship in transfer of the Bill of Landing or other document, the responsibility of the seller ceases on the delivery of the goods to the buyer is complete - sale was executed under FOB as per which the risk was transferred from the seller to the buyer when the goods put on ship or rail. In view of above, we are not inclined with the decision of the CIT(A) and we are of the view that when the sale was executed under FOB, CIF terms as per which the risk was transferred from the seller to the buyer when the goods put on ship or rail. Therefore, the appeal of the assessee is allowed on this issue. Disallowance of depreciation on no compete fees - HELD THAT - After considering the facts and the detailed findings along with various judicial pronouncements elaborated in the order of the CIT(A), we consider that the non-compete fee paid by the assessee to Mr. Patel is a capital expenditure and the assessee has acquired an intangible right which is depreciable and depreciation claimed is allowable under section 32(1)(ii) of the Act. Therefore, we do not find any reason to interfere in the decision of the Ld. CIT(A). Accordingly, the appeal of the revenue is dismissed. Deduct tax on the commission paid to the non-resident - HELD THAT - no details and evidences have been provided before the authorities below by the assessee in respect of payment mentioned in Sl.Nos.2,6,7,9,10,15,16,21 to 24 28 and 31 in order to establish that the said agents have not provided services in India or they have no business connection or permanent establishment in India. We, therefore, for the ends of justice set aside this part of the order to the file of the AO to verify the said aspect considering the evidences to be adduced by the assessee in this respect. We make it clear that the assessee be given a reasonable opportunity of hearing positively by the AO while adjudicating the matter and to pass orders in accordance with law. In the result, this ground of assessee s appeal is allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance of commission paid to non-resident agents under Section 40(a)(ia) of the Income Tax Act.
2. Alleged suppression of sales in transit.
3. Disallowance of depreciation on non-compete fees.

Issue-Wise Detailed Analysis:

1. Disallowance of Commission Paid to Non-Resident Agents:
The assessee challenged the disallowance of ?18,98,539 out of the commission paid to non-resident agents for services rendered outside India. The Assessing Officer (AO) disallowed the commission payments under Section 40(a)(ia) due to non-deduction of TDS, despite the assessee arguing that the services were rendered outside India and thus not taxable in India. The assessee relied on Supreme Court judgments in GE India Technology Centre P. Ltd. vs. CIT and CIT vs. Toshoku Ltd., which held that commission earned by non-residents for services rendered outside India is not deemed to accrue or arise in India. The CIT(A) had partly allowed the appeal, disallowing only ?18,98,539 due to lack of details/evidence for certain agents. The ITAT upheld the CIT(A)'s decision, noting that similar issues had been decided in favor of the assessee in previous years. However, for agents where details were not provided, the matter was remanded to the AO for verification.

2. Alleged Suppression of Sales in Transit:
The assessee contested the addition of ?67,83,650 towards alleged suppression of sales in transit. The AO added this amount to the total income, asserting that the assessee had not accounted for the profit on these sales. The CIT(A) confirmed this addition. The ITAT, however, followed its previous decisions in the assessee's own cases for earlier years, where it was held that sales under FOB contracts are recognized when the bill of lading is issued. Since the goods were in transit and not shipped before the end of the financial year, the ITAT deleted the addition, concluding that the sales should be recognized in the subsequent financial year.

3. Disallowance of Depreciation on Non-Compete Fees:
The AO disallowed the depreciation claim on non-compete fees of ?2,24,64,750, arguing that non-compete fees do not qualify as intangible assets under Section 32(1)(ii). The CIT(A) allowed the claim, citing various judicial precedents that treated non-compete fees as intangible assets eligible for depreciation. The ITAT upheld the CIT(A)'s decision, referencing its earlier ruling in the assessee's case for the previous year, where it was established that non-compete fees confer a commercial right similar to other intangible assets listed in Section 32(1)(ii). The ITAT confirmed that the non-compete fee paid by the assessee was a capital expenditure, thus eligible for depreciation.

Separate Judgments Delivered:
The judgment was delivered collectively by the Vice President and the Judicial Member of the ITAT Ahmedabad Bench, with no separate judgments by individual judges. The ITAT's decisions were consistent with previous rulings in the assessee's own cases for earlier assessment years.