2018 (4) TMI 1879 - AT - Income Tax

TDS u/s 195 - PE in India - commission paid to non-resident agents towards machines sold in India applying provisions of sec. 9(1)(i) - HELD THAT - As decided in own case for the assessment year 2009- 10 once we come to the conclusion that the income embedded in these payments did not have any tax implications in India, no fault can be found in not deducting tax at source from these payments or, for that purpose, even not approaching the Assessing Officer for order under section 195. In our considered view, the assessee, for the detailed reasons set our above, did not have tax withholding liability from these payments. As held by Hon ble Supreme Court in the case of GE India Technology Centre Pvt Ltd 2010 (9) TMI 7 - SUPREME COURT payer is bound to withhold tax from the foreign remittance only if the sum paid is assessable to tax in India. The assessee cannot, therefore, be faulted for not approaching the Assessing Officer under section 195 either. As regards the withdrawal of the CBDT circular holding that the commission payments to non resident agents are not taxable in India, nothing really turns on the circular, as de hors the aforesaid circular, we have adjudicated upon the taxability of the commission agent s income in India in terms of the provisions of the Income Tax Act as also the relevant tax treaty provisions. Unaccounted income - no disclosure of sale of machines - assessee has responded that these machines were in transit for shipment as on 31st March, 2011 and machines were actually shipped in next year with bill of lading date ranging from 5th April, 2011 to 9th April, 2011 therefore, these machines were treated as part of closing stock - HELD THAT - As decided in the case of assessee itself for the assessment year 2004-05 to A.Y.2010-11 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. After considering the above facts and legal findings we considered that 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 Ld. 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 - as per AO claim of depreciation on non-compete fees is not justified because the payment of non-compete fees did not merely facilitate conduct of business as it would be a capital expenditure by merely because of capital expenditure it would not be necessary that it is eligible for depreciation - HELD THAT - 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.

Issues Involved:
1. Disallowance of commission paid to non-resident agents under Section 9(1)(i) of the Income Tax Act.
2. Addition of alleged suppressed sales.
3. Levy of interest under Sections 234A, 234B, 234C, and 234D.
4. Initiation of penalty proceedings under Section 271(1)(c).
5. Disallowance of depreciation on non-compete fees.

Detailed Analysis:

Issue 1: Disallowance of Commission Paid to Non-Resident Agents
The assessee appealed against the disallowance of ?18,80,876/- of commission paid to non-resident agents, arguing that the services were rendered outside India, and thus, no tax was deductible under Section 195 of the Income Tax Act. The CIT(A) partly allowed the appeal, confirming the disallowance for commissions related to sales in India but deleting the disallowance for commissions related to services rendered outside India. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in GE Technology Centre Pvt. Ltd. vs. CIT and the case of Toshoku Ltd., confirming that commissions earned by non-residents for services rendered outside India do not accrue in India.

Issue 2: Addition of Alleged Suppressed Sales
The assessee contested the addition of ?1,59,43,850/- for alleged suppressed sales, arguing that the machines were in transit and should be treated as closing stock. The CIT(A) upheld the addition, following the decisions of predecessors for earlier years. However, the Tribunal reversed this decision, citing previous ITAT rulings that goods remain the seller's property until loaded on board the ship under FOB contracts, thus recognizing the sale only when the bill of lading is issued.

Issue 3: Levy of Interest under Sections 234A, 234B, 234C, and 234D
The assessee challenged the levy of interest under Sections 234A, 234B, 234C, and 234D. The Tribunal's decision on this matter was not explicitly detailed in the provided text.

Issue 4: Initiation of Penalty Proceedings under Section 271(1)(c)
The assessee opposed the initiation of penalty proceedings under Section 271(1)(c). The Tribunal's decision on this matter was not explicitly detailed in the provided text.

Issue 5: Disallowance of Depreciation on Non-Compete Fees
The revenue appealed against the deletion of the addition of ?1,28,37,000/- made on account of disallowance of depreciation on non-compete fees. The CIT(A) allowed the appeal, treating the non-compete fee as an intangible asset eligible for depreciation under Section 32(1)(ii) of the Act. The Tribunal upheld this decision, referencing multiple judicial precedents, including CIT vs. Ingersoll Rand International Ind. Ltd., which recognized non-compete fees as intangible assets entitled to depreciation.

Conclusion:
The Tribunal allowed the assessee's appeal regarding the disallowance of commission paid to non-resident agents and the addition of alleged suppressed sales. The revenue's appeal concerning the disallowance of depreciation on non-compete fees was dismissed. The Tribunal's decisions were based on established judicial precedents and detailed analysis of the relevant facts and legal provisions.

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