2019 (1) TMI 876 - AT - Income Tax

TDS u/s 195 - Disallowing assessee s export commission payments on account of non-deduction of TDS thereby invoking sec. 40(a)(i) - Held that - We uphold well reasoning findings of the learned CIT(A) that the commission payments made to the non resident agents did not have any taxability in India, even under the provisions of the domestic law i.e. Section 9. 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. The assessee, for the detailed reasons set our above, did not have tax withholding liability from these payments. As held in the case of GE India Technology Centre Pvt Ltd Vs CIT 2010 (9) TMI 7 - SUPREME COURT OF INDIA , 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. Addition u/s 14A - Held that - CIT(A) has relied upon as a catena of case law in restricting the impugned disallowance to the extent of exempt income only. In Joint Investments Pvt. Ltd. vs. CIT (2015 (3) TMI 155 - DELHI HIGH COURT) has already settled the issue in assessee s favour that such disallowance cannot exceed the relevant corresponding exempt income figure. We therefore reject Revenue s instant third substantive ground as well for this precise alone. Disallowing assessee s provision for liquidated damaged - Held that - Revenue s grievance that assessee s liquidated damages are in the nature of penal liability not allowable as expenditure incurred wholly and exclusively for the purpose of its business. She fails to dispute the clinching fact the impugned liquidated damages are in the nature of contractual liability only than arising from violation of any penal provision. The assessee had made the impugned provision as per its contractual liability on account of non compliance / non-fulfilment of its business obligations to only its customer parties. We therefore find no merit in Revenue s instant last substantive ground. Long Term Capital Gains addition in respect of sale of its land - Held that - Assessee had initially declared cost of acquisition to be @ ₹40.1 per square yard fallowed by its revised return claiming the very value @ ₹60/- per square yard based on a registered valuer s report. The CIT(A) has admittedly gone by its former valuation. He has applied estoppel in principle other ways. We find no merit to concur with the CIT(A) s above stated reasoning. More particularly in view of the fact that a registered valuer had duly supported assessee s case in enhancing the cost of acquisition from ₹40/- per square yard to ₹ 60/- per square yard. We take into account all these peculiarities involved in this case to apply thumb rule to estimate assessee s cost of acquisition to be ₹48/- per square yard in the given facts and circumstances. It is made clear that we have invoked thumb rule to terminate the instant lis at this stage itself than sending it for a long drawn process of valuation. We further direct that our instant estimation shall not be treated as a precedent in any other case. The assessee s former substantive ground in its cross objection is partly accepted in above terms.

Issues Involved:
1. Admission of Additional Evidence in Violation of Rule 46A
2. Disallowance of Export Commission Payments Due to Non-Deduction of TDS
3. Disallowance under Section 14A read with Rule 8D
4. Disallowance of Provision for Liquidated Damages
5. Addition of Long Term Capital Gains on Sale of Land
6. Verification of TDS Claim

Issue-wise Detailed Analysis:

1. Admission of Additional Evidence in Violation of Rule 46A:
The Revenue contended that the CIT(A) erred in admitting additional evidence contrary to Rule 46A of the Income Tax Rules, 1962. The Tribunal found no additional evidence admitted in the lower appellate proceedings, thus rejecting the Revenue's grievance.

2. Disallowance of Export Commission Payments Due to Non-Deduction of TDS:
The Revenue sought to revive the Assessing Officer's action disallowing the assessee’s export commission payments due to non-deduction of TDS under Section 40(a)(i) of the Act. The CIT(A) had deleted this disallowance, observing that the services provided by foreign agents did not constitute fees for technical services as defined in Section 9(1)(vii) of the Act. The Tribunal upheld the CIT(A)'s decision, noting that the foreign agents had no permanent establishments in India and their services were rendered outside India. It was concluded that the commission payments did not attract TDS provisions as per the Tribunal's decision in Welspun Corporation Ltd. vs. DCIT.

3. Disallowance under Section 14A read with Rule 8D:
The Revenue challenged the CIT(A)'s restriction of the disallowance under Section 14A read with Rule 8D to the extent of exempt income. The Tribunal upheld the CIT(A)'s decision, referencing the Delhi High Court's judgment in Joint Investments Pvt. Ltd. vs. CIT, which held that such disallowance cannot exceed the exempt income.

4. Disallowance of Provision for Liquidated Damages:
The Revenue argued that the provision for liquidated damages was penal in nature and not allowable under Section 37(1) of the Act. The CIT(A) found the provision to be compensatory rather than penal, referencing the Supreme Court's decision in Prakash Cotton Mills Ltd. vs. CIT. The Tribunal agreed with the CIT(A), noting that the damages were contractual liabilities arising from non-compliance with business obligations, and thus allowable as business expenditure.

5. Addition of Long Term Capital Gains on Sale of Land:
The assessee contested the addition of long-term capital gains based on a revised cost of acquisition. The CIT(A) upheld the Assessing Officer's use of the original cost of acquisition declared by the assessee. The Tribunal found merit in the assessee's use of a registered valuer's report to revise the cost of acquisition. Applying a thumb rule, the Tribunal estimated the cost of acquisition at ?48 per square yard, partly allowing the assessee's claim.

6. Verification of TDS Claim:
The assessee's ground regarding the CIT(A)'s direction to the Assessing Officer to verify and allow the TDS claim was found to have no irregularity. The Tribunal upheld the CIT(A)'s direction for verification.

Conclusion:
The Tribunal dismissed the Revenue's appeals, upheld the CIT(A)'s decisions on all counts, and partly allowed the assessee's cross-objection regarding the cost of acquisition for capital gains calculation. The order was pronounced in the open court on 31/12/2018.

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