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TMI Blog2008 (8) TMI 602X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. It was noticed by the Assessing Officer that the assessee-company had claimed commission paid to parties outside India. The assessee submitted before the Assessing Officer that the parties to whom commission has been paid are non-resident and according to section 195 of the Act, TDS is not chargeable for the reason that the services were rendered by the said parties outside India and controlling of their operation was also outside India, and as per the provisions of section 9 of the Act, income arising out of operations carried out outside India cannot be charged to tax in India. This submission of the assessee was not accepted by the Assessing Officer, for the reason that any sum claimed as deduction under the head 'Profits and gains of business or profession' shall not be allowed as deduction unless tax paid was deducted under Chapter XVII-B of the Act. 5. Being aggrieved, the assessee-company preferred an appeal before the CIT(A). 6. Before the CIT(A), the assessee submitted that section 195 of the Act would be applicable and tax would be deductible on any payment to a non-resident, if the payment to a non-resident (payee) is chargeable to tax under the Act. It was submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid the commission in question, in India; (ii)The foreign booking agents have no operations in India and, therefore, no operations carried on in India can be held to be attributable, directly or indirectly, to the earning of commission by the foreign agents; (iii)The foreign agents and the assessee-company have principal to principal relationship; (iv)The foreign agents did not have any permanent establishment in India as defined in Article V of the DTAA entered into between India and USA; (v)The conclusion arrived at by the authorities below that the income from commission to non-resident agents shall be deemed to have accrued or arisen in India on account of business connection under section 9(1)(i) of the Act is misplaced inasmuch as, no part of the operations were carried out in India by the commission agents, and as such no income can be deemed to accrue and arisen from any business connection in India; (vi)That stay of the customers or clients in the assessee's hotel in India and receipt of the hotel charges in India would not amount to any operations carried out by the non-resident commission agents in India as understood within the meaning of section 9(1)(i) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aying to a non-resident, not being a company, or to a foreign company, any interest, not being interest on security, or any other sum, not being dividends, chargeable under the provisions of the Income-tax Act, 1961, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof any cash or by issue of a cheque or draft or by any other mode, whichever is earlier deduct income-tax thereon at the rates in force. On a plain reading of section 195(1) of the Act, it is clear that section 194(1) casts an obligation to deduct tax at source at the rates in force on the sums referred to therein, which are chargeable under the provisions of Income-tax Act, 1961. The expression "chargeable under the provisions of this Act" was the subject-matter of consideration before the Hon'ble Supreme Court in the case of Transmission Corpn. of Andhra Pradesh Ltd. (supra), where the Hon'ble Supreme Court has held and observed as under :- "There is no substance in the contention of Counsel for the appellant that the expression "any other sum chargeable under the provisions of this Act" would not include cases where any sum payable to the non-resident is a trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. In the light of the view we have taken above, it is now to be seen as to whether the commission paid by the assessee-company to non-resident agent is chargeable under the Income-tax Act or not. It is an admitted position that the non-resident commission agent of the assessee have accepted booking from the assessee's prospective clients or customers at the place outside India. The Assessing Officer as well as CIT(A) has not pointed out any material or evidence to show that the non-resident commission agents had booked the hotels for and on behalf of the assessee-company, in India. The services has been provided by the non-resident commission agents to the assessee only outside India. It is not in dispute that the assessee-company has provided services and facilities to its customers, who made reservations or booking, in India, but that fact alone cannot lead to a conclusion that by merely booking the hotels, the non-resident commission agent has rendered any services to the assessee-company in India. The dispute arising in the present case is not with regard to place at which the services are rendered by the assessee-company to its client or customers but with regard to the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establishment in India had earned commission from booking of the hotel made by the assessee's customers at a place outside India. Further, no material has been pointed out to show and conclude that there was any business connection between the activities carried out by the assessee in India and earning of income from commission outside India by the non-resident commission agents. It has neither been alleged nor held by the authorities below that these foreign agents have permanent establishment in India. Therefore, the income derived by non-resident commission agents from commission earned on booking of hotels outside India is not assessable in India as business income on the ground that none of the payees had permanent establishment in India having regard to the provisions of DTAA entered into between India and USA. The assessee-company and foreign booking agents have principal to principal relationship, and such foreign commission agents have an independent status in the ordinary course of their business. We do not also find any material to hold that there exists any business connection of foreign agents with the assessee-company. The rendering of services by way of providing b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) in two assessment years i.e., assessment years 2000-01 and 2001-02, though an identical issue has been decided against the assessee by the CIT(A) in the assessment year 2002-03 as was so decided in the assessment year 1999-2000. Respectfully following our decision given above in the assessment year 1999-2000, we uphold the order of the CIT(A) in deleting the disallowance on account of commission paid to non-resident commission agents outside India in the assessment years 2000-01 and 2001-02, and set aside the orders of both the authorities below in assessment year 2002-03 by directing the Assessing Officer to allow assessee's claim of deduction on account of the aforesaid commission. 21. Ground No. 2 in the assessment year 1999-2000 as modified by the assessee vide letter dated 5-12-2007,which has been accepted for consideration, is as under :- "The learned CIT(A)-IV, New Delhi has erred in fact in confirming the action of ACIT, Circle 1(1), New Delhi with regard to treatment of rental income of Rs. 6,11,84,339 as income from other sources, which is bad in law. The learned CIT(A)-IV, New Delhi is also not justified on disallowing the assessee's claim on depreciation on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship of land vested with IAAI and the land was given on lease for construction of the building for the purpose of running a hotel, the ingredients of becoming the landlord and the relationship of landlord and the tenant is not satisfied in the present case. 26. On an appeal in the assessment year 1999-2000, the CIT(A) has confirmed the Assessing Officer's action by observing that the Assessing Officer has given sufficient reasons to prove that the assessee is not the owner of the building and as such the Assessing Officer has rightly assessed the rental income as 'income from other sources' and denied the statutory deduction under section 24 of the Act. 27. However, in the assessment years 2000-01 and 2001-02, the CIT(A) has taken a view contrary to the view taken in the assessment year 1999-2000, and thus held that it is a matter of common knowledge that most of the houses in Delhi are on lease-hold land but still income derived there-from is assessed under the head 'Income from house property'. The CIT(A) also made a reference to the departmental publication on "income from house property" where it was stated that the ownership must be of super-structure, and it is not necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted the assessee's claim in earlier assessment years, i.e., assessment years 1997-98 and 1998-99 vide assessment framed under section 143(3) of the Act. In the alternative, the assessee submitted that in case it is held that the income from letting out property is assessable under the head 'Income from other sources', the depreciation on the building is to be allowed as provided under section 32 of the Act. 30. The ld. DR, on the other hand, supported the Assessing Officer's order and the order of CIT(A) in the assessment years 1999-2000 and 2002-03, and has disputed the CIT(A)'s action in accepting the assessee's claim for assessment years 2000-01 and 2001-02. He reiterated the reasons given by the Assessing Officer in rejecting the assessee's case. 31. We have considered the rival submissions of both the parties and have carefully gone through the orders of the authorities below, and we have deliberated upon the position of law relating to the issue in hand. 32. It is an admitted position that the assessee had taken a plot of land on lease for 30 years from IAAI, on which the assessee had constructed a motel as well as a commercial complex. The said property was assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who acquires any rights (excluding any rights by way of a lease from month to month or for a period of not exceeding one year) in or with respect to any building or part thereof, by way of any such transaction as is referred to in clause (f) of section 269 UA, shall be deemed to be the owner of that building or part thereof. Further, the legal position in India is also well settled to treat some person as owner of the superstructure constructed by him upon a land belonging to a lessor notwithstanding the fact that the land on which superstructure is made by the lessee belongs to and/or owned by the lessor of the land. In the lease agreement between the assessee and IAAI, nothing contrary is mentioned to show that the assessee did not construct the superstructure in his own right. Moreover, it is not the case of the department that the super-structure constructed by the assessee is not owned by the present assessee. At this stage, reliance may be placed upon the decision of Co-ordinate Bench, i.e., ITAT, Mumbai Bench in the case of Premavati Estates & Investments (P.) Ltd. (supra) where income from sub-letting of property was held to be assessable under the head 'Income from house ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of the authorities below. 38. On perusal of the orders of the authorities below and after hearing both the parties, we find that the assessee had debited certain amounts on account of depreciation in the profit and loss account prepared in accordance with the provisions of Parts II and III of Schedule VI of the Companies Act, 1956, which has been added back to the net profit by the Assessing Officer while computing the book profit for the purpose of section 115JB of the Act. The CIT(A) has reversed the Assessing Officer's action by observing that while computing the book profit under section 115JB, the Assessing Officer do not have any jurisdiction to go beyond the net profit shown in the profit and loss account prepared in accordance with the provisions of Parts II and III and Schedule VI of the Companies Act, 1956 except to the extent provided in the Explanation to section 115JB of the Act. The CIT(A) has placed reliance upon the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273 . In the light of the proposition laid down by the Supreme Court in the case of Apollo Tyres Ltd. ( supra) and having regard to the fact that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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