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TMI Blog2019 (8) TMI 441X X X X Extracts X X X X X X X X Extracts X X X X ..... TDS u/s 195 - Addition u/s 40(a)(i) - payment was made towards quality rebate on export - HELD THAT:- The assessee placed copies of invoices of export. The assessee also placed copy of letter dated 19.12.2016. addressed to SBI, Hyderabad informing them that due to some quality problems, the assessee had agreed to give discount of USD 2500 to the party. Since it is a quality rebate towards discount, the assessee argued that the same does not attract TDS. Since the assessee has established that it is a quality rebate with relevant documents which goes to reduce the sale, there is no case for deduction of tax at source. Apart from the above it is established that the payment was quality rebate on sales and business transaction. As per Article VII of DTAA between India and UK, the business profits are taxable in contracting state and in this case, the recipient is foreign company having no permanent establishment. The case law relied upon by the Ld.AR is squarely applicable in the assessee s case. Hence, we hold that there is no case for deduction of tax at source and making the addition u/s 40(a) (i). Accordingly addition made by the AO is deleted and the appeal of the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee filed objection before the DRP and the Ld. DRP upheld the proposal of the AO and rejected the objection made by the assessee. Accordingly, the AO framed the assessment u/s 143(3) r.w.s. 144C(13) of the Act by an order dated 02.02.2015 making ddition of ₹ 29,44,568/- u/s of the Act. 5. Aggrieved by the order of the AO, the assessee filed appeal before this Tribunal. During the appeal hearing, the Ld.AR submitted that the assessee had entered into agreement with M/S Hoe Seng Chan Company, Malaysia on 24.10.2006 for export of 10000 MT of Indian Yellow Maize and due to high prices prevailing in the market, the assessee could not procure the product from the market for export to the said customer, hence, to cover the losses suffered, the foreign company claimed the compensation @7$ per 10000 MT totaling to USD 70000 vide debit note dated 30.03.2007. To keep continuous business relationship with the party, it has paid the compensation of ₹ 28,32,572/- on 13.07.2007 towards compensation. Since, the amount was paid for settlement of non fulfillment of contract, the assessee submitted that T DS provisions are not applicable to the transaction. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence, the case law is not applicable in the instant case. 7 We have heard both the parties and perused the material placed on record. The assessee has made the payment of ₹ 28,32,572/- to M/S Hoe Seng Chan company of Malaysia for breach of contract for supply of 10000 MT of Indian Yellow Maize. There is no dispute that the transaction in question is a trading transaction and on account of the assessee s failure to supply the material business loss was claimed by the foreign buyer. The compensation was paid @ $7 per MT aggregating to USD 70000 vide their debit note dated 30.03.2007. This amount was paid for settlement of non fulfillment of contract. Since the amount is paid for the business loss claimed by the foreign buyer as a compensation for failure of the assessee to export 10000 MT of Indian Yellow Maize and the said payment constitutes income in the hands of the recipient company. Similar payment of was paid to M/S ITOCHU EUROPE PLC, UK towards quality rebate on export of 20 MT N.B.Shea Stearin @USD 125 per M.T. and the relevant evidences were placed before the AO as well as the CIT during the assessment proceedings at the time of revision. As per sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blishments situated or elsewhere. 4. In solar as it has been customary in a Contracting State to determine the income or profits to be attributed to a permanent establishment on the basis S an, apportionment of the total income profits of the enterprise to its various parts, nothing in paragraph.2 or paragraph 3 of this Article shall preclude such Contracting State from determining the income or profits to be taxed by such on apportionment as may be customary; the method Of apportionment adopted shall, however, be such that the result shall be in accordance with the principles laid down in this Article. 5. No income or profits shah be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment Of goods or merchandise for the purpose of expert to the enterprise of which ills the permanent establishment. 6. Where income or pro Its include items of income which are dealt with separately in other Articles o this Agreement, then the provisions of those Articles shall not be affected by the provisions at this Article. 7.1 In the instant case, there is no dispute that the foreign c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he nature of the business profit and M/S. Swissgen NV London, UK which is a non-resident company has no PE in India as per Article 5 ofthe DTAA. It is argued that M/S. Radhasons International is an independent broker. He further pleaded that obligation Co deduct tax at source u/s. 195(1) arise only when the income Of the non-resident is chargeable to tax in India. The Learned Counsel relied on the following precedents / decisions:- (i) VAN OORD ACZ India (P) Ltd. vs. CIT 36 DTR 425 (Del) (ii) ITO vs. Proceed Petition Ltd. 3 ITR 58 (iii) Mahindra Mahindra vs. Dy. CIT (SB) 313 ITR 263 (iv) Royal Airways Ltd. vs. DDIT 98 ITD 259 (Del) 7. The Learned Counsel further argued that the Hon'ble Special Bench has already considered the decision of the Hon ble High Court of Karnataka in the case of CIT vs. Samsung Electronics Ltd. 320 IT R 209. It is argued that, so far as the interest element in the compensation is concerned the same is merged with the compensation and it looses its original character and assumes the character of judgment debt. For the said proposition, he relied on the decision of Hon bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties have not understood the issue in a proper prospective. So far as character of the compensation is concerned, in our opinion, it is a business profit and is covered under Article 7 of DTAA of UK and India as it is arising out of the trading contract entered into by the assessee and M/S. Swissgen NV London, UK. It appears that the said contract was through one broker M/S. Radhasons International, Mumbai. 9. The next issue is to be determined whether there is any PE as per Article 5 of DTAA between India and UK. Nowhere it is a case of the A.O. as well as CIT (A) that Radhasons International was dependent broker. As per the facts on record, a contract was only supply of goods in India and nothing is there on record to suggest that M/S. Radhasons International was the dependent agent of theforeign buyer. The foreign buyer has no PE in India. As per Article 5(5) of DTAA, even if any business is carried out through a broker or general commission agent or any other agent of an independent status, then it cannot be said that the non-resident has PE in India. We, therefore, hold that as M/S. Swissgen NV London, [1K has no PE in India and hence the compensation award ..... X X X X Extracts X X X X X X X X Extracts X X X X
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