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TMI Blog2024 (11) TMI 309X X X X Extracts X X X X X X X X Extracts X X X X ..... So, it only remains to be seen as to whether the ld. CIT(A) has correctly held the income of the non-resident to be not accruing or arising in India as per the provisions of Section 9. The first requirement is that of a business connection in India or any property in India or any asset or source of income in India or the transfer of a capital situated in India. It is evident on record and not disputed that the matter does not concern the income in question to have accrued or arisen, whether directly or indirectly through or from any business connection in India or any property in India or any asset or source of income in India or through the transfer of a capital asset situated in India. Then, since the payments were not by way of either salary, or dividend, or interest, or royalty or technical services, other provisions of Section 9 do not get attracted. This being so, the remittance in question cannot be taxed in India. The Department, again has not been able to refute this. As a necessary corollary, then, since the income of the non- residents is not exigible to tax in India, the provisions of Section 195 do not get attracted and there was no liability on the assessee to make TD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure was compensatory in nature but AO, however, held the VAT penalty to be penal in nature, having arising due to a penalty on the part of the assessee for not making deposit within the stipulated time - CIT(A) deleted addition and held the penalty to be in the nature of a fine which is compensatory - HELD THAT:- Before us, the Department has not been able to make out any case as to how the ld. CIT(A) is wrong in holding the penalty in question to be compensatory payment. No decision contrary to those relied on by the ld. CIT(A) has been cited before us. Therefore, finding no error therein, the Commissioner s action of deleting the addition is confirmed. Addition on account of application money paid by the assessee and advances made - CIT(A) deleted addition - HELD THAT:- CIT(A) observed that since the funds had been invested from the assessee's Current Account, in which, the assessee's own funds were deposited, it could not be said that borrowed funds were used for making the advance; that no interest was payable by the assessee of this money; and that therefore, the disallowance of interest on this score had not been correctly made by the AO. The ld. CIT(A) deleted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed off. 3. Ground Nos. 1, 4 and 5 are general. 4. Ground No. 2 pertains to the issue of the ld. CIT(A) having deleted the addition of export commission of Rs. 2,20,71,855/- paid by the assessee to NRIs without deducting TDS. 5. The AO disallowed the expenditure on the commission on exports amounting to Rs. 2,20,71,855/-, invoking the provisions of Section 40(a)(ia) of the Income Tax Act, 1961. The assessee had made payments on the commission as follows : Sr. No Party Address 1. Fabirizio Beccuui Mr. Febrizio c/o Vega Representanze Industriali, 10126 Troino Italy, Corso Massimo D' azelio 102, Ph.-+390116670373 2. Suriyon Kittikovittana Suriyon Kitti Kovittana, 10220, Bankok, Thailand-101200 3. Salah Trading Agencies Salah Trading Agencies, P.O. Box 5287, Manama, Kindom of Bahrain-Tel +973-17537929 4. Stefan Meisels Ltd Stafan Meisels, c/o Stefan Meisels Ltd, POB 6730, EFRAT 90435, Israel, Tel.+97229938072 5. Puerto Rico Agencies co. Puerto Rico Agencies Co. 6. pan Pacific Trading Pan Pacific Trading, LA, Mnda, Guaynabo, Pueto rico-009190220 7. Geaves Direct Limited-UK Lyon house-81, Haltwhiste Road, South Woodham Ferrers, Foireig, Uganda, 606930, POB-210760, 50532 Cologne, Germ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any business connection in India or source of income in India shall be deemed to accrue or arise in India. The words 'accrue' or 'arise' occurring in section 5 have more or less a synonymous sense and income is said to accrue or arise when the right to receive it comes into existence. As per section 5 and section 9 of the Act the income is deemed to accrue or arise in India even if the services by commission agents have been rendered abroad. Further since the right to receive the commission arises in India, the income of such commission agents is deemed to accrue or arise in India and accordingly tax deduction would be mandatory u/s 195. In this regard reliance is placed on the judgement of authority of advance ruling in the case of SKF Boilers and Driers Pvt. Ltd. A.A.R. No. 983-984 of 2010 dated 22.02.2012 wherein it is held that the income arising on account of commission payable to the non-resident agents is deemed to accrue and arise in India, and is taxable under the Act in view of the specific provision of section 5(2)(b) read with section 9(1 )(i) of the Act. The provision of section 1 95 would apply, and the rate of tax will be as provided as under the Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrectly made by the AO be revived. 8. On the other hand, the ld. Counsel for the assessee has placed strong reliance on the impugned order. 8.1 It has been contended that as correctly held by the ld. CIT(A), Sections 5 and 9 of the Income Tax Act, rendered abroad, cannot be taxed in India; that as further correctly held by the ld. CIT(A), once this is so, the provisions of Section 195 are not attracted and so, no question of making TDS on such payments under Section 195 of the Act arose; that the services of the agents were rendered in their respective countries and not in India; that there is nothing on record to show that these services were technical in nature; that the AO had utterly failed to show that there was any business connection in India; that as such, there was no basis for the AO to make the addition in question, which has been rightly deleted by the ld. CIT(A); and that there being no merit whatsoever in the ground raised by the Department, the same be rejected while confirming the well reasoned order passed by the ld. CIT(A). 9. We have heard the parties on this issue in the light of the material placed on record. The factum of the service being rendered by the eig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion was done by the assessee to the agents abroad, through banking channels. It has been found as a fact that the payment was made from the bank account of the assessee directly as a foreign remittance to the agents abroad, as available from the bank certificates furnished by the assessee. The remittance to the agents was in foreign currency, i.e., in the currency of the respective country of the agent. The remittance, it is note worthy, was made directly to the agents and no deposit was made in their accounts. As such, there was no question of the remittance having either been received in India or being deemed to have been received in India, as correctly held by the ld. CIT(A), to which there is no rebuttal. Then, since the services were rendered outside India, it does not amount to a case of income either accruing or arising in India. So, it only remains to be seen as to whether the ld. CIT(A) has correctly held the income of the non-resident to be not accruing or arising in India as per the provisions of Section 9. The first requirement is that of a business connection in India or any property in India or any asset or source of income in India or the transfer of a capital situa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee had made investment of Rs. 2,45,49,077/- in M/s Amravati Infrastructure Development Fund Ltd. He also found that an investment of Rs. 2,43,36,672/- had been made on 31.03.2012. These investments had been shown in the Balance Sheet as long term advances. The assessee was queried as to why the provisions of Section 14A be not applied and disallowance of expenditure be not made by applying Rule 8D of the Rules, since income from M/s Amravati Infrastructure Development Fund Ltd. was exempt. The assessee responded that no exempt income had been earned from the investment. The AO refused to accept the stand taken by the assessee. He observed that the matter of earning of exempt income had become irrelevant in view of CBDT Circular No.5 dated 11. 02.2014, as per which Rule 8D of the Rules read with Section 14A of the Act provides for disallowance of all expenditure even where no exempt income had been earned. The AO held that the provisions of Section 14 A would apply even if no exempt income had been earned. Reliance, in this regard had been placed on the Memorandum explaining the provisions of the Finance Bill, 2001, whereby, the provisions of Section 14A had been propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , dividend from shares, Section 14 A of the Act cannot be invoked. No contrary decision has been brought to our notice. Further, the undisputed facts are that the investment made was of Rs. 2, 45,49,077/-. As against this, the income during the year was of Rs. 6,57,17,670/-. Income for the immediately preceding assessment year, i.e., assessment year 2012-13, was of Rs. 3,69, 48, 862/-. The income for assessment year 2011-12 was of Rs. 3, 48,09,400/-, that for assessment year 2010-11 was of Rs. 4,96,37, 318/-; the investment was made out of interest free funds available with the assessee. The share capital of the assessee was of Rs. 7,31,62,000/-, there were reserves and surplus of Rs. 20,51,03, 272 /-; therefore, there was availability of an amount of Rs.27,82, 65,272/- of interest free funds available with the assessee. It also remains undisputed that no borrowings were made for making the investments and, therefore, no expenditure had been incurred to earn any income and no dividend or other exempt incomes were earned for the investment. The stress of the AO has been on the fact that the provisions of Section 14A of the Act are applicable despite no income having been earned. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) of the Income Tax Act. The AO observed that the assessee had given loans and advances to various parties, amounting to Rs. 92,24,578/- plus Rs. 24,98,733/- = Rs. 1,17,23,311/-, as follows : Narration Advance Advance against land Rs. 73,42,000/- Application money for HUDA Rs. 6,40,000/- HSIIDC, Panchkula Rs, 2,92,578/- Zeal Exim Pvt. Ltd. Rs. 9,50,000/- Total Rs. 92,24,578/- 22.1 The AO disallowed interest on these advances, @ 12%. The AO placed reliance on the decision of the Hon'ble Punjab Haryana High Court in the case of M/s Abhishek Industries Ltd. 286 ITR 1 (P H). The AO observed that the interest paid by the assessee corresponding to the interest free advances, was to be allowed on a proportionate basis, the advances having not been made for business purposes. 23. The ld. CIT(A), confirmed the disallowance of interest on Rs. 73,42,000/- advanced against land, Rs. 2,92,578/- advanced to HSIDC, Panchkula and Rs. 9,50,000/- advanced to Zeal Exim P. Ltd. which confirmations have been challenged by the assessee by way of Ground No. 2. 24. Apropos the advance against land, of Rs. 73,42,000/-, the ld. CIT(A) has observed (page 15 para 5.4 of the impugned order) that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Construction P. Ltd. 71 Taxman 184, ACIT Vs Omaxe Bikes Ltd. 156 ITD 566 (CHD). 25. The ld. DR, on the other hand, has placed strong reliance on the impugned order, stating that the ld. CIT(A) has correctly confirmed the disallowance in these three cases, since in the first transaction, i.e., purchase of land, there was a capital purchase for future expansion of business; that capital asset in the share of land was purchased but not put to use during the year; that the expenditure was a capital expenditure and was not allowable as a revenue expenditure; that the investment in the industrial plot from HSIDC was again for the purchase for business purposes, but, the asset was not put to use during the year and the payment was out of interest bearing funds, as in the earlier case of purchase of land; that therefore, here also, the disallowance made was correctly made under the proviso to Section 36(1)(iii) of the Act. It has been contended that apropos the advance made to M/s Zeal Exim P. Ltd. (supra), no business expediency for making the advance has been proved. 26. Having considered the rival submissions made on the basis of the material available on record, where the facts are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act the income is deemed to accrue or arise in India even if the services by the commission agents have been rendered abroad. Further since the right to receive the commission arises in India, the income of such commission agents is deemed to accrue or arise in India and accordingly tax deduction would be mandatory u/s 195. 3. On the facts and in the circumstances of the case, the Ld.CIT(A) has erred in deleting the addition made on account of VAT penalty, ignoring the detailed finding of the assessing officer that the said expenses were penal in nature and had arisen due to the default on part of the assessee. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 30,930/- made u/s 36(l)(iii) of the I.T.Act, 1961 on account of application money paid to HUDA, observing that the assessee made advances from the current account representing the non-interest bearing funds ignoring that the current account is a mixed kitty account where interest bearing and interest free funds can be parked for further payment. 5. On the facts and in the circumstances of the case, the Ld. CLT(A) has erred in deleting the addition of Rs. 1,27,752/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , has deleted the disallowance made by the AO by following the CIT(A) s order for assessment year 2013-14, where the assessee had contended that the amount had been paid from the assessee's Current Account in HDFC Bank, in January, 2012. The ld. CIT(A) observed that since the funds had been invested from the assessee's Current Account, in which, the assessee's own funds were deposited, it could not be said that borrowed funds were used for making the advance; that no interest was payable by the assessee of this money; and that therefore, the disallowance of interest on this score had not been correctly made by the AO. The ld. CIT(A) deleted the addition. 34.2 While doing so, the ld. CIT(A) found no difference in the facts for both the years, i.e., assessment year 2013- 14 and 2014-15. 35. For assessment year 2013-14, the above deletion of disallowance of application money paid to HUDA was not challenged by the Department before the Tribunal. The facts on this issue for both, assessment year 2013-14 and assessment year 2014-15 are the same. The amount involved in both the years is the same, i.e., Rs. 6,40,000/-. 35.1 By way of Ground No.4, the Department has alleged that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of Ground No.2 is against the action of the ld. CIT(A) in confirming the disallowance of Rs. 56,229/- made by the AO under Section 36(1)(iii) of the Act on advance against land given by the assessee. According to ld. Counsel for the assessee, this ought not to have been done since the assessee had sufficient interest free funds of its own to make such advances. 38. The ld. DR has placed reliance on the impugned order. 39. Ground No. 2 is covered by our findings in Ground No. 2 in the assessee's appeal for assessment year 2013-14, in ITA 960/CHD/2017, dealt with by us in the preceding portion of this order. Therefore, following our findings on Ground No. 2 in the assessee's appeal in ITA 960/CHD/2017, the appeal of the assessee in ITA 394/CHD/2019 is treated as allowed for statistical purposes. 40. In the result, the Department s appeal in ITA No.1033/CHD/2017 for assessment year 2013-14 is dismissed. The assessee's appeal for assessment year 2013-14 in ITA No.960/CHD/2017 is partly allowed. The Department s appeal for assessment year 2014-15, in ITA No.389/ CHD/2019 is partly allowed, and the assessee's appeal for assessment year 2014-15 in ITA No.394/ CHD/2019 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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