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From: Kapil Goel <advocatekapilgoel@gmail.com>
To: CA.KAPIL GOEL <kapilnkgoelandco@gmail.com>
Sent: Tuesday, 30 July 2013 11:13 AM
Subject: [Gzb_CA Group -CA. VINAY MITTAL] Fwd: Mumbai bench ITAT TDS Foreign membership to overseas Association no taxability and no TDS u/s 195 (non resident payment) ; Payments to part time accountants etc not professional payment for TDS u/s 194J; Allahabad high court approving SB ITAT Merilyn case 40(a)(ia) dis allowance on Year end outstanding; Agra ITAT duty to closely monitor unlawful activity by revenue authorities and ITAT powers (Kapur chand 131 ITR applied)
From: Kapil Goel <advocatekapilgoel@gmail.com>
To: CA.KAPIL GOEL <kapilnkgoelandco@gmail.com>
Sent: Tuesday, 30 July 2013 11:13 AM
Subject: [Gzb_CA Group -CA. VINAY MITTAL] Fwd: Mumbai bench ITAT TDS Foreign membership to overseas Association no taxability and no TDS u/s 195 (non resident payment) ; Payments to part time accountants etc not professional payment for TDS u/s 194J; Allahabad high court approving SB ITAT Merilyn case 40(a)(ia) dis allowance on Year end outstanding; Agra ITAT duty to closely monitor unlawful activity by revenue authorities and ITAT powers (Kapur chand 131 ITR applied)
Allahabad high court
Case :- INCOME TAX APPEAL No. - 122 of 2013
Appellant :- Commissioner Of Income Tax, Muzaffarnagar
Respondent :- M/S Vector Shipping Services(P) Ltd,Muzaffarnagar
The department has pressed the only question of law as follows:-
"(a) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT has rightly confirmed the order of the CIT (A) and thereby deleting the disallowance of Rs.1,17,68,621/- made by the Assessing Officer under section 40 (a) (ia) of the I.T. Act, 1961 by ignoring the fact that the company M/s Mercator Lines Ltd. had performed ship management work on behalf of the assessee M/s Vector Shipping Services (P) Ltd. and there was a Memorandum of Understanding signed between both the companies and as per the definition of memorandum of understanding, it included contract also."
In the present case the A.O. disallowed expenses on the ground that under Section 40 (a) (ia) expenses could not be allowed as no tax was deducted at source under Chapter XVII (B).
The CIT (A) reversed the findings, which have been affirmed by the Tribunal in para 7 as follows:-
"7. We have considered the submissions of both the parties and have perused the record of the case. The submissions made before ld. CIT (A), as noted earlier, have not been controverted by the Department. It is not disputed that M/s Mercator Lines Limited had deducted TDS on salaries paid by it on behalf of assessee. Under such circumstances assessee was not required to deduct TDS on reimbursement being made by it to M/s Mercator Lines Limited. Further in any view of the matter, since it is not disputed that no amount remained payable at the year end, therefore, in view of the Special Bench decision in the case of Merilyn Shipping and Transport Ltd., (136 ITD 23) (SB), addition could not be made. In this case, it was held as under:-
"Section 40 (a) (ia) was introduced in the Act, by the Finance Act, 2004 with effect from 1.4.2005 with a view to augment the revenue through the mechanism of tax deduction at source. This provision was brought on statute to disallow the claim of even genuine and admissible expenses of the assessee under the head 'Income from Business and Profession' in case the assessee does not deduct TDS on such expenses. The default in deduction of TDS would result in disallowance of expenditure on which such TDS was deductible."
Appellant :- Commissioner Of Income Tax, Muzaffarnagar
Respondent :- M/S Vector Shipping Services(P) Ltd,Muzaffarnagar
The department has pressed the only question of law as follows:-
"(a) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT has rightly confirmed the order of the CIT (A) and thereby deleting the disallowance of Rs.1,17,68,621/- made by the Assessing Officer under section 40 (a) (ia) of the I.T. Act, 1961 by ignoring the fact that the company M/s Mercator Lines Ltd. had performed ship management work on behalf of the assessee M/s Vector Shipping Services (P) Ltd. and there was a Memorandum of Understanding signed between both the companies and as per the definition of memorandum of understanding, it included contract also."
In the present case the A.O. disallowed expenses on the ground that under Section 40 (a) (ia) expenses could not be allowed as no tax was deducted at source under Chapter XVII (B).
The CIT (A) reversed the findings, which have been affirmed by the Tribunal in para 7 as follows:-
"7. We have considered the submissions of both the parties and have perused the record of the case. The submissions made before ld. CIT (A), as noted earlier, have not been controverted by the Department. It is not disputed that M/s Mercator Lines Limited had deducted TDS on salaries paid by it on behalf of assessee. Under such circumstances assessee was not required to deduct TDS on reimbursement being made by it to M/s Mercator Lines Limited. Further in any view of the matter, since it is not disputed that no amount remained payable at the year end, therefore, in view of the Special Bench decision in the case of Merilyn Shipping and Transport Ltd., (136 ITD 23) (SB), addition could not be made. In this case, it was held as under:-
"Section 40 (a) (ia) was introduced in the Act, by the Finance Act, 2004 with effect from 1.4.2005 with a view to augment the revenue through the mechanism of tax deduction at source. This provision was brought on statute to disallow the claim of even genuine and admissible expenses of the assessee under the head 'Income from Business and Profession' in case the assessee does not deduct TDS on such expenses. The default in deduction of TDS would result in disallowance of expenditure on which such TDS was deductible."
It is to be noted that for disallowing expenses from business and profession on the ground that TDS has not been deducted, the amount should be payable and not which has been paid by the end of the year.
We do not find that the Tribunal has committed any error in recording the finding on the facts, which were not controverted by the department and thus the question of law as framed does not arise for consideration in the appeal.
The income tax appeal is dismissed.
We do not find that the Tribunal has committed any error in recording the finding on the facts, which were not controverted by the department and thus the question of law as framed does not arise for consideration in the appeal.
The income tax appeal is dismissed.
IN THE INCOME TAX APPELLATE TRIBUNAL
AGRA BENCH, AGRA Smt. Meenakshi Devi 24. Before parting from the matter, we would like to exercise our power laid
down by the Apex Court in the case of Kapur Chand Shrimal vs. CIT, 131 ITR 451 (SC). The Court held as under:-
"It is well known that an appellate authority has the jurisdiction
as well as the duty to correct all errors in the proceeding under
appeal and to issue, if necessary, appropriate directions to the
authority against whose decision the appeal is preferred to dispose of
the whole or any part of the matter afresh, unless forbidden from the
doing so by statute."
25. It is to note in India most of the business activities, circulation of money and other financial activities are administrated through Income Tax Act, providing exemption in tax, incentives, allowances and dalliances of expense, labour and other welfare activities etc. In the case under consideration, the assessee is running an unusual business activity not in accordance with Indian Laws appears to be with collusion with the Department. That is the reason that the CIT(A) has to decide the
appeal on the basis of material available on record. The relevant observations of the CIT(A) are reproduced as under:-
"I have considered all the facts brought before me by the Ld.
AR in his written submission with regard to the nature of the business
of the appellant and I have also gone through the assessment order
and the facts stated in the assessment order and this appeal has been
decided on the basis of the facts stated in the assessment order and
also discussed in the written submission of the Ld. AR because the
assessment record was not made available to me by the present AO
ITO 1 (2), Aligarh despite asking him several times". 26. As per the law laid down by the Apex Court in the case of Kapur Chand
Shrimal vs. CIT, 131 ITR 451 (SC) and particularly under the circumstances of the country having large circulation of black money, we direct the A.O. to take all possible actions in accordance with law in such cases keeping in view our above discussions. The Registry is directed to send a copy of this order to the CCIT to administrate proceedings of such cases.
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH "A", MUMBAI M/s K S Aiyar & Co., /Date of Pronouncement : 19-06-2013 29. Ground no. 5 pertains to disallowance of Rs. 2,17,594/- u/s 40(a)(i) for non deduction of TDS, as per the provisions of section 195. 30. The facts, as reproduced in the assessment order are that the assessee paid Rs. 2,17,594/- as membership fee to Baker Tilly International (BTI), located in England, whose membership is restricted to professional firms worldwide, practicing profession of
accountancy. According to the submissions of the assessee recorded by the AO, BTI is a non business & non profit making organization, who circulates to its members, information relating to professional education and updates on the happening in the profession, worldwide. Since it is non business & non profit making organization, it neither receives any income from business connection in India nor it receives
any technical fee, as contemplated u/s 9 of the IT Act. In fact, BTI does not render any technical consultancy to anybody world over, which includes its members in India (which includes the assessee). As explained by the assessee to the AO, BTI does not render any services, which could be rendered as business connection and even in the
accounts, the only transaction recorded by the assessee was payment of subscription fee. Since, the expense does not involve any business consideration, and since it does not culminate into an element of profit to the recipient, the payment falls outside the scope of section 195. It was also submitted before the AO that deduction of TAS arises only if the payment is chargeable to tax in India. Since there was no part of this payment culminating in India, no tax was deductible u/s 195, as also clarified by the Board Circular No. 786, dated 07.02.2001. 33. The AO, therefore, disallowed the subscription payment of Rs. 2,17,594/- paid to BTI. 34. Aggrieved, the assessee approached the CIT(A), before whom it reiterated its submissions made before the AO. The CIT(A) took into consideration the order of the AO and the submissions made and concluded, "I have considered the rival submissions and the materials on record. The appellant is clearly a member of the BTI and has paid the membership fees. The decision of the Tribunal in the case of Arthur Anderson & Co. ITA No. 9125/Mum/1995 AY 1994-95 dated 29/7/03 is squarely applicable in this case. The Tribunal had extensively dealt
with the principle of abundant caution in the context of tax deduction at source. THE AO in my opinion, was justified in holding that in terms of the said decision of the Tribunal, the appellant had to make the said TDS. Consequently, Ground No. … deserves to be rejected". 35. He, therefore, sustained the disallowance of Rs. 2,17,594/-
made by the AO. 36. The assessee is now before the ITAT consideration the order of the AO and the submissions made and concluded, "I have considered the rival submissions and the materials on record. The appellant is clearly a member of the BTI and has paid the membership fees. The decision of the Tribunal in the case of Arthur
Anderson & Co. ITA No. 9125/Mum/1995 AY 1994-95 dated 29/7/03 is squarely applicable in this case. The Tribunal had extensively dealt with the principle of abundant caution in the context of tax deduction at source. THE AO in my opinion, was justified in holding that in terms of the said decision of the Tribunal, the appellant had to make the said TDS. Consequently, Ground No. … deserves to be rejected".
35. He, therefore, sustained the disallowance of Rs. 2,17,594/- made by the AO.
36. The assessee is now before the ITAT 39. The AR, pleaded that since no part of the payment made by the assessee to BTI, generated any income to the recipient, i.e. BTI, which is a non resident and payment having made to a non resident, out side of Indian tax regime, there was no liability on the assessee to deduct tax at source and, therefore, the assessee did not contravene the provisions of section 195 of the Income Tax Act, 1961. When we read the relevant provisions, along the Circular, and the relevant clauses of the agreement, we find that no part of the payment made as subscription to BTI has resulted in income in its hands. Court explains the applicability of expression "The expression "chargeable under the provisions of the Act" in section 195(1)
shows that the remittance has got to be of a trading receipt, the whole or part of which is liable to tax in India. If tax is not so assessable, there is no question of tax at source being deducted". In the present context, we find that none of the conditions gets fulfilled herein, in which case, the case, as cited, is in effect, in favour of the assessee.
43. In these circumstances, we set aside the orders of both the revenue authorities and direct the AO to delete the disallowance of Rs. 2,17,594/- made to BTI.
64. We have heard the arguments and have perused the relevant provision, which prescribed TDS on payments made to professionals. In its submissions, all along, the assessee has been praying that the payments had been made to non professional who are contracted for 3–4 months to do and learn the basic concepts of profession of
accountancy. The persons are students who are perusing their accountancy degree/diploma or even as interns. The concept of internship during college days has caught the fancy of students and employees alike, because, the students perusing their formative degree/diplomas are in a lookout of internship to get the knowledge of
the field and they are paid, which is good enough for their pocket money. It is economical for the employees to engage such persons, who would come, do the basic work of a paid employee, prepare some details/reports and go in 3-4 months time. On going through the submissions as reproduced by both the revenue authorities, we find
that assessee has made payments to such students or small time accountants, who take up office job work at certain period of times. 65. In these circumstances, we feel that these payments shall not attract deduction of tax at source and hence would not be hit by section 40(a)(ia).
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