The Commissioner Of Income Tax, Faridabad v. M/S. Ram Gopal And Sons

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No. 214 of 2014 (O & M)Date of Decision:- 29.07.2015 The Commissioner of Income Tax, Faridabad .......Petitioner(s) vs. M/s. Ram Gopal and sons .....Respondent(s) CORAM:- HON'BLE MR. JUSTICE S.J. VAZIFDARACTING CHIEF JUSTICE HON'BLE MR. JUSTICE G.S. SANDHAWALIA Present:-Mr. Tajender K. Joshi, Advocate,for the appellant. Mr. Jagmohan Bansal, Advocate,for the respondent. S.J. VAZIFDAR, A.C.J. (Oral) 1.This is an appeal against the order of the Income Tax AppellateTribunal upholding the order of the Commissioner of Income Tax (Appeals)deleting the addition made by the Assessing Officer on the ground that therespondent/assessee had failed to deduct tax at source as required underSection 195 of the Income tax Act, 1961 (in short 'the Act'). This appealpertains to the assessment year 2007-08. 2.The appellant contends that the following substantial questions of law arise in this appeal:- “IWhether on the facts and in thecircumstances of the case, the Hon'ble ITAT was right inlaw in deleting the addition of Rs. 47,91,979/- made onaccount of payment of commission made to agents viz.of Turkey at Rs. 35,34,232/- and of Mauritius at Rs.12,57,747/- disregarding the fact that the assessee had made the alleged payments without deducting tax at source. IIWhether on the facts and in thecircumstances of the case, the Hon'ble ITAT was right inlaw in deleting the addition of Rs. 4,84,197/- made onaccount of shortage in production even when theassessee has not been able to justify the shortage infurnished product.” 3.The assessee admittedly made payments to two agents, one inTurkey and the other in Mauritius, who were non-residents. The paymentswere remitted abroad directly. The CIT and the Tribunal set aside the orderof the Assessing Officer in view of the circular No. 786 dated 07.02.2000issued by the Central Board of Direct Taxes. The circular inter alia statesthat no tax is deductible under Section 195 of the Act in respect ofexpenditure on export commission and other related charges payable to anon-resident for services rendered outside India. The relevant part of thecircular reads thus:- “2.The deduction of tax at source undersection 195 would arise if the payment of commission tothe non-resident agent is chargeable to tax in India. Inthis regard attention to C.B.D.T. Circular No. 23, dated23[rd] July, 1969, is drawn, where the taxability of“Foreign Agents of Indian Exporters” was consideredalongwith certain other specific situations. It had beenclarified then that where the non-resident agentoperates outside the country, no part of his incomearises in India. Further, since the payment is usuallyremitted directly abroad it cannot be held to have beenreceived by or on behalf of the agent in India. Suchpayments were therefore held to be not taxable in India.The relevant sections, namely, section 5(2) and section9 of the Income-tax Act, 1961, not having undergone any change in this regard, the clarification in CircularNo. 23 still prevails. No tax is therefore deductibleunder Section 195 and consequently, the expenditure onexport commission and other related charges payableto a non-resident for services rendered outside Indiabecomes allowable expenditure. On being appraisedfor this position, the Comptroller and Auditor-Generalhave agreed to drop the objection referred to above.” 4.The facts in this case are admitted. In view thereof, the firstquestion does not raise a substantial question of law. The question isanswered against the appellant and in favour of the assessee. any change in this regard, the clarification in CircularNo. 23 still prevails. No tax is therefore deductibleunder Section 195 and consequently, the expenditure onexport commission and other related charges payableto a non-resident for services rendered outside Indiabecomes allowable expenditure. On being appraisedfor this position, the Comptroller and Auditor-Generalhave agreed to drop the objection referred to above.” 4.The facts in this case are admitted. In view thereof, the firstquestion does not raise a substantial question of law. The question isanswered against the appellant and in favour of the assessee. 5.The second question raised by the appellant does not raise aquestion of law at all. It is only a question of fact. The Assessing Officermade an addition to the assessee's income having rejected the assessee'scase that there was a shortage in production. The CIT found, as a matter offact, that the assessee had been maintaining the complete details/particularsof opening stock, purchase, consumption, production and sales, which werein fact verified and accepted by the Assessing Officer. The finding is thatthe addition was made purely on imagination and assumptions withoutbringing any documentary material on record. The finding is neither absurdnor perverse. 6.The second question is also answered against the appellant andin favour of the assessee. 7.In the circumstances, the appeal is dismissed. (S.J. VAZIFDAR)ACTING CHIEF JUSTICE (G.S. SANDHAWALIA) JUDGE