Whether On The Facts And In Thecircumstances Of The Case, The Income Taxappellate Tribunal Was Right In Not Consideringthe Retrospective Amendment To The Income v. Fluidtherm Technology (P). Ltd.],Wherein The Hon'ble Division Bench Held As Follows

IN THE HIGH COURT OF JUDICATURE AT MADRASDATE: 31.03.2021 THE HON'BLE MR. JUSTICE M.DURAISWAMYAND THE HON'BLE MRS.JUSTICE T.V.THAMILSELVI T.C.A.No.299 of 2014 The Commissioner of Income Tax,Chennai.... Appellant/AppellantVs.M/s.Tamil Nadu Newsprint and Papers Limited,No.87, Anna Salai, Chennai – 600 032.... Respondent/Respondent Appeal preferred under Section 260A of the Income TaxAct, 1961, against the order of the Income Tax AppellateTribunal, Madras, "A" Bench, dated 02.12.2011 inI.TA.No.555/Mds/2011 for the assessment year 2007-08 andagainst the O/o. The Commissioner of Income Tax (Appeals)-III, Chennai-34 and madein 641/09-10/A-III, Order date20/12/2010 and against the Assistant Commissioner of IncomeTax, Company Circle-III(I) Chennai-34 and made in PANNo.AAACT2935J/31021-T order date 22/12/2009 for the assessmentYear 2007-2008. For Respondent : Mr.R.Vijayaraghavan Challenging the order passed in I.TA.No.555/Mds/2011 inrespect of the assessment year 2007-08 on the file of theIncome Tax Appellate Tribunal, Chennai, "A" Bench, the Revenuehas filed the above appeal. 2.The above appeal was admitted on the followingsubstantial questions of law:“1)Whether on the facts and in thecircumstances of the case, the Income Taxhttps://hcservices.ecourts.gov.in/hcservices/Appellate Tribunal was right in holding that the disallowance made u/s 40(a)(i) amounting toRs.87.72 lakhs is not proper? 2)Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in not consideringthe retrospective amendment to the Income TaxAct by Finance Act 2010 to Section 9(1)? 3)Whether the amended explanation to 9(2)relating to the income of the non-residentshall be deemed to accrue or arise in India andshall be included in the total income of thenon-resident whether or not he has a residentor place of business or business connection inIndia or has done services in India? 4)Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in holding thatthe deduction under Section 80-IA is to be donewithout setting off losses on optional basisinspite of clear provisions of Section 80-IAstipulating that the said undertaking should beconsidered as only source of income of theassessee for the purpose of determiningeligible profit?” 3.When the appeal is taken up for hearing,Mr.M.Swaminathan, learned senior standing counsel appearingfor the appellant – Revenue fairly submitted that thequestions of law nos.1 to 3 are covered, against the Revenue,by a decision of the Hon'ble Division Bench of this Courtreported in [2015] 57 taxmann.com 87 (Madras) [Commissioner ofIncome Tax, Chennai Vs. Fluidtherm Technology (P). Ltd.],wherein the Hon'ble Division Bench held as follows: “... 7. This Court, in the case of CIT v. FaizanShoes (P.) Ltd. [2014] 367 ITR155 / 226 Taxman 115/48 taxmann.com 48 (Mad.), had an occasion to considera similar issue and after exhaustive analysis of thedifferent provisions of the Income Tax Act and alsotaking into consideration the law laid down by theSupreme Court with regard to the said provisions,held as follows :- '6. Before adverting the merits of thecase, it would be apposite to refer to section 9(1)(i), section 9(1)(vii) and section 9(2) ofthe Act, which read as under: Section 9. Income deemed to accrue or arise inIndia.(1)The following incomes shall be deemedto accrue or arise in India (i) all income accruing or arising, whetherdirectly or indirectly, through or from anyhttps://hcservices.ecourts.gov.in/hcservices/business connection in India, or through or from any property in India, or through or from anyasset or source of income in India, or throughthe transfer of a capital asset situate inIndia; *** (vii) income by way of fees for technicalservices payable- '6. Before adverting the merits of thecase, it would be apposite to refer to section 9(1)(i), section 9(1)(vii) and section 9(2) ofthe Act, which read as under: Section 9. Income deemed to accrue or arise inIndia.(1)The following incomes shall be deemedto accrue or arise in India (i) all income accruing or arising, whetherdirectly or indirectly, through or from anyhttps://hcservices.ecourts.gov.in/hcservices/business connection in India, or through or from any property in India, or through or from anyasset or source of income in India, or throughthe transfer of a capital asset situate inIndia; *** (vii) income by way of fees for technicalservices payable- Provided that nothing contained in this clauseshall apply in relation to any income by way offees for technical services payable in pursuanceof an agreement made before the 1st day April,1976, and approved by the Central Government. Explanation 1. - For the purposes of theforegoing proviso, an agreement made on or afterthe 1st day of April, 1976, shall be deemed tohave been made before that date if the agreementis made in accordance with proposals approved bythe Central Government before that date. Explanation 2. - For the purposes of thisclause, 'fees for technical services' means anyconsideration(includinganylumpsumconsideration) for the rendering of anymanagerial, technical or consultancy services(including the provision of services oftechnical or other personnel) but does notinclude consideration for any construction,assembly, mining or like project undertaken bythe recipient or consideration which would beincome of the recipient chargeable under thehead 'Salaries'. (2) Notwithstanding anything contained in sub-section(1), any pension payable outside India toa person residing permanently outside Indiashall not be deemed to accrue or arise in India,if the pension is payable to a person referredto in article 314 of the Constitution or to aperson who, having been appointed before the15th day of August, 1947, to be a Judge of theFederal Court or of a High Court within themeaning of the Government of India Act, 1935,continues to serve on or after the commencementof the Constitution as a Judge in India. Explanation.For the removal of doubts, it ishereby declared that for the purposes of thissection, income of a non-resident shall bedeemed to accrue or arise in India under clause(v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the totalincome of the non-resident, whether or not, - (i) the non-resident has a residence or place ofbusiness or business connection in India ; or https://hcservices.ecourts.gov.in/hcservices/ (ii) the non-resident has rendered services inIndia." Explanation.For the removal of doubts, it ishereby declared that for the purposes of thissection, income of a non-resident shall bedeemed to accrue or arise in India under clause(v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the totalincome of the non-resident, whether or not, - (i) the non-resident has a residence or place ofbusiness or business connection in India ; or https://hcservices.ecourts.gov.in/hcservices/ (ii) the non-resident has rendered services inIndia." 7. On a reading of section 9(1)(vii) of the Act,we are not inclined to accept the plea taken bythe learned senior standing counsel appearingfor the Revenue that commission paid by theassessee to the non-resident agent would comeunder the term "fees for technical services". Inthe case on hand, for procuring orders forleatherbusinessfromoverseasbuyerswholesalers or retailers, as the case may be,the non-resident agent is paid 2.5 per cent.commission on FOB basis. That appears to be acommission simpliciter. What is the nature oftechnical service that the so-called nonresidentagent has provided abroad to the assessee is notclear from the order of the Assessing Officer.The opening of letters of credit for the purposeof completing export obligation is an incidentof export and, therefore, the non-resident agentis under an obligation to render such servicesto the assessee, for which commission is paid.The non-resident agent does not providetechnical services for the purposes of runningof the business of the assessee in India. Theservices rendered by the non-resident agent canat best be called as a service for completion ofthe export commitment. We are, therefore, of theconsidered opinion that the commission paid tothe non-resident agent will not fall within thedefinition of fees for technical services.*** 9. The Explanation to section 9(2) of the Actwas substituted by the Finance Act, 2010, withretrospective effect from June 1, 1976. Theabove said explanation would come into play onlyif the said amount paid would fall under theheadings : (i) income by way of interest as set out insection 9(1)(v) of the Act ; or (ii) income by way of royalty as set out insection 9(1)(vi) of the Act ; or (iii) income by way of fees for technicalservices as set out in section 9(1)(vii) of theAct. 10. While dealing with section 9(1) of the Act,the Supreme Court in CIT v. Toshoku Ltd. [1980]125 ITR 525(SC), on considering a transactionwhere tobacco was exported to Japan and Franceand sold through non-resident assessees who werepaid commission, held as under: https://hcservices.ecourts.gov.in/hcservices/ (i) income by way of interest as set out insection 9(1)(v) of the Act ; or (ii) income by way of royalty as set out insection 9(1)(vi) of the Act ; or (iii) income by way of fees for technicalservices as set out in section 9(1)(vii) of theAct. 10. While dealing with section 9(1) of the Act,the Supreme Court in CIT v. Toshoku Ltd. [1980]125 ITR 525(SC), on considering a transactionwhere tobacco was exported to Japan and Franceand sold through non-resident assessees who werepaid commission, held as under: https://hcservices.ecourts.gov.in/hcservices/ "8. The second aspect of the same question iswhether the commission amounts credited in thebooks of the statutory agent can be treated asincomes accrued, arisen, or deemed to haveaccrued or arisen in India to the non-residentassessees during the relevant year. This takesus to section 9 of the Act. It is urged that thecommission amounts should be treated as incomesdeemed to have accrued or arisen in India asthey, according to the department, had eitheraccrued or arisen through and from the businessconnection in India that existed between thenon-resident assessees and the statutory agent.This contention overlooks the effect of clause(a) of the Explanation to clause (i) of sub-section (1) of section 9 of the Act whichprovides that in the case of a business of whichall the operations are not carried out in India,the income of the business deemed under thatclause to accrue or arise in India shall be onlysuch part of the income as is reasonablyattributable to the operations carried out inIndia. If all such operations are carried out inIndia, the entire income accruing therefromshall be deemed to have accrued in India. If,however, all the operations are not carried outin the taxable territories, the profits andgains of business deemed to accrue in Indiathrough and from business connection in Indiashall be only such profits and gains as arereasonably attributable to that part of theoperations carried out in the taxableterritories. If no operations of business arecarried out in the taxable territories, itfollows that the income accruing or arisingabroad through or from any business connectionin India cannot be deemed to accrue or arise inIndia (see CIT v. R. D. Aggarwal and Co. [1965]56 ITR 20(SC) and Carborandum Co. v. CIT [1977]108 ITR 335(SC) which are decided on the basisof section 42 of the Indian Income-tax Act,1922, which corresponds to section 9(1)(i) ofthe Act). 9. In the instant case, the non-residentassessees did not carry on any businessoperations in the taxable territories. Theyacted as selling agents outside India. Thereceipt in India of the sale proceeds of tobaccoremitted or caused to be remitted by thepurchasers from abroad does not amount to anoperation carried out by the assessees in Indiaas contemplated by clause (a) of the Explanationto section 9(1)(i) of the Act. The commission https://hcservices.ecourts.gov.in/hcservices/ amounts which were earned by the non-residentassessees for services rendered outside Indiacannot, therefore, be deemed to be incomes whichhave either accrued or arisen in India. The HighCourt was, therefore, right in answering thequestion against the Department." 11. The facts of the present case are akin tothe facts of the decision in Toshoku Ltd.'scase, referred supra. In the instant case alsothe assessee engaged the services of non-resident agent to procure export orders and paidcommission. That apart, the Commissioner ofIncome-tax (Appeals) as well as the Tribunalhave correctly applied the principle laid downin GE India Technology Centre (P.) Ltd.'s case,referred to supra, to hold that the assessee isnot liable to deduct tax at source when the non-resident agent provides services outside Indiaon payment of commission. 11. The facts of the present case are akin tothe facts of the decision in Toshoku Ltd.'scase, referred supra. In the instant case alsothe assessee engaged the services of non-resident agent to procure export orders and paidcommission. That apart, the Commissioner ofIncome-tax (Appeals) as well as the Tribunalhave correctly applied the principle laid downin GE India Technology Centre (P.) Ltd.'s case,referred to supra, to hold that the assessee isnot liable to deduct tax at source when the non-resident agent provides services outside Indiaon payment of commission. 12. In the light of the above said decisions andthe finding rendered by us on the earlier issuethat the services rendered by the non-residentagent can at best be called as a service forcompletion of the export commitment and wouldnot fall within the definition of fees fortechnical services, we are the firm view thatsection 9 of the Act is not applicable to thecase on hand and, consequently, section 195 ofthe Act does not come into play. In view of theabove finding, the decision of the Supreme Courtin Transmission Corporation of A. P. Ltd.'scase, referred to supra, relied upon by thelearned standing counsel for the Revenue is notapplicable to the facts of the present case. Wefind no infirmity in the order of the Tribunalin confirming the order of the Commissioner ofIncome-tax (Appeals). 8. The above decision of this Court in FaizenShoes (P.) case (supra) is squarely applicable to thefacts of the present case. 9. In the result, this Court finds no reason tointerfere with the order passed by the Tribunal. Noquestion of law, much less substantial question oflaw arises for consideration in this appeal.Accordingly, the order passed by the Tribunal isconfirmed and this appeal is dismissed. No costs.” 4.Further, the learned senior standing counsel appearingfor the appellant – Revenue submitted that the 4[th] question oflaw is covered by a decision of the Hon'ble Division Bench ofthis Court, against the Revenue, in the judgment reported inhttps://hcservices.ecourts.gov.in/hcservices/ [2020] 114 taxmann.com 642 (Madras) [Commissioner of IncomeTax, Salem VS. Chola Spinning Mills (P.) Ltd.] wherein theHon'ble Division Bench held as follows: “... 3. The Division Bench of this court in PrabhuSpinning Mills (P.) Ltd. (supra) held as under:- “3. Even according to the learned StandingCounsel for the Department, this Court hasconsistentlyfollowedthedecisioninM/s.Velayudhaswamy Spinning Mills (P) Ltd. v.Asstt. CIT [2012] 21 taxmann.com 95/340 ITR 477,despite the Honourable Supreme Court orderingnotice. 4.Interestingly, on the basis of the decision inVelayudhaswamy Spinning Mills (supra), theCentral Board of Direct Taxes has issuedCircular No.1/2016 dated 15.2.2016. It will beuseful to extract the circular in entirety,which is as follows : "Circular No.1/2016 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi, the 15thFebruary, 2016 Subject: Clarification of the term 'initialassessment year' in Section 80IA(5) of theIncome Tax Act, 1961. Section 801A of the Income-tax Act, 1961('Act'), as substituted by Finance Act, 1999with effect from 1.4.2000, provides fordeduction of an amount equal to 100% of theprofits and gains derived by an undertaking orenterprise from an eligible business (asreferred to in Sub-Section (4) of that Section)in accordance with the prescribed provisions.Sub-Section (2) of Section 80IA further providesthat the aforesaid deduction can be claimed bythe assessee, at his option, for any tenconsecutive assessment years out of fifteenyears (twenty years in certain cases) beginningfrom the year in which the undertaking commencesoperation, begins development or startsproviding services etc. as stipulated therein.Sub-Section (5) of Section 80IA further providesas under : Section 801A of the Income-tax Act, 1961('Act'), as substituted by Finance Act, 1999with effect from 1.4.2000, provides fordeduction of an amount equal to 100% of theprofits and gains derived by an undertaking orenterprise from an eligible business (asreferred to in Sub-Section (4) of that Section)in accordance with the prescribed provisions.Sub-Section (2) of Section 80IA further providesthat the aforesaid deduction can be claimed bythe assessee, at his option, for any tenconsecutive assessment years out of fifteenyears (twenty years in certain cases) beginningfrom the year in which the undertaking commencesoperation, begins development or startsproviding services etc. as stipulated therein.Sub-Section (5) of Section 80IA further providesas under : https://hcservices.ecourts.gov.in/hcservices/ "Notwithstanding anything contained in any otherprovision of this Act, the profits and gains ofan eligible business to which the provisions ofSub-Section (1) apply shall, for the purposes ofdetermining the quantum of deduction under thatSub-Section for the assessment year immediatelysucceeding the initial assessment year or anysubsequent assessment year, be computed as ifsuch eligible business were the only source ofincome of the assessee during the previous yearrelevant to the initial assessment year and toevery subsequent assessment year up to andincluding the assessment year for which thedetermination is to be made." In the above sub-section, which prescribes themanner of determining the quantum of deduction,a reference has been made to the term 'initialassessment year'. It has been represented thatsome Assessing Officers are interpreting theterm 'initial assessment year' as the year inwhich the eligible business/manufacturingactivity had commenced and are considering suchfirst year of commencement/operation etc. itselfas the first year for granting deduction,ignoring the clear mandate provided under Sub-Section (2) which allows a choice to theassessee for deciding the year from which itdesires to claim deduction out of the applicableslab of fifteen (or twenty) years. The matter has been examined by the Board. It isabundantly clear from Sub-Section (2) that anassessee who is eligible to claim deduction u/s80IA has the option to choose the initial/firstyear from which it may desire the claim ofdeduction for ten consecutive years, out of aslab of fifteen (or twenty) years, as prescribedunder that Sub-Section. It is hereby clarifiedthat once such initial assessment year has beenopted for by the assessee, he shall be entitledto claim deduction u/s 80IA for ten consecutiveyears beginning from the year in respect ofwhich he has exercised such option subject tothe fulfillment of conditions prescribed in thesection. Hence, the term 'initial assessmentyear' would mean the first year opted for by theassessee for claiming deduction u/s 801A.However, the total number of years for claimingdeduction should not transgress the prescribedslab of fifteen or twenty years, as the case maybe and the period of claim should be availed incontinuity. https://hcservices.ecourts.gov.in/hcservices/ The Assessing Officers are, therefore, directedto allow deduction u/s 80IA in accordance withthis clarification and after being satisfiedthat all the prescribed conditions applicable ina particular case are duly satisfied. Pendinglitigation on allowability of deduction u/s 80IA shall also not be pursued to the extent itrelates to interpreting 'initial assessmentyear' as mentioned in Sub-Section (5) of thatsection for which the Standing Counsel/DRs besuitably instructed. The above be brought to thenotice of all Assessing Officers concerned." 5. Therefore, admittedly, the second question oflaw is covered by the above circular. Hence, theappeals deserve to be dismissed. 6. Accordingly, the above tax case appeals aredismissed. No costs." The Assessing Officers are, therefore, directedto allow deduction u/s 80IA in accordance withthis clarification and after being satisfiedthat all the prescribed conditions applicable ina particular case are duly satisfied. Pendinglitigation on allowability of deduction u/s 80IA shall also not be pursued to the extent itrelates to interpreting 'initial assessmentyear' as mentioned in Sub-Section (5) of thatsection for which the Standing Counsel/DRs besuitably instructed. The above be brought to thenotice of all Assessing Officers concerned." 5. Therefore, admittedly, the second question oflaw is covered by the above circular. Hence, theappeals deserve to be dismissed. 6. Accordingly, the above tax case appeals aredismissed. No costs." 4. Accordingly, the present Appeals are disposed ofon the same terms. No costs.” 5.Mr.Vijayaraghavan, learned counsel appearing for therespondent – assessee submitted that in view of the judgments,cited supra, the questions of law may be decided against theRevenue and the appeal may be dismissed. 6.Having regard to the submissions made by the learnedcounsel on either side, following the ratio laid down by theHon'ble Division Bench of this Court reported in [2015] 57taxmann.com 87 (Madras) [Commissioner of Income Tax, ChennaiVs. Fluidtherm Technology (P). Ltd.] [2020] 114 taxmann.com642 (Madras) [Commissioner of Income Tax, Salem VS. CholaSpinning Mills (P.) Ltd.] the questions of law are decidedagainst the appellant - Revenue and in favour of therespondent – assessee. Accordingly, the Tax Case Appeal isdismissed. No costs. Sd/-Assistant Registrar(CS-III)//True copy// va Sub Assistant Registrar To 1.The Income Tax Appellate Tribunal, Chennai, "A" Bench Chennai, "A" Bench 2. The Commissioner of Income Tax, https://hcservices.ecourts.gov.in/hcservices/ (Appeals)-III, Chennai-34. 3. The Assistant Commissioner of Income Tax, Company Circle III(1), Chenani-34. Company Circle III(1), Chenani-34. +1cc to Mr.M.Swaminathan, Advocate SR.No.21062 +1cc to Mr.Subbaraya Aiyar, Advocate SR.No.21756 T.C.A.No.299 of 2014 RR(CO)GMY(17/06/2021)