Madras High Court
The Commissioner Of Income Tax vs M/S. Tamilnadu Newsprint And ... on 20 December, 2021
TCA No. 595 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 20.12.2021
CORAM
THE HONOURABLE MR. JUSTICE R. MAHADEVAN
and
THE HONOURABLE MR. JUSTICE MOHAMMED SHAFFIQ
T.C.A. No. 595 of 2021
The Commissioner of Income Tax
Chennai .. Appellant
Versus
M/s. Tamilnadu Newsprint and Papers Limited
No.67, Anna Salai, Guindy
Chennai – 600 032 .. Respondent
Tax Case Appeal filed under Section 260A of the Income Tax Act, 1961
against the order dated 02.03.2012 passed by the Income Tax Appellate
Tribunal, Madras “A” Bench, in I.T.A.No. 2035/Mds/2011.
For Appellant : Ms. V.Pushpa
Junior Standing Counsel
For Respondent : Mr. Subbaraya Aiyar
JUDGMENT
(Judgment of the Court was delivered by R. MAHADEVAN, J.)
This tax case appeal has been filed by the appellant/Revenue, calling in
question the correctness of the order dated 02.03.2012 passed by the Income
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Tax Appellate Tribunal, 'A' Bench, Chennai, in I.T.A.No. 2035/Mds/2011,
relating to the assessment year 2005-06, by raising the following substantial
questions of law:-
“1. Whether on the facts and in the circumstances of the
case, the Income Tax Appellate Tribunal was right in
upholding the order of CIT(A) in allowing deduction
u/s.80IA without setting of losses on notional basis?
2. Whether on the facts and in the circumstances of the
case, the Income Tax Appellate Tribunal was right in
confirming the order of CIT(A) by deleting the
disallowance on the agency commission paid to non-
resident under Sec.40(a)(i) of the Income Tax Act?
3. Whether on the facts and in the circumstances of the
case, the Income Tax Appellate Tribunal was right in not
considering the amended explanation to sec.9(2) inserted
by Finance Act, 2010 with retrospective effect from
01.06.1976?
4. Whether on the facts and in the circumstances of the
case, the Income Tax Appellate Tribunal was right in
holding that the liability on TDS on agency commission
paid to non-resident and consequential disallowance of
commission, expenditure under Section 40(a)(i) of the
Income Tax Act is proper?”
2. When the appeal is taken up for consideration, the learned counsel
appearing for the appellant / Revenue fairly submitted that the substantial
question of law Nos. 2 to 4 are covered against the Revenue as per the decision
of this Court in respect of the assessee's own case relating to the assessment
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year 2007-2008 in T.C.A. No. 299 of 2014 dated 31.03.2021. The relevant
passage of the said decision, for better understanding, is reproduced herewith:
“3.When the appeal is taken up for hearing,
Mr.M.Swaminathan, learned standing counsel appearing
for the appellant – Revenue fairly submitted that the
questions of law nos.1 to 3 are covered, against the
Revenue, by a decision of the Hon'ble Division Bench of
this court reported in [2015] 57 taxmann.com 87 (Madras)
[Commissioner of Income 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. Faizan Shoes (P.)
Ltd. [2014] 367 ITR155 / 226 Taxman 115/ 48
taxmann.com 48 (Mad.), had an occasion to consider a
similar issue and after exhaustive analysis of the different
provisions of the Income Tax Act and also taking into
consideration the law laid down by the Supreme Court with
regard to the said provisions, held as follows :-
'6. Before adverting the merits of the case, it would be
apposite to refer to section 9(1)(i), section 9(1)(vii) and
section 9(2) of the Act, which read as under:
Section 9. Income deemed to accrue or arise in
India.(1)The following incomes shall be deemed to accrue
or arise in India (i) all income accruing or arising, whether
directly or indirectly, through or from any business
connection in India, or through or from any property in
India, or through or from any asset or source of income in
India, or through the transfer of a capital asset situate in
India; (vii) income by way of fees for technical services
payable-
Provided that nothing contained in this clause shall apply
in relation to any income by way of fees for technical
services payable in pursuance of an agreement made
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before the 1st day April, 1976, and approved by the
Central Government.
Explanation 1. - For the purposes of the foregoing proviso,
an agreement made on or after the 1st day of April, 1976,
shall be deemed to have been made before that date if the
agreement is made in accordance with proposals approved
by the Central Government before that date.
Explanation 2. - For the purposes of this clause, 'fees for
technical services' means any consideration (including any
lump sum consideration) for the rendering of any
managerial, technical or consultancy services (including
the provision of services of technical or other personnel)
but does not include consideration for any construction,
assembly, mining or like project undertaken by the
recipient or consideration which would be income of the
recipient chargeable under the head 'Salaries'.
(2) Notwithstanding anything contained in subsection(1),
any pension payable outside India to a person residing
permanently outside India shall not be deemed to accrue or
arise in India, if the pension is payable to a person
referred to in article 314 of the Constitution or to a person
who, having been appointed before the 15 th day of August,
1947, to be a Judge of the Federal Court or of a High
Court within the meaning of the Government of India Act,
1935, continues to serve on or after the commencement of
the Constitution as a Judge in India.
Explanation. For the removal of doubts, it is hereby
declared that for the purposes of this section, income of a
non-resident shall be deemed to accrue or arise in India
under clause (v) or clause (vi) or clause (vii) of subsection
(1) and shall be included in the total income of the non-
resident, whether or not, -
(i) the non-resident has a residence or place of business or
business connection in India ; or
(ii) the non-resident has rendered services in India."
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7. On a reading of section 9(1)(vii) of the Act, we are not
inclined to accept the plea taken by the learned senior
standing counsel appearing for the Revenue that
commission paid by the assessee to the non-resident agent
would come under the term "fees for technical services". In
the case on hand, for procuring orders for leather business
from overseas buyers wholesalers 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 a
commission simpliciter. What is the nature of technical
service that the so-called non-resident agent has provided
abroad to the assessee is not clear from the order of the
Assessing Officer. The opening of letters of credit for the
purpose of completing export obligation is an incident of
export and, therefore, the non-resident agent is under an
obligation to render such services to the assessee, for
which commission is paid. The non-resident agent does not
provide technical services for the purposes of running of
the business of the assessee in India. The services rendered
by the non-resident agent can at best be called as a service
for completion of the export commitment. We are, therefore,
of the considered opinion that the commission paid to the
non-resident agent will not fall within the definition of fees
for technical services.
9. The Explanation to section 9(2) of the Act was
substituted by the Finance Act, 2010, with retrospective
effect from June 1, 1976. The above said explanation would
come into play only if the said amount paid would fall
under the headings :
(i) income by way of interest as set out in section 9(1)(v) of
the Act ; or
(ii) income by way of royalty as set out in section 9(1)(vi) of
the Act ; or
(iii) income by way of fees for technical services as set out
in section 9(1)(vii) of the Act.
10. While dealing with section 9(1) of the Act, the Supreme
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TCA No. 595 of 2021
Court in CIT v. Toshoku Ltd. [1980] 125 ITR 525(SC), on
considering a transaction where tobacco was exported to
Japan and France and sold through nonresident assessees
who were paid commission, held as under:
"8. The second aspect of the same question is whether the
commission amounts credited in the books of the statutory
agent can be treated as incomes accrued, arisen, or
deemed to have accrued or arisen in India to the non-
resident assessees during the relevant year. This takes us
to section 9 of the Act. It is urged that the commission
amounts should be treated as incomes deemed to have
accrued or arisen in India as they, according to the
department, had either accrued or arisen through and from
the business connection in India that existed between the
non-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 which provides that in the case of a business of
which all the operations are not carried out in India, the
income of the business deemed under that clause to accrue
or arise in India shall be only such part of the income as is
reasonably attributable to the operations carried out in
India. If all such operations are carried out in India, the
entire income accruing therefrom shall be deemed to have
accrued in India. If, however, all the operations are not
carried out in the taxable territories, the profits and gains
of business deemed to accrue in India through and from
business connection in India shall be only such profits and
gains as are reasonably attributable to that part of the
operations carried out in the taxable territories. If no
operations of business are carried out in the taxable
territories, it follows that the income accruing or arising
abroad through or from any business connection in India
cannot be deemed to accrue or arise in India (see CIT v. R.
D. Aggarwal and Co. [ 1965] 56 ITR 20( S C)
andCarborandum Co. v. CIT [1977] 108 ITR 335(SC)
which are decided on the basis of section 42 of the Indian
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Income-tax Act, 1922, which corresponds to section 9(1)(i)
of the Act).
9. In the instant case, the non-resident assessees did not
carry on any business operations in the taxable territories.
They acted as selling agents outside India. The receipt in
India of the sale proceeds of tobacco remitted or caused to
be remitted by the purchasers from abroad does not
amount to an operation carried out by the assessees in
India as contemplated by clause (a) of the Explanation to
section 9(1)(i) of the Act. The commission amounts which
were earned by the nonresident assessees for services
rendered outside India cannot, therefore, be deemed to be
incomes which have either accrued or arisen in India. The
High Court was, therefore, right in answering the question
against the Department."
11. The facts of the present case are akin to the facts of the
decision in Toshoku Ltd.'s case, referred supra. In the
instant case also the assessee engaged the services of non-
resident agent to procure export orders and paid
commission. That apart, the Commissioner of Income-tax
(Appeals) as well as the Tribunal have correctly applied the
principle laid down in GE India Technology Centre (P.)
Ltd.'s case, referred to supra, to hold that the assessee is
not liable to deduct tax at source when the non-resident
agent provides services outside India on payment of
commission.
12. In the light of the above said decisions and the finding
rendered by us on the earlier issue that the services
rendered by the non-resident agent can at best be called as
a service for completion of the export commitment and
would not fall within the definition of fees for technical
services, we are the firm view that section 9 of the Act is not
applicable to the case on hand and, consequently, section
195 of the Act does not come into play. In view of the above
finding, the decision of the Supreme Court in Transmission
Corporation of A. P. Ltd.'s case, referred to supra, relied
upon by the learned standing counsel for the Revenue is
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not applicable to the facts of the present case. We find no
infirmity in the order of the Tribunal in confirming the
order of the Commissioner of Income-tax (Appeals).
8. The above decision of this Court in Faizen Shoes (P.)
case (supra) is squarely applicable to the facts of the
present case.
9. In the result, this Court finds no reason to interfere with
the order passed by the Tribunal. No question of law,much
less substantial question of law arises for consideration in
this appeal. Accordingly, the order passed by the Tribunal
is confirmed and this appeal is dismissed. No costs.”
3. It is also fairly submitted on the side of the appellant /Revenue that
the first substantial question of law is covered against the Revenue, by a
decision of this Court, in Velayudhaswamy Spinning Mills (P.) Ltd., vs.
Assistant Commissioner of Income-tax reported in [2012] 21 taxmann.com
95 (Madras), wherein, it was held by the Division Bench as follows:
“19. In the present cases, there is no dispute that
losses incurred by the assessee were already set off and
adjusted against the profits of the earlier years. During
the relevant assessment year, the assessee exercised the
option under section 80-IA(2). In Tax Case Nos.909 of
2009 as well as 940 of 2009, the assessment year was
2005-06 and in Tax Case No.918 of 2008 the assessment
year was 2004-05. During the relevant period, there were
no unabsorbed depreciation or loss of the eligible
undertakings and the same were already absorbed in the
earlier years. There is a positive profit during the year.
The unreported judgment of this Court cited supra
considered the scope of sub-section (6) of section 80-I,
which is the corresponding provision of sub-section (5) of
section 80-IA. Both are similarly worded and, therefore,
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we agree entirely with the Division Bench judgment of this
Court cited supra. In the case of CIT v. Mewar Oil and
General Mills Ltd. (No.1) (2004) 271 ITR 311 (Raj);
(2004) 186 CTR (Raj) 141, the Rajasthan High Court also
considered the scope of section 80-I and held as follows
(page 314 of 271 ITR):
“Having considered the rival contentions
which follow on the line noticed above, we are of
the opinion that on finding the fact that there was
no carry forward losses of 1983-84, which could be
set off against the income of the current assessment
year 1984-85, the re computation of income from
the new industrial undertaking by setting off the
carry forward of unabsorbed depreciation or
depreciation allowance from previous year did not
simply arise and on the finding of fact noticed by
the Commissioner of Income-tax (Appeals), which
has not been disturbed by the Tribunal and
challenged before us, there was no error much less
any error apparent on the face of the record which
could be rectified. That question would have been
germane only if there would have been carry
forward of unabsorbed depreciation and
unabsorbed development rebate or any other
unabsorbed losses of the previous year arising out
of the priority industry and whether it was required
to be set off against the income of the current year.
It is not all required that losses or other
deductions which have already been set off against
the income of the previous year should be
reopened again for computation of current income
under section 80-I for the purpose of computing
admissible deductions thereunder.
In view thereof, we are of the opinion that the
Tribunal has not erred in holding that there was no
rectification possible under section 80-I in the
present case, albeit, for reasons somewhat different
from those which prevailed with the Tribunal.
There being no carry forward of allowable
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deductions under the head depreciation or
development rebate which needed to be absorbed
against the income of the current year and,
therefore, re computation of income for the
purpose of computing permissible deduction under
section 80-I for the new industrial undertaking was
not required in the present case.
Accordingly, this appeal fails and is hereby
dismissed with no order as to costs.”
20. From a reading of the above, the Rajasthan
High Court held that it is not at all required that losses or
other deductions which have already been set off against
the income of the previous year should be reopened again
for computation of current income under Section 80-I for
the purpose of computing admissible deductions
thereunder. We also agree with the same. We see no
reason to take a different view.
21. The standing counsel appearing for the Revenue
is unable to bring to our notice any relevant material or
any compelling reason or any contra judgment of other
courts to take a different view. He only relied heavily on
the Memorandum explaining the provisions in the Finance
(No.2) Bill, 1980, (1980) 123 ITR (St.) 154 to support this
case and the same reads as follows:
“ Clause 30(iii). In computing the quantum
of 'tax holiday' profits in all cases, taxable
income derived from the new industrial units, etc.,
will be determined as if such units were an
independent unit owned by a taxpayer who does
not have any other source of income. It the
result, the losses, depreciation and investment
allowance of earlier years in respect of the new
industrial undertaking, ship or approved hotel
will be taken into account in determining the
quantum of deduction admissible under the new
section 80-I even though they may have been set
off against the profits of the taxpayer from other
sources.”
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22. We are not agreeing with the counsel for the
Revenue. We are, therefore, of the view that loss in the
year earlier to the initial assessment year already
absorbed against the profit of other business cannot be
notionally brought forward and set off against the profits
of the eligible business as no such mandate is provided in
Section 80-IA(5).”
4.Following the aforesaid decisions, all the substantial questions of law
raised in this appeal are answered against the appellant / Revenue and in
favour of the respondent/assessee. Accordingly, the tax case appeal is
dismissed. No costs.
(R.M.D., J.) (M.S.Q., J.)
20.12.2021
dhk/rsh
Internet : Yes / No
Index : Yes/No
To
1. The Commissioner of Income Tax
Chennai
2. The Income Tax Appellate Tribunal
Chennai (D) Bench
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TCA No. 595 of 2021
https://www.mhc.tn.gov.in/judis
TCA No. 595 of 2021
R. MAHADEVAN, J
and
MOHAMMED SHAFFIQ, J
dhk/rsh
T.C.A No. 595 of 2021
20.12.2021
https://www.mhc.tn.gov.in/judis
