DCIT CHENNAI vs C.P.Aquaculture (India) Pvt. Ltd. CHENNAI

आयकर अपील य अ धकरण, ‘ए’ यायपीठ, चेनई IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, CHENNAI डॉ.ओ.के. नारायणन, उपाय एवं ी वी. दुगा" राव, या#यक सद%य केसम BEFORE Dr.

O.K.NARAYANAN, VICE-PRESIDENTAND SHRI V.

DURGA RAO, JUDICIAL MEMBER आयकर अपील सं./ITA No.1433/Mds/2014 #नधा"रण वष" /Assessment Year : 2010-11 The Deputy Commissioner of Income Tax, Company Circle I(3), Chennai - 600 034. v.

M/s C.P.

Aquaculture (India) Pvt.

Ltd., 47/D4, Gandhi Mandapam Road, Kotturpuram, Chennai - 600 085.

PAN : AAACC 1316 Q (अपीलाथ*/Appellant) (,-यथ*/Respondent) अपीलाथ* क. ओर से/Appellant by : Smt.

V.S.

Sreelekha, CIT-DR Shri Guru Bhashyam, JCIT ,-यथ* क. ओर से/Respondent by : Smt.

Pushya Sitaraman, Sr.

Advocate Smt.

J.

Sree Vidya, Advocate सुनवाई क. तार ख/Date of Hearing : 31st July, 2014 घोषणा क. तार ख/Date of Pronouncement: 18th August, 2014 आदेश /O R D E R PER V.

DURGA RAO, JUDICIAL MEMBER: This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-I, Chennai, dated 22.01.2014 relevant to the assessment year 2010-11.

2 I.T.A.

No.

1433/Mds/14 2.

Facts in brief are that the assessee is in the business of manufacturing and sale of shrimp, prawn, fish feed and poultry feed.

In the return of income filed by it, the assessee has claimed the amount of `1,44,87,967/- paid towards sales commission to foreign agents, to be allowed under Section 40(a)(i) of the Income-tax Act, 1961.

When the A.O. had enquired the assessee in this connection, the assessee has explained as under:- “KMN Aqua and Pro Aqua are two main dealers to our authorized sales agents towards marketing and sales promotion.

We furnish below the brief details of activities rendered by them.

The main purpose of remitting commission is to develop the sales demand on our behalf by them in their countries.

M/s KMN Aqua and Pro Aqua doing effective various activities in the field of marketing. marketing.

Marketing is the process of communicating our product value of ‘prawn feed’ product to our customers.

It has been looked at as on organizational function and a set of processes for creating delivering and communicating value to customers, and managing customer relationships in ways that benefit the organization and our shareholders.

Marketing management is the art of choosing target markets, as well as acquiring and keeping customers through providing superior customer value.

In order to develop the production concept of our products, the product concept, the selling concept, the marketing concept and the holistic marketing concept.

The four components of holistic marketing are relationship marketing, internal marketing, integrated marketing, and socially responsive marketing.

The set of engagements necessary for successful marketing management includes, capturing marketing insights, connecting with customers, building strong brands, shaping the market offerings, delivering and communicating value, creating long term growth, and developing marketing strategies and plant.

We made sale of export for the year ` 22,80,50,159/-.

3 I.T.A.

1433/Mds/14 Sales Promotion: The sales commission was paid for sales promotion activities consists various heads.

Sales development or promotion is one of the seven aspects of the promotional mix.

Advertising: The dealers make advertisement in the form of presentation and promotion of ideas, and develop and promote the demand for our goods.

Examples, our agents will make brochures and catalogs, signs, in-store displays, posters and all expenses were borne by the dealer’s respective countries.

Personal selling: The dealers will do personal selling of our prawn feed products in various brands.

A process of helping and persuading one or more prospects to purchase a good or to act on any idea through the use of an oral presentation.

Ex. ation.

Ex.

Sales presentations, sales meetings, sales training and incentive programmes for intermediary sales people, samples and can be face to face or via telephone.

Sales promotion: Our agents will make sales promotions in prominent demand areas via media and non media marketing communication are employed for a pre- determined, limited time to increase consumer demand, stimulate market demand or improve product availability.

Product samples, rebates, tie-ins, trade shows, trade-ins, and aqua fair / exhibitions.

Public relations: In order to give good service to their customers for using the feeds, they will be setting up laboratories and will be doing water testing and other tests required for aquaculture and will be giving result of these tests free of cost to their customers.

Our agents will paid intimate stimulation of supply for a product, service or business unit by planting significant news about our various brands or a favourable presentation.

Direct marketing: On arrival of feeds in Srilanka, our distributor will be distributing the feeds direct to the farmers who are doing aquaculture or will be supplying feeds through their appointed sub dealers.

The distributor will be supplying the feeds to their farmers or to their sub dealers on cash or credit basis.

They will appoint technical staffs and these staffs will be available to advise any technical problems arising in the aquaculture ponds.

These staffs will be provided with two wheeler and four wheeler vehicles and will be available to sort out the customer problems during the culture period.

Also, the distributor will be arranging seminars on a quarterly or half yearly basis to appraise the recent trends in the aquaculture field and to upgrade the knowledge of the farmers.

4 I.T.A.

1433/Mds/14 Demonstration farms will be taken up by our distributors and they will be showing the usage of latest technique and products to the aquaculture farmers. e farmers.

To stand with the international competition in the aquatic feed markets in the South Asiatic region namely, Malaysia, Indonesia, Taiwan, China, our dealers were made sound business efforts and achieved the desired targets to retain the South Asia Markets and customer relations we had paid commission in foreign currency to them.” 3.

However, the A.O. has not accepted the contention of the assessee that the amount was paid towards sales commission.

She held that it is not a sales commission and it is pertaining to managerial and technical.

The A.O. by invoking Section 40(a)(i) of the Income-tax Act, 1961, disallowed the entire payment made to foreign agents.

4.

Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals).

The CIT(Appeals), after considering all the details and also agreements, has held as under:- “4.2.5 To examine whether the amounts paid as commission are really commissions or managerial services defined under "fee for technical services", the details have been examined by me during the course of appellate proceedings.

Agreements entered into with the parties, invoices and the debit notes filed before me were examine with regard to agreements, it was clearly mentioned in the agreement that "the company will pay Dealership Commission @ USD 90 per M. ton on feed invoice raised in their name and also in the names of their sub-dealers …….. ".

This shows that the amount is paid as a commission at a certain rate worked out on the export of the item on the basis of M.tons.

It is evident from the above that it is not a managerial service wherein the commission will be paid at a certain rate.

The debit notes were raised on the quantity of export based on invoices.

The debit notes clearly show that the 5 I.T.A.

1433/Mds/14 amounts were paid towards agency commission. ommission.

The nature of services rendered by the non-residents in the contracting States as, submitted before the AD by the appellant, shows that the services were rendered abroad to increase the sales of those companies in their countries.

By payment of the amounts to the non-residents the appellant has not got any benefit in the form of managerial skills or technical know-how useful in India to the appellant.

Therefore, those services rendered outside the country are not made available in the form of any technical knowledge to the appellant in India.

In view of the above, I am of the opinion that the amounts paid will not fit into any technical fee defined u/s.

9(1)(vii) of the Act.

4.2.6 With regard to the argument that whether approaching the ITO (TDS) for a certificate u/s.195(2) is necessary, the Supreme Court in the case of GE India Technology P.

Ltd has made it very clear that it is required only when the appellant is not clear as to who much TOS needs to be made.

If the appellant reasonably believes that TDS need not be deducted on the amounts paid to non resident, then he need not approach the ITO (TDS) for a certificate.

This view is supported by the ITAT, Chennai, Special Bench in the case of ITO v Prasad Productions Ltd (125 ITO 263) wherein it was stated that there is no need to get nil deduction certificate from TDS ITO u/s 195(2) where the non-resident is not liable to tax.

4.2.7 Considering the factual and legal position and judicial precedents discussed above, I agree with the contention of the Id.AR of the appellant that the commission earned by non- resident agents for services rendered outside India cannot be deemed to be income accrued or arisen in India and is therefore not liable for TDS as per provisions of sec 40(a)(i) of the Act.

The decision rendered by Karnataka High Court in the case of CIT v.

Samsung Electronics P. tronics P.

Ltd and the decision of the Supreme Court in the case of Transmission Corporation of India Ltd (239 ITR 587) were distinguished by the Hon'ble Supreme Court in its own order in the case of GE India Technologies (supra) itself.

In view of the above discussion, the AO is directed to delete the addition made on this count.

The ground is allowed.” 5.

On being aggrieved, the Revenue has taken the issue in appeal before the Tribunal.

The ld. counsel for the assessee has submitted that the issue involved in this appeal is covered by the 6 I.T.A.

1433/Mds/14 decision of co-ordinate Bench of this Tribunal in I.T.A.

2095/Mds/2012 in the case of ITO v.

M/s Faizan Shoes Pvt.

Ltd.

Vide its order dated 23rd April, 2013, the Tribunal held as follows:- “6.

On going through the order of the Commissioner of Income Tax (Appeals), we find that the non-residents are only procuring orders for the assessee and following up payments, no other services are rendered other than procuring the orders and collecting the amounts.

The non- residents are not providing any technical services to the assessee.

The commission payment made to non-residents also does not fall under the category of royalty or fee of technical services, therefore the Explanation to sub-section (2) of section 9 has no application to the facts of the assessee’s case.

We see that this case is squarely covered by the decision of the Supreme Court in the case of GE India Technology Cen.

P.Ltd.

Vs.

CIT (327 ITR 456) wherein the Hon’ble Supreme Court held that the assessee is not liable to deduct TDS when non-residents provided service outside India .

It was held that when the services are provided outside India, the commission payments made to non- residents cannot be treated as income deemed to accrue or arise in India, therefore, the provisions of section 195 has no application.

In order to invoke the provisions of section 195 of the Act, the income should be chargeable to tax in India. in India.

Here the commission payments to non-residents are not chargeable to tax in India and therefore the provisions of section 195 are not applicable.

In the circumstances, we sustain the order of the Commissioner of Income Tax (Appeals) in deleting the disallowance made under 40(a)(i) of the Act.” 6.

On the other hand, the ld.

D.R. has relied on the orders of the authorities below.

7.

We have heard both sides and perused the records and orders of the authorities below.

In this appeal, we find that the ld.

CIT(Appeals), after considering the entire details and also 7 I.T.A.

1433/Mds/14 agreements entered by the assessee with foreign parties, has given a specific finding that the payment made by the assessee towards sales commission is not liable for TDS as per provisions of Section 40(a)(i) of the Income-tax Act, 1961.

The Department has not got any material to contradict the specific finding given by the ld.

CIT(Appeals).

8.

Keeping in view the facts and circumstances of the case and following the order of the co-ordinate Bench of this Tribunal in I.T.A.

2095/Mds/2012 (supra), we uphold the order of the ld.

9.

In the result, this appeal filed by the Revenue is dismissed.

Order pronounced on Monday, the 18th of August, 2014 at Chennai. sd/- sd/- (डॉ.ओ.के. नारायणन) (वी. दुगा" राव) (Dr.

O.K.Narayanan) (V.

Durga Rao) उपाय/Vice-President या#यक सद%य/Judicial Member चेनई/Chennai, 4दनांक/Dated, the 18th August, 2014.

Kri.

8 I.T.A.

1433/Mds/14 आदेश क. ,#त6ल7प अ8े7षत/Copy to: 1. अपीलाथ*/Appellant 2. ,-यथ*/Respondent 3. आयकर आयु9त (अपील)/CIT(A)-I, Chennai 4. आयकर आयु9त/CIT, Chennai-I, Chennai 5.

7वभागीय ,#त#न ध/DR 6. गाड" फाईल/GF.