TII Instant Update - 2018-TII-INSTANT-ALL-558

2018-TII-110-ITAT-DEL-INTL

ACIT Vs PANKAJ JAIN: DELHI ITAT (Dated: March 27, 2018)

Income tax - Sections 40(a)(i) & 195

Keywords - foreign agency commission - TDS obligation

The Assessee is an individual. During the course of assessment proceedings, the AO noticed from P&L account that assessee had deposited an amount of Rs.38,07,050/- on account of foreign agency commission paid without deducting tax at source on the same. He therefore invoking the provisions contained u/s 195, proceeded to conclude that the payment made by assessee to the non-resident Indian obliged him to deduct TDS, and such failure to deduct tax at source resulted in addition of Rs.38,07,050/-. On appeal, the FAA deleted the addition of Rs.38,07,050/-.

On appeal, the ITAT held that,

Whether overseas agency commission directly remitted abroad for services rendered abroad, are not accountable to TDS provisions u/s 195 - YES: ITAT

+ undisputedly, the assessee has paid export commission to the tune of Rs.38,07,050/- to a non-resident without deducting the TDS. It is also not in dispute that a non-resident Indian to whom the export commission has been granted by assessee has rendered services outside the country and no part of the income arises in India. It is also not in dispute that the entire commission has been remitted directly abroad. It is seen that an identical issue has already been set at rest by Delhi High Court in case of CIT vs. Eon Technology P. Ltd. - 2011-TII-41-HC-DEL-INTL in favour of assessee by observing that: "....It cannot be said that the making of the book entries in the books of the statutory agent amounted to receipt by the assessees who were non-residents as the amounts so credited in their favour were not at their disposal or control. It is not possible to hold that the non-resident assessees in this case either received or can be deemed to have received the sums in question when their accounts with the statutory agent were credited, since a credit balance, without more, only represents a debt and a mere book entry in the debtor's own books does not constitute payment which will secure discharge from the debt. They cannot, therefore, be charged to tax on the basis of receipt of income actual or constructive in the taxable territories during the relevant accounting period. 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 cl. (a) of the Explanation to section 9(1)(i). The commission amounts which were earned by the non-resident assessees for services rendered outside India cannot, therefore, be deemed to be incomes which have either accrued or arisen in India....";

+ in view of the decision rendered by Delhi High Court in Eon Technology P. Ltd. on the basis of decision rendered by Supreme Court in case of CIT vs. Toshoku Limited - 2002-TII-03-SC-INTL, this Court is of the considered view that when it is not in dispute that the commission payment on export has been made to a non-resident Indian by the assessee for services rendered abroad and no part of said income has arisen in India, TDS was not required to be deductible at source and disallowance u/s 40(a)(i) is not sustainable in the eyes of law.

Revenue's appeal dismissed

2018-TII-02-HC-DEL-FEMA

UNITED INDIA AIRWAYS LTD Vs CHIEF ENFORCEMENT OFFICER ENFORCEMENT DIRECTORATE: DELHI HIGH COURT (Dated: April 5, 2018)

FERA - Sections 9(1)(e), 56, 57 & 61(2)(ii)

Keywords - framing of charges - opportunity notice - recording of statement - requisite permission from RBI

The present petition had been preferred challenging the order whereby charges were framed against the Petitioners for alleged violation of Section 9(1)(e) of FERA. It was inter alia contended that the enforcement Officer had failed to comply with the mandatory requirement of proviso to Section 61(2)(ii) of FERA and no opportunity notice, as mandated by law, was served on the petitioner. The dispute in the present matter had arisen way back in 1995 when the offence was alleged to have been committed in the year 1995 and the statement of the accused was recorded in 1996 u/s 40 of FERA when, admittedly, an investigation was going on into the alleged offence. Thereafter, an opportunity notice was issued by the Enforcement Officer during 2002 specifically requiring the petitioners to show that the Petitioner had obtained any requested permission / exemption from RBI in respect of the transaction and acknowledgement of debt of Foreign Exchange failing which a complaint u/s 56 RERA, 1973 r/w/s 49(2) &(4) of FEMA, 1999 would be filed in the Court of Law against them.

On Writ, the HC held that,

Whether granting of opportunity notice to the accused is indispensable for initiating proceedings u/s 56 of FERA - YES: HC

Whether Magistrate is under statutory duty to satisfy himself that an opportunity has been given to the accused before filing the complaint, before taking cognizance of offence - YES: HC

Whether Statement recorded at the time of initiation of proceedings u/s 40 of FERA, is sufficient compliance u/s 61(2) of FERA for purpose of taking suo moto cognizance of offence - NO: HC

+ it is an admitted position that the opportunity notice was addressed to the petitioners at Connaught Place, New Delhi, which is apparent from the notice itself. The witness of the Enforcement Officer has deposed that he had affixed the notice at Connaught Place. In his cross-examination, he has deposed that the premises at Connaught Place was locked and the office of the petitioners was not found in existence at Connaught Place and some other office was functioning. It is also an admitted position that the office of the petitioners was not at "A-34, Connaught Place" but at - E-34, Connaught Place" which is a distinct and different property. Clearly, the Opportunity Notice was neither sent to the correct address nor served on the petitioner;

+ the requirement of proviso to Clause (ii) of sub Section (2) of Section 61 is that an opportunity of showing that the accused had the requisite permission, is a mandatory requirement. A Coordinate Bench of this Court in Sanjay Malviya vs. R.K. Rawal CEO Enforcement Directorate - 2015-TIOL-538-HC-DEL-FEMA has held that there is a statutory bar imposed u/s 61 of FERA on a magistrate on taking cognizance unless it is shown that the opportunity of showing availability of permission has been granted to the accused. It is well settled that where law mandates something to be done in a particular way, it has to be done in that way or not at all. Before initiation of proceedings u/s 56 of FERA, an opportunity must be granted to the accused. Before taking the cognizance of the offence Magistrate is under statutory duty to satisfy himself that an opportunity has been given to the accused before filing the complaint;

+ in case the contention of Enforcement Officers were to be accepted that an opportunity was given to the petitioners at the time of recording the statement u/s 40 of FERA in compliance of Section 61(2) of FERA, then there was no requirement for the Officer to have issued a specific Opportunity Notice calling upon the petitioners to show as to whether they have the requisite permission or not and specifically stating therein that the same was in compliance of Section 61(2). Since the petitioners were never granted an opportunity, as mandated by Section 61(2) of FERA, there is clearly a breach of the mandate of law. Since the requirements of Section 61(2) of FERA have not been complied with, reliance placed by the Officers on the statement recorded at the time when proceedings u/s 40 of FERA were being undertaken and reliance on the same in the impugned order as sufficient compliance of Section 61(2) of FERA, is clearly misplaced. Since Officers have failed to comply with the mandatory requirement of Section 61(2) of FERA, the Trial Court clearly erred in taking cognizance.

In favour of Petitioner