Abm Steels Pvt.Ltd.,, Ahmedabad vs Assessee

सुनवाई क तार ख/ Date of Hea ring : 15/04/2015 घोषणा क तार ख /Date o f Prono unceme nt: 2 4/04/2015

आदेश /O R D E R

PER: S. S. GODARA, JUDICIAL MEMBER

This assessee's appeal for A.Y.2008-09 arises from order of the CIT(A)-VI, Ahmedabad dated 27.06.2011 in case no.CIT(A)-VI/ACIT.Cir.1/170/10-11 confirming Assessing Officer's action holding expenditure on building repairs of Rs.18,01,899 as capital expenditure and disallowing commission expenses of Rs.10,99,445/- u/s.40(a)(i) paid to foreign agents for non deduction of TDS, in proceedings u/s.143(3) of the Income Tax Act, in short 'the Act'.

ITA No.1855/Ahd/2011 ABM Steels Pvt. Ltd.

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2. The assessee-company manufactures components and parts for process control installments and other products. It filed its return on 16.09.2008 declaring total income of Rs.2,31,43,010/-. The same were 'summarily' processed. Thereafter, the Assessing Officer completed a regular assessment on 30.11.2010 inter alia holding assessee's claim on building repair of Rs.17,11,804/- as capital expenses and disallowed commission paid to foreign export agents u/s.40(a)(i) amounting to Rs.10,96,445/- for non deduction of TDS.

3. The CIT(A) has affirmed the Assessing Officer's action. This leaves the assessee aggrieved.

4. We come to assessee's first substantive ground relating to disallowance of building repair expenses. The Assessing Officer considered Section 30A Explanation to observe that only expenditure on "current repairs" not forming capital expenditure is allowable. He stated that the assessee's repair was not a current one but amounted to creation of new assets having enduring benefits. The assessee had renovated factory building by re-plastering, re-flooring, replacement of doors, electricity fittings and re-plumbering. It filed reply quoting a catena of case law. It also pleaded to have spent the sum in question only ITA No.1855/Ahd/2011 ABM Steels Pvt. Ltd.

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to preserve and maintain already existing assets and not to have creates a new one. The Assessing Officer took into account volume of the construction material involving 600 bags of cement, 12,000/- bricks, 1300 boxes of ceramic glazed tiles and labour expenses of Rs.5 lac to hold that the repair in question was not current repair u/s. 3B Explanation. He disallowed total repair expenditure amounting to Rs.18,01,819/- and held it to be 'capital' in nature. The Assessing Officer also appears to have granted 5% depreciation i.e. half of 10% because of the relevant time period being less than 180 days to the tune of Rs.90,995/-. This resulted in the impugned disallowance of Rs.17,11,804/-. Same position continues in the lower appellate order.

5. We have heard both sides and perused the case file. There is no factual dispute about the very factum of the impugned sum of Rs.18,01,899/- being spent on the building in question. The issue between the parties is about its nature; i.e., whether capital or revenue as per the Revenue and assessee, respectively. The assessee's stand from the very beginning claims it to be not resulting any structural change in the factory building, non carrying out of any civil work, entire renovation meant to replace the old normal wear/tear of the building, non appointment of any civil engineer, no steel item being used and no new building or asset of different size and shape to have ITA No.1855/Ahd/2011 ABM Steels Pvt. Ltd.

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come up. The lower authorities are fair enough in not specifically rejecting these pleas. The assessee has only re- plastered, re-furnished and re-plumbered its factory building. This is not the Revenue's case that the same has caused any increase in capacity of the building or otherwise. The Assessing Officer has been heavily swayed by the quantity of the material used (supra). We observe that this factor is not relevant in deciding such an issue of capital and revenue expenditure once it has not resulted in creation of a new asset giving enduring advantage. We quote hon'ble Bombay high court decision in CIT vs. DBS Corporate Services (P) Ltd., (2014) 43 taxmann.com in support. The Revenue does not point out any case law to the contrary. Thus, we accept the assessee's relevant ground and delete the impugned disallowance of Rs.18,01,899/- by treating these building repair expenses as revenue expenditure liable to be treated as current repair u/s.30 of the Act.

6. This leaves us with the latter ground of disallowance of commission expenditure of Rs.10,99,445/- u/s.40(a)(i) paid to foreign agents in lieu of procuring export orders. The assessee had paid this sum to M/s. KP Solution LLC debited without deducting any TDS. The Assessing Officer treated this expenditure as being paid for availing technical services ITA No.1855/Ahd/2011 ABM Steels Pvt. Ltd.

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covered u/s.9(1)(vii) liable for TDS deduction. The assessee filed copy of the relevant agreement. It pleaded that the payments in question were in the nature of export commission not taxable in India in the recipients hands without there being any business connection u/s.9(1) so as to attract Section 195. The Assessing Officer went through the agreement's clauses to conclude that the recipients had not only acted as commission agents but also provided technical services. This resulted in the impugned section 40(a)(ia) disallowance of Rs.10,99,445/-. The assessee has failed in lower appellate order as well.

8. Heard both sides. Records perused. The 'Board' had issued circular no.786 dated 7.2.2000 exempting similar commission payments from TDS deduction. The same was withdrawn vide circular 7/09 dated 22.10.2009. The relevant assessment year is 2008-09 having accounting period from 1.4.2008 to 31.3.2009. There is no dispute between parties about the former circular and its withdrawal by a subsequent one. It is not the Revenue's contention that this withdrawal is with retrospective effect covering the earlier span of time. The assessee also makes submissions on these very lines. Therefore, we hold that the Board's circular dated 22.10.2009 withdrawing the earlier one exempting foreign agencies commission from TDS deduction has to be treated as having prospective effect ITA No.1855/Ahd/2011 ABM Steels Pvt. Ltd.

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only. We rely on case law of M/s. Ajit Impex vs. DCIT (ITA No.2890/Ahd/2010 order dated 29.04.2014 in support.

8.1 At this stage, the Revenue argues that the assessee had availed technical services from its overseas agents to attract Section 9(1)(vii) of the Act. The assessee places on record agreement dated 8th December, 2005 (supra) highlighting its payees obligations as under:

"3.1 The Agent undertakes to ensure the qualification of the Products, shall use its best efforts to promote the Products and in general shall act promptly and diligently in carryingout its obligations as Agent.

3.2 The Agent's activities shall at its own cost, include but shall not be limited to.

· Regularly visiting existing and potential customers. · Using its best endeavours and applying normal commercial techniques in promoting the products. · Arrange to the satisfaction of ABM adequate and effective publicity for the Products.

· Participating in all appropriate trade fairs and /or exhibitions.

· Keep ABM duly informed on all existing and future requirements of local law concerning the business of ABM or which may concern the execution of this Agreement and, in particular all problems in connection with import and sale of the Products.

· To have sound, qualified and technical personnel employed with them for technical, commercial and marketing areas."

We have confronted the Revenue about the aforesaid clauses in the agreement. It fails to point out involvement of any technical component therein. The assessee's overseas agents ITA No.1855/Ahd/2011 ABM Steels Pvt. Ltd.

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have procured export orders and provided logistic support through adequate publicity etc. There is not even an iota of evidence to prove any technical service actually rendered to the assessee. Thus, the Revenue's contention relating to Section 9(1)(vii) aplicability stands negated. We hold that the assessee has not availed any technical services from its overseas agents so as to deduct TDS on the impugned export commission payments. The Hon'ble Supreme Court in G.E. India Technology Centre P. Ltd., 329 ITR 110 (Delhi) has held that Section 195 applies only when overseas payments are taxable in the recipients hands under the Act. Therefore, we delete the impugned disallowance.

9. The assessee's appeal is allowed.

Order pronounced in the Court on this day, the 24 April, 2015 at Ahmedabad.

Sd/- Sd/- (G. D. AGARWAL) (S.S. GODARA) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 24/04/2015 Prabhat Kr. Kesarwani, Sr. P.S.s आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आयु त / Concerned CIT

4. आयकर आयु त(अपील) / The CIT(A)-III, Ahmedabad

5. वभागीय त न ध, आयकर अपील य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड फाईल / Guard file.

ITA No.1855/Ahd/2011 ABM Steels Pvt. Ltd.

For A.Y.2008-09 -8- आदेशानुस ार / BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad