ITO Vs Hari Krishna Exports Private Limited (ITAT Mumbai)
Diamonds Travel Abroad for Certification
Hari Krishna Exports Private Limited was engaged in importing, manufacturing, trading & exporting diamonds and manufacturing & exporting jewellery.
During the relevant years, the assessee made payments to various non-resident entities for diamond grading & certification services without deducting tax u/s 195.
For AY 2012-13, payments were made to entities in Hong Kong, South Africa & Botswana; for AY 2015-16, to an entity in Thailand; for AY 2018-19, to entities in the USA, UK, Belgium, Hong Kong, Botswana & South Africa; and for AY 2019-20, to entities in the USA, UK, Belgium, Botswana & South Africa.
The AO characterised the payments as FTS chargeable to tax in India. Consequently, the assessee was treated as an assessee in default u/s 201(1) & consequential interest was levied u/s 201(1A).
The CIT(A) deleted the demands, holding that the grading charges did not constitute FTS. The Revenue carried the matter to the ITAT.
What Exactly Did the Grading Agencies Do?
The foreign grading agencies examined the diamonds submitted by the assessee & issued independent reports specifying physical characteristics such as cut, colour, clarity & carat weight.
The assessee contended that the reports merely certified the attributes of the particular diamonds examined. The agencies did not render managerial or consultancy services, provide technical advice or transfer their grading methodology to the assessee.
