2011 (4) TMI 1308 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition on account of non-deduction of TDS u/s 40(a)(ia).
2. Applicability of Section 195 and Section 9 of the Income Tax Act, 1961.
3. Validity of CBDT Circulars and their withdrawal.

Summary:

1. Deletion of Addition on Account of Non-Deduction of TDS u/s 40(a)(ia):
The Revenue's appeal contested the deletion of Rs. 57,49,489 by the CIT(A) for non-deduction of TDS u/s 40(a)(ia). The assessee argued that the commission paid to foreign agents was not taxable in India and thus not subject to TDS u/s 195. The CIT(A) agreed, noting that the relevant CBDT circulars (No. 23 of 1969 and No. 786 of 2000) were in force during the assessment year, and their withdrawal in 2009 did not apply retrospectively.

2. Applicability of Section 195 and Section 9 of the Income Tax Act, 1961:
The AO disallowed the commission payments, arguing that the assessee was liable to deduct TDS u/s 195, as the payments were deemed income accruing in India u/s 9(1)(vii). However, the CIT(A) found no evidence that the foreign agents provided managerial, technical, or consultancy services that would fall under FTS as per Section 9(1)(vii). The CIT(A) concluded that the payments did not accrue or arise in India, thus not attracting TDS u/s 195.

3. Validity of CBDT Circulars and Their Withdrawal:
The CIT(A) and the Tribunal both emphasized that the CBDT circulars in force during the relevant assessment year (Circular No. 23 of 1969 and Circular No. 786 of 2000) clarified that commission payments to foreign agents were not taxable in India, and thus no TDS was required. The Tribunal cited the case of Dy.CIT-II, Kanpur vs. Shri Sanjiv Gupta, Kanpur, affirming that the withdrawal of these circulars in 2009 did not affect the assessment year 2007-08. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of the addition for non-deduction of TDS on commission payments to foreign agents, based on the non-applicability of Section 195 and the validity of the CBDT circulars during the relevant assessment period.