2014 (3) TMI 1015 - AT - Income Tax

TDS u/s 195 - Non-deduction of tax at source on the commission paid overseas - disallowance under sec.40(a)(i) delted by CIT(A) - Held that - CIT(A), whilst deleting the impugned addition u/s 40(a)(i) pertaining to overseas payments made by the assessee on account of commission, warehousing and other charges, has followed order of the tribunal in assessee s own case for assessment years 2005-06, 2006-07 and 2007-08 involving same issue concluding the foreign agent to whom the assessee had paid commission does not have any income liable for tax in India and as it is also noticed that the agent is not giving any services to the assessee in India for which the said commission has been paid, the disallowance made u/s 40a(i) being legally untenable. On being granted opportunity, the Revenue has failed to prove that these expenses are liable to be taxed in India as income in the hands of concerned payees or any services had been rendered in India. The Revenue submits that the tribunal s order has not been become final and its appeal is pending before the hon ble high court. In our considered opinion, mere pendency of an appeal involving the same issue against the order of the tribunal is no ground to adopt a different approach in the impugned assessment year. Thus, we agree with the findings of the CIT(A) under challenge and reject grounds raised by the Revenue. - Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance under Section 40(a)(i) of the Income-tax Act, 1961 for non-deduction of tax at source on overseas commission payments.
2. Applicability of the ITAT's previous rulings and the Supreme Court's judgment in GE India Technology Centre P. Ltd. case.

Detailed Analysis:

1. Disallowance under Section 40(a)(i) of the Income-tax Act, 1961:

The Revenue challenged the deletion of a disallowance amounting to Rs. 2,71,70,000/- made under Section 40(a)(i) of the Income-tax Act, 1961. The disallowance was made on account of the assessee's failure to deduct tax at source on overseas commission payments. The Assessing Officer had observed that the assessee incurred overseas commission expenses of Rs. 161.61 lakhs and warehousing and other charges of Rs. 110.09 lakhs. He concluded that these payments should have been subjected to TDS provisions, and their failure to do so warranted disallowance under Section 40(a)(i) of the Act.

2. Applicability of ITAT's Previous Rulings and Supreme Court's Judgment:

The CIT(A) deleted the disallowance by relying on ITAT's previous rulings in the assessee's own case for assessment years 2005-06, 2006-07, and 2007-08. These rulings were based on the principles laid down by the Hon'ble Supreme Court in the case of GE India Technology Centre P. Ltd. (327 ITR 456). The Supreme Court's judgment clarified that the obligation to deduct TDS arises only when there is a "sum chargeable under the provisions of the Act." The court emphasized that Section 195, which deals with TDS on payments to non-residents, applies only to sums that are chargeable to tax under the Income-tax Act.

The CIT(A) noted that the foreign agent to whom the commission was paid did not have any income liable for tax in India and did not provide any services in India. Therefore, the disallowance made under Section 40(a)(i) was deemed legally untenable, and the AO was directed to delete the same.

Tribunal's Findings:

The Tribunal upheld the CIT(A)'s decision, stating that the Revenue failed to prove that the expenses were liable to be taxed in India as income in the hands of the concerned payees or that any services had been rendered in India. The Tribunal also noted that the mere pendency of an appeal involving the same issue against the order of the 'tribunal' was no ground to adopt a different approach in the impugned assessment year.

Conclusion:

The Tribunal dismissed the Revenue's appeal, agreeing with the CIT(A)'s findings and rejecting the grounds raised by the Revenue. The order was pronounced on March 28, 2014, at Chennai.