2014 (3) TMI 1028 - HC - Income Tax

Disallowance made under Section 40(a)(i) of commission payment Applicability of section 9 - commission payment made for services rendered in India - Held that - Tribunal, after perusal of the entire record including the agreement in question, pointed out that the assessee was paying similar commission in earlier years and there was no such disallowance. The issue of T.D.S. never arises as the said person has no permanent establishment in India. The amount was not taxable as the services were not rendered in India. In para 6 of the order passed by the Tribunal, it has referred to the appointment order and also the entire record. The nature of the services rendered have also been considered. It is in these circumstances that there was no conclusion that the matter does not fall within the purview of the Explanation 2 and as urged before us. These are matters fully covered by the same, that the services rendered are of the nature, namely, looking after sales, creditworthiness of buyers and overseeing the payment to assessee in the business of export of cycle and cycle parts. In such circumstances, the concurrent findings of fact are consistent with the material produced including the agreement. They do not give rise to any substantial question of law, much less, as framed in the present appeal. - Decided against revenue

Summary

Issues:
1. Disallowance under Section 40(a)(i) for non-deduction of tax at source on commission payment.
2. Applicability of Section 9(1)(vii) and Explanation 2 for commission payment for services rendered in India.
3. Permanent establishment in India and taxability of services not rendered in India.
4. Consistency of findings by the Tribunal with the material produced, including the agreement.

Analysis:
The High Court of Bombay, comprising S.C. Dharmadhikari and G.S. Kulkarni, JJ., heard arguments from both parties represented by their respective counsels. The case involved a dispute over the disallowance made under Section 40(a)(i) of the Income Tax Act for failure to deduct tax at source on a commission payment. The revenue contended that the payment was for services rendered in India, thus falling under Section 9, particularly Explanation 2 under Section 9(1)(vii) of the Act.

Upon reviewing the orders of the Income Tax Appellate Tribunal and the Assistant Commissioner, the Tribunal noted that the assessee had a history of making similar commission payments in previous years without any disallowance. The Tribunal emphasized that the recipient of the commission had no permanent establishment in India, and the services were not rendered in India, leading to the conclusion that the amount was not taxable. The Tribunal thoroughly examined the appointment order, the nature of services provided, and the overall record before determining that the services were related to sales, creditworthiness assessment of buyers, and payment oversight in the export business of cycles and cycle parts.

The High Court upheld the Tribunal's decision, finding that the findings were consistent with the evidence presented, including the agreement. It was established that the services in question did not fall within the purview of Explanation 2 under Section 9(1)(vii) as argued by the revenue. Consequently, the Court dismissed the appeal, deeming it lacking in merit and not raising any substantial legal questions. The judgment reaffirmed the importance of factual consistency and adherence to legal provisions in tax matters.