2013 (5) TMI 879 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of payment of commission to foreign agent on account of non-deduction of TDS.
2. Disallowance of payment on partners' insurance premium.

Summary:

Issue 1: Disallowance of Payment of Commission to Foreign Agent on Account of Non-Deduction of TDS

The Assessing Officer disallowed the payment of commission to a foreign agent due to non-deduction of TDS. The ld. CIT(A) accepted the assessee's contention that TDS was not required as the foreign agents were not liable to pay taxes in India, thus allowing the claim. The Revenue appealed, arguing that the withdrawal of Circular No.23 of 1969 by Circular No. 07 of 2009 invalidated the assessee's claim. The Tribunal, however, upheld the ld. CIT(A)'s decision, noting that the relevant circulars (Circular No.23 of 1969 and Circular No.786 of 2000) were in force during the financial year 2007-08, and the withdrawal by Circular No.7 of 2009 was not retrospective. The Tribunal cited various judgments supporting this view, including CIT vs. Eon Technology (P) Ltd. and DCIT vs. Shri. Sanjiv Gupta, concluding that the assessee was justified in not deducting TDS on the commission paid to the foreign agent.

Issue 2: Disallowance of Payment on Partners' Insurance Premium

The Assessing Officer disallowed the premium paid on life insurance policies purchased in the name of partners, despite the assessee's argument that these were Keyman policies. The ld. CIT(A) upheld this disallowance. The Tribunal, however, found that the policies were purchased to protect the firm's interest, with the firm as the proposer and the partners as the assured persons. The Tribunal referenced the judgment in CIT vs. B.N. Exports, which held that Keyman insurance policies are not confined to employees and can include partners. The Tribunal concluded that the premium paid on these policies is allowable as business expenditure u/s 37(1) of the Act, provided the assessee undertakes that the sum assured will be taxable upon receipt. The Tribunal directed the Revenue to allow the claim subject to this condition.

Conclusion:

The appeals of the assessee were allowed, and those of the Revenue were dismissed. The Tribunal confirmed that the assessee was not required to deduct TDS on the commission paid to the foreign agent and allowed the insurance premium payments as business expenditure, subject to specific conditions.

Order pronounced in the open court on 28/05/2013.