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2011 (2) TMI 1450 - AT - Income TaxNature of services - Providing composite services Constitute managerial services? - Obligation of the assessee to deduct withholding tax u/s 195 - Disallowance of travelling expenses - HELD THAT - In the present case the overseas agent did not render any services in India. It had no place or permanent establishment in India. It worked abroad and procured orders. The orders were sent directly by the foreign purchasers remitted to the assessee in India and even the payment for export was received by the assessee in foreign currency directly from foreign purchasers and the commission was paid to foreign agent thereafter as a percentage of sales in terms of the agency agreement. The payment made to overseas commission agent by the assessee was not for technical/managerial services. Therefore in the absence of any service having been rendered in India no part of the commission paid to the overseas agency could be said to be chargeable in India under the Income-tax Act 1961 and in the absence of any income chargeable to tax in India question of applying section 195 of Income-tax Act 1961 does not arise. Hence we allow asscssee s appeal on this issue. Disallowance of travelling expenses amounting to Rs. 23, 64, 006 being 25 per cent of the travelling expenses confirmed by the ld. CIT(A) on the ground that no supporting evidence was furnished by the assessee and the expenses were not incurred wholly and exclusively for the purpose of business. We are of the opinion that the ld. CIT(A) had wrongly disallowed 25 per cent of the expenses on adhoc basis when the assessee had furnished all the details such as (a) details of travelling expenses (b) list of the foreign parties visited (c) copies of the passport (d) relevant correspondence with the foreign parties (e) statement of sales made to the foreign parties and (f) visa application. Therefore as the assessee has given enough supporting evidences while claiming the expenses we allow assessee s apeal on this issue. In the result the appeal filed by the assessee is allowed.
Issues Involved:
1. Nature of services provided by Indijack Ltd. and whether they constitute managerial services. 2. Obligation of the assessee to deduct withholding tax u/s 195. 3. Disallowance of travelling expenses. Issue 1: Nature of Services Provided by Indijack Ltd. The Assessing Officer (AO) held that the services provided by Indijack Ltd. were managerial in nature, not merely commission-based. The AO cited various definitions and the Supreme Court decision in R. Dalmia v. CIT [1977] 106 ITR 895, concluding that the services involved coordination, marketing, and convincing prospective buyers, thus qualifying as managerial services. Issue 2: Obligation to Deduct Withholding Tax u/s 195The AO discussed provisions of section 195, section 40(a)(i), and section 9(1)(vii) with Explanation 2, concluding that the payments to Indijack Ltd. were for managerial services, thus requiring TDS deduction. The AO cited several judgments, including Steffen Robertson Kirsten Consulting Engineers & Scientists v. CIT [1998] 230 ITR 206 (AAR - New Delhi) and CIT v. Samsung Electronics, to support the obligation to deduct tax at source. The assessee argued that the services were purely commission-based, relying on CBDT Circular No. 23 and the Supreme Court decision in CIT v. Toshoku Ltd. 125 ITR 525. The assessee also cited the Special Bench ITAT decision in ITO International Taxation Chennai v. Prasad Production Ltd. 2010 TIOL 182 ITAT (Mad)(SB), asserting that no TDS is required if the income is not chargeable to tax in India. The CIT(A) upheld the AO's decision, stating that the services provided by Indijack Ltd. were composite, including managerial services, thus falling under "fees for technical services" and requiring TDS deduction. The CIT(A) referenced Wallace Pharmaceuticals Pvt. Ltd, In re [2005] 198 CTR (AAR) 63 and other relevant cases to support this conclusion. However, the ITAT found that the services rendered by the overseas agent were not managerial/technical services and were performed outside India. Therefore, no part of the commission paid to the overseas agency could be said to be chargeable in India under the Income-tax Act, 1961, and section 195 did not apply. The ITAT allowed the assessee's appeal on this issue. Issue 3: Disallowance of Travelling ExpensesThe AO disallowed 25% of the travelling expenses amounting to Rs. 23,64,006, citing lack of supporting evidence. The CIT(A) confirmed this disallowance. The ITAT reviewed the evidence provided by the assessee, including details of travel, list of foreign parties visited, copies of passports, relevant correspondence, statement of sales, and visa applications. The ITAT concluded that the assessee had furnished sufficient evidence to support the expenses and allowed the appeal on this issue. Conclusion:The appeal filed by the assessee was allowed, with the ITAT ruling in favor of the assessee on both the nature of services and the disallowance of travelling expenses.
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