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2014 (6) TMI 255 - AT - Income TaxDeletion of addition u/s 40(a)(ia) of the Act - Commission paid to Non-residents Applicability of benefit of circular - CIT(A) not appreciated the fact that Circular No. 786 has been withdrawn by the Circular No. 7 of 2009 dated 22.10.2009 Availability of benefit of DTAA - Held that - No such question was either raised by the AO or by CIT(A), there was no occasion for the assessee to produce such certificate before the authorities at this stage in the absence of any record to prove the contrary the mere contention of the revenue cannot be accepted there was no error or illegality in the order of CIT(A) whereby it has been held that the Explanation in question is not applicable in the case of the assessee - The limit provided under the RBI guidelines for remittance of commission is relevant only for the purpose of remittance in foreign exchange and is not relevant for determination of the allowability of the expenditure under the Income Tax Act - Once the remittance was allowed even more than limit provided by the RBI guidelines the same becomes irrelevant for the purpose of allowability of the expenditure under the Income Tax Act. So far as the withdrawal of Circular No. 786 by a subsequent Circular 7/2009 dated 22.10.2009 is concerned, it has been decided in CIT Vs. Angelique International Ltd. 2013 (10) TMI 17 - DELHI HIGH COURT that the Circular no. 7 of 2009 whereby the Circular No. 789 has been withdrawn did not have retrospective effect - even otherwise at the time of remittance of the amount in question the Circular No. 786 was very much inforce and existence, the assessee cannot be expected to deduct tax at source on the commission paid to the non-resident agent the order of the CIT(A) is upheld Decided against Revenue.
Issues:
- Disallowance of commission paid to non-resident under section 40(a)(ia) of the Income Tax Act, 1961 - Applicability of Circular No. 7 of 2009 and its impact on earlier circulars - Interpretation of section 9 r.w explanation 2 of the Income Tax Act, 1961 Analysis: Issue 1: Disallowance of Commission Paid to Non-Resident The appeal concerned the addition of Rs. 25,49,243/- made by the Assessing Officer (AO) under section 40(a)(ia) for commission paid to a Dubai-based company. The AO disallowed the commission as tax at source was not deducted. The assessee argued that since the payee had no permanent establishment in India and the income did not arise in India, no tax was required to be deducted. The Commissioner of Income Tax (Appeals) (CIT(A)) agreed, stating that the payment did not fall under specified clauses of section 9(1) and was not taxable in India as per the Double Taxation Avoidance Agreement (DTAA) between India and UAE. Issue 2: Applicability of Circular No. 7 of 2009 The Revenue contended that Circular No. 7 of 2009 withdrew earlier circulars, affecting the benefits available to the assessee. However, the Tribunal noted that the AO did not dispute the nature of the payment as commission, and the CIT(A) did not question it. The Tribunal held that the withdrawal of Circular No. 786 by Circular No. 7 of 2009 was not retrospective, following precedents that upheld reliance on withdrawn circulars during the relevant assessment year. Issue 3: Interpretation of Section 9 r.w Explanation 2 The AO disallowed the expenditure under section 40(a)(ia) based on Explanation 2 to section 9(1). The Tribunal clarified that if the income of the non-resident was not interest, royalty, or fee for technical services, Explanation 2 was not applicable. The Tribunal emphasized that the RBI guidelines on commission remittance limits were irrelevant for Income Tax Act purposes. Relying on judicial decisions, the Tribunal upheld the CIT(A)'s order, stating that the assessee was not required to deduct tax at source on the commission paid to the non-resident agent due to the prevailing Circular No. 786 during the remittance. In conclusion, the Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision regarding the non-taxability of the commission payment to the non-resident, the non-retrospective effect of Circular No. 7 of 2009, and the inapplicability of Explanation 2 to section 9(1) in this case.
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