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2014 (6) TMI 290 - HC - Income TaxDeletion of disallowance of Non-deduction of tax u/s 195 of the Act Retrospective effect of section 9 (1) (vii), read alongwith the explanation introduced by Finance Act, 2010 w.e.f. 1.6.1976 of the Act Disallowance of payment u/s 40(a)(ia) of the Act Commission paid to agents Violation of section 9(1)(vii) r.w. section 95 of the Act Held that - Following CIT v. M/s Model Exims, Kanpur, Income Tax Appeal 2013 (9) TMI 742 - ALLAHABAD HIGH COURT - AO did not bring anything on record, which could demonstrate that non-resident agents were appointed as selling agents, designers or technical advisers - payment of commission to foreign agents did not entitle such foreign agents to pay tax in India and thus the TDS was not liable to be deducted u/s 195 of the Act - The disallowance made by AO u/s 40 (a) (i) for non-deduction of tax at source u/s 195 were not justified. The fact situation did not contemplated or clarified in the explanation added by Finance Act, 2010 is applicable as the agents appointed by the assessee had their offices situate in a foreign country and that they did not provide any managerial services to the assessee - Section 9 (1) (vii) deals with technical services and has to be read in that context - The agreement of procuring orders would not involve any managerial services - The agreement did not show the applicability or requirement of any technical expertise as functioning as selling agent, designer or any other technical services Decided against Revenue.
Issues:
1. Disallowance of Rs.1,50,20,871 on account of non-deduction of income tax under Section 195 of the Income Tax Act. 2. Applicability of provisions of Section 9(1)(vii) and Section 195 regarding services rendered by non-resident entities. 3. Disallowance under Section 40(a)(ia) of the Act in respect of commission paid to agents in violation of Section 195 and Section 9(1)(vii) of the Income Tax Act. Issue 1: Disallowance of Income Tax Deduction under Section 195: The High Court analyzed the questions raised by the department regarding the disallowance of Rs.1,50,20,871 on account of non-deduction of income tax under Section 195 of the Income Tax Act. The Court referred to previous judgments where it was held that the Assessing Officer did not provide evidence to demonstrate that non-resident agents were appointed as selling agents, designers, or technical advisers. Consequently, the TDS was not liable to be deducted under Section 195, and the disallowance made by the Assessing Officer was deemed unjustified. Issue 2: Applicability of Section 9(1)(vii) and Section 195 for Services by Non-Resident Entities: The Court examined whether the provisions of Section 9(1)(vii) and Section 195 were applicable to services rendered by non-resident entities. It was noted that the CIT (A) and ITAT had considered the alleged admission in the reply of the assessee but found that there was insufficient evidence to demonstrate that the foreign agents were appointed as selling agents, designers, or technical advisers. The Court emphasized that the payments made did not fall within the meaning of "FTS" as described in Section 9(1)(vii) of the Act. Additionally, it was clarified that the income of the non-resident was not chargeable to tax in India, and therefore, the appellant was not required to deduct Tax at Source under Section 195 for the commission paid to the foreign agents. Issue 3: Disallowance under Section 40(a)(ia) for Commission Paid to Agents: Regarding the disallowance under Section 40(a)(ia) of the Act in respect of commission paid to agents, the Court observed that the Assessing Officer had not brought forth any evidence to demonstrate that the agents provided managerial services. The Court highlighted that the agreement for procuring orders did not involve managerial services and did not require technical expertise as a selling agent or designer. The Court dismissed the appeal, stating that the questions of law were covered by previous judgments and decided in favor of the assessee against the department. In conclusion, the High Court upheld the decisions of the CIT (A) and ITAT, ruling in favor of the assessee and dismissing the income tax appeal. The Court emphasized the lack of evidence to support the disallowance of TDS under Section 195 and clarified that the payments made to non-resident agents did not fall under the purview of Section 9(1)(vii) or Section 195 of the Income Tax Act.
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