2015 (10) TMI 532 - AT - Income Tax

Revision u/s.263 - AO failed to examine the relevant documents/agreement along with the correspondence and other evidences to determine whether the income is chargeable under the provisions of sec.9(1)(vii) read with relevant provisions of the DTAA and the Assessing Officer has not verified the purchase orders along with correspondences with M/s. Tarun Anvil Corporation, USA. - Held that - Sec.195(1) prescribes that tax has to be deducted while making payment to non-resident, which is chargeable under the provisions of the Act. Therefore, the condition precedent for deduction of tax is that the income must be chargeable under the provisions of the Act. In the present case, the assessee has not produced relevant agreement entered into with that foreign agent to show that they were appointed to act as commission agents outside India in their respective countries. It is seen from the orders of the lower authorities that the assessee has not discharged the burden cast upon it to show the nature of services rendered by non-resident agent. If there are services rendered by non-residents, who have no permanent establishment in India or have any business connection in India, by virtue of which the payment of commission accrued or arose in India then, it is exempted, if the assessee is able to prove that the services were rendered by those non-residents at abroad. In the present case, the assessee has not established the facts on record that the non-resident has rendered services at abroad and there is no business connection in India by producing relevant records, viz., either agreement entered into by the assessee with them or correspondence took between the parties. Without examining these details, we are not in a position to decide the nature of services rendered by the non-resident agent. Therefore, it is appropriate to remit the entire issue back to the file of the AO with direction to the assessee to prove that it was sales commission towards procurement of orders from abroad. Accordingly, the entire issue is remitted back to the file of the AO for fresh consideration and the AO is directed to make necessary enquiry regarding the nature of services rendered by the non-resident agent and the payments made thereof. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
Assessment under sec.263 of the IT Act based on failure to examine relevant documents/agreement and correspondence for determining chargeability under sec.9(1)(vii) read with DTAA provisions.

Analysis:
1. The appellant contested the setting aside of the assessment order under sec.263, arguing that the Assessing Officer had thoroughly examined all relevant records and documents before passing the order. The appellant's representative highlighted that the Commissioner erred in assuming that technical services were availed from a non-resident without specifying the services' nature or applicability under sec.9(1)(vii) of the Income-tax Act, 1961. The appellant further pointed out that the Commissioner overlooked the Assessing Officer's efforts to verify various aspects, including overseas commission payments and agreements with clients.

2. The appellant emphasized that the Assessing Officer had issued detailed questionnaires and conducted inspections to verify transactions with non-residents. The appellant's Counsel argued that the Commissioner failed to acknowledge these verifications and misjudged the assessment order's validity. Additionally, the appellant criticized the Commissioner for not discussing relevant judicial decisions cited by the appellant, which could have influenced the assessment's correctness.

3. The appellant referenced a Tribunal order highlighting instances when an Assessing Officer's order could be considered erroneous and prejudicial to revenue under sec.263. The appellant argued that the Assessing Officer's decision regarding TDS applicability on commission payments was based on a thorough enquiry, as evidenced by the ITO's order dated 6.3.2013. The appellant urged for the restoration of the Assessing Officer's order and dismissal of the Commissioner's findings.

4. The Respondent, on the other hand, supported the CIT's order, emphasizing the applicability of TDS on payments made to non-residents for services utilized in India. The Respondent contended that the Assessing Officer's conclusion lacked proper examination and was based on irrelevant considerations, leading the CIT to invoke sec.9(1)(vii) provisions.

5. The Tribunal observed that the Assessing Officer's decision not to deduct TDS on commission payments lacked independent enquiry and relied on a questionable basis. The Tribunal noted the absence of crucial information regarding the nature of services rendered by the non-resident agent and the lack of documentation supporting the exemption from TDS. Consequently, the Tribunal remitted the issue back to the AO for fresh consideration, directing the appellant to substantiate the nature of services provided by the non-resident agent and the corresponding payments made.

6. In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the need for a comprehensive examination of the nature of services rendered by non-residents and the applicability of TDS on relevant payments. The Tribunal's decision aimed at ensuring a proper assessment based on substantiated evidence and documentation to determine the chargeability under the Income-tax Act provisions.