2015 (12) TMI 1233 - AT - Income Tax

Disallowance of commission payment under section 40(a)(i) to non-resident - whether there was no agreement to suggest the payment of sales commission? - Held 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 abroad. In the present case, the assessee has not established the facts on record that the non- resident has rendered services abroad and there is no business connection in India by producing relevant records, viz., either agreement entered into by the assessee with them or the correspondence took place 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 Assessing Officer with direction to the assessee to prove that it was sales commission towards procurement of orders from abroad.

Summary

Issues:
1. Rejection of contentions on reopening of assessment.
2. Disallowance of interest paid to Canara Bank on overdraft facility.
3. Disallowance of commission paid to non-resident.

Issue 1: Reopening of Assessment
The assessee's appeal challenged the rejection of contentions by the Commissioner of Income-tax (Appeals) regarding the reopening of the assessment for the years 2004-05 and 2008-09. The authorized representative initially raised this ground but later withdrew it during the hearing. Consequently, the ground was dismissed as not pressed.

Issue 2: Disallowance of Interest Paid to Canara Bank
The Assessing Officer disallowed a sum of Rs. 2,74,165 as interest paid on an overdraft facility, linking it to interest-bearing borrowed funds advanced to relatives. The Commissioner of Income-tax (Appeals) upheld this disallowance, prompting the assessee to appeal. The assessee submitted additional evidence before the Tribunal, arguing that interest-free funds were available and advanced to others without interest. As the lower authorities did not examine these documents, the Tribunal remitted the issue to the Assessing Officer for fresh consideration in the interest of justice.

Issue 3: Disallowance of Commission Paid to Non-Resident
The assessee made a payment of Rs. 4,09,858 as commission to a non-resident, which was disallowed by the Assessing Officer for not deducting TDS under section 195 of the Act. The Commissioner of Income-tax (Appeals) affirmed this disallowance. The authorized representative contended that tax deduction under section 195 is required only when the payment is chargeable to tax in India. The Tribunal observed that the assessee failed to provide evidence of the nature of services rendered by the non-resident agent, leading to a lack of clarity on the business connection in India. Consequently, the Tribunal remitted the issue back to the Assessing Officer for further investigation and directed the assessee to establish the nature of services rendered by the non-resident agent.

In conclusion, the Tribunal partly allowed the appeal related to the disallowance of interest paid to Canara Bank for statistical purposes and allowed the appeal concerning the disallowance of commission paid to a non-resident for statistical purposes. Both issues were remitted to the Assessing Officer for fresh consideration.