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2018 (4) TMI 1564 - AT - Income TaxTDS u/s 195 - income accrued in India - receipt in India of the sale proceeds of tobacco - Held that - In the instant case the non-resident assessee did not carry on any business operations in the taxable territories. They acted as selling agents outside India. The receipt in India of the sale proceeds of tobacco remitted or caused to be remitted by the purchasers from abroad does not amount to an operation carried out by the assessee in India as contemplated by cl. (a) of the Explanation to s. 9(1)(i) of the Act. The commission amounts which were earned by the nonresident assessee for services rendered outside India cannot therefore be deemed to be incomes which have either accrued or arisen in India.
Issues Involved:
1. Non-deduction of tax on payments of commission to non-resident/foreign commission agents. 2. Applicability of Section 9(1)(i) and Section 195 of the Income Tax Act. Detailed Analysis: 1. Non-deduction of tax on payments of commission to non-resident/foreign commission agents: The Department contended that the CIT(A) erred in deleting the addition of Rs. 36,30,862/- made under Section 40(a)(i) due to non-deduction of tax on commission payments to foreign agents. The Assessing Officer (AO) had made an addition of Rs. 70,54,210/- on the basis that the CBDT Circular No. 7 dated 22.10.2009 had withdrawn earlier circulars which exempted such payments from tax deduction. The AO argued that post-withdrawal, the income arising to foreign agents fell under Section 5(2)(b) as it accrued in India when the right to receive the income vested. The CIT(A) allowed the assessee's appeal, holding that the withdrawal of the circulars did not alter the provisions of Sections 5(2) and 9(1)(i). The CIT(A) noted that the foreign agents did not have any business connection or permanent establishment in India, and thus, the provisions of Section 195 were not attracted. The CIT(A) referred to several judicial pronouncements, including the ITAT Hyderabad Bench in the case of DCIT vs. Divi’s Laboratories Ltd., which held that the withdrawal of the circulars did not change the taxability of commission payments to foreign agents. 2. Applicability of Section 9(1)(i) and Section 195 of the Income Tax Act: The CIT(A) examined the applicability of Section 9(1)(i) which deems certain incomes to accrue or arise in India. The CIT(A) observed that the AO had not established any business connection or permanent establishment of the foreign agents in India. The CIT(A) relied on the decision of the Hon’ble Delhi High Court in CIT v. EON Technology (P) Ltd., which held that commission payments to foreign entities for services rendered outside India were not taxable in India, and thus, no tax was deductible at source. The CIT(A) also referred to the Supreme Court decision in CIT vs. Toshoku Limited, which clarified that commission earned by non-resident agents for services rendered outside India could not be deemed to accrue or arise in India. The CIT(A) further cited the Madras High Court decision in Faizan Shoes (P.) Ltd., which supported the view that commission payments to foreign agents for services rendered outside India were not subject to tax deduction under Section 195. The CIT(A) concluded that the withdrawal of the CBDT circulars did not affect the established legal position that commission payments to foreign agents for services rendered outside India were not taxable in India. Therefore, the assessee was not liable to deduct tax at source, and the disallowance under Section 40(a)(i) was not justified. Judgment: The Tribunal upheld the CIT(A)’s order, confirming that the assessee was not required to deduct tax at source on commission payments to foreign agents, as these payments were not taxable in India under Section 9(1)(i) and Section 195. The Tribunal dismissed the Department’s appeals for both assessment years, affirming the CIT(A)’s well-reasoned findings. Order pronounced in the open court on 11/04/2018.
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