2015 (5) TMI 1180 - AT - Income Tax

TDS u/s 195 - disallowance Export Commission u/s 40a(i) - PE in India - payment made to non-resident for the services rendered outside India - HELD THAT - Merely because payments have been made from India, the same cannot be made liable to be taxed in India insofar as payment was made to non-resident for the services rendered outside India as was held in the case of Dr. Reddy s Laboratory 1995 (12) TMI 93 - ITAT HYDERABAD-A - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of TDS on Export Commission
2. Disallowance of Export Commission under section 40a(i) of the Income Tax Act
3. Charging of interest under sections 234A, 234B, and 234C, and initiation of penalty under section 271(1)(c)

Analysis:

1. Disallowance of TDS on Export Commission:
The appeal was filed against the order of the Ld. CIT(A) confirming the disallowance of TDS on Export Commission. The appellant argued that the disallowance was against the principles of binding nature of the ITAT orders. The Tribunal noted that a similar disallowance for the preceding assessment year was deleted by the Tribunal in the appellant's own case. The Tribunal found that the non-resident brokers had rendered services outside India, and as no income was found to be taxable in India, the provisions of Section 195 did not apply. Referring to various judicial pronouncements, the Tribunal concluded that the commission income did not accrue or arise in India. Therefore, the disallowance was deleted, and the appeal was allowed.

2. Disallowance of Export Commission under section 40a(i) of the Income Tax Act:
The Assessing Officer had disallowed the Export Commission under section 40a(i) of the Income Tax Act. However, the Tribunal, based on the facts that the non-resident brokers provided services outside India and were not liable to tax in India, deleted the disallowance. The Tribunal emphasized that the payment of brokerage to non-resident brokers for non-technical services constituted business income of the payee and was not taxable in India. The Tribunal cited relevant case laws to support its decision. Consequently, the disallowance of Export Commission under section 40a(i) was deleted.

3. Charging of interest under sections 234A, 234B, and 234C, and initiation of penalty under section 271(1)(c):
The Assessing Officer had charged interest under sections 234A, 234B, and 234C, and initiated penalty proceedings under section 271(1)(c). However, in light of the Tribunal's decision to delete the disallowance of Export Commission and considering the identical facts of the case with the preceding assessment year, the disallowance and addition were deleted. Consequently, the appeal by the assessee was allowed, and the charges of interest and penalty were not sustained.

In conclusion, the Tribunal's judgment favored the appellant by deleting the disallowance of TDS on Export Commission, disallowance of Export Commission under section 40a(i), and rejecting the charges of interest and penalty under sections 234A, 234B, 234C, and 271(1)(c) based on the non-taxability of the income in India and the precedents cited.