2015 (6) TMI 1196 - AT - Income Tax

TDS u/s 195 - non-deduction of TDS on payment of commission to Foreign Agent - place of business in India - CIT-A deleted the addition - HELD THAT - Nothing has been brought on record by the Revenue in order to demolish the stand taken by the assessee and to establish that non-resident has ever rendered any technical services or consultancy or managerial services. Therefore, we are of the view that since the assessee has simply procured export orders through commission agent for which commission was paid, the assessee was not required to deduct tax at source on the commission paid to the foreign agent. Accordingly we confirm the order of the ld. CIT(A). - Decided in favour of assessee. Disallowance on ad-hoc basis - as alleged non pointing out any specific defect in the accounts of the assessee - CIT-A deleted the same for the reason that the AO has made ad-hoc disallowance - HELD THAT - During the course of hearing before us, similar is the position, as the Revenue could not point out any specific defect in the maintenance of accounts under different heads. No doubt the Assessing Officer can make disallowance if the assessee fails to produce the relevant evidence with respect to any particular expenditure, but the disallowance on ad-hoc basis is not permissible under the law. We, therefore, find no merit in these grounds of appeal - Decided in favour of assessee.

Issues Involved:
1. Deletion of addition due to non-deduction of TDS on commission payment to foreign agents.
2. Consideration of Board's Circular No. 7/2009.
3. Interpretation of prospective or retrospective nature of statutory amendments.
4. Nature of services rendered by non-resident agents.
5. Classification of payments to non-resident agents as fees for technical services.
6. Deletion of addition on account of foreign traveling expenses.
7. Deletion of addition on account of repair and maintenance expenses.
8. Deletion of addition on account of miscellaneous expenses.
9. Confirmation or quashing of the CIT(A)'s order.

Issue-wise Detailed Analysis:

1. Deletion of Addition due to Non-Deduction of TDS on Commission Payment to Foreign Agents:
The Tribunal examined whether the commission paid to foreign agents required tax deduction at source (TDS). The Tribunal referenced its earlier decision in the assessee's case for the assessment year 2009-10, supported by the jurisdictional High Court's judgment in CIT vs. M/s Model Exims, which concluded that tax was not required to be deducted at source on commission payments to foreign agents who rendered services outside India. The Tribunal held that the commission paid for procuring orders did not constitute technical, managerial, or consultancy services under section 9(1)(vii) of the Income-tax Act, 1961.

2. Consideration of Board's Circular No. 7/2009:
The Tribunal noted that the lower authorities did not consider the Board's Circular No. 7/2009 dated 22.10.2009. However, the Tribunal followed the jurisdictional High Court's ruling in CIT vs. M/s Model Exims, which implicitly addressed the applicability of such circulars in similar contexts.

3. Interpretation of Prospective or Retrospective Nature of Statutory Amendments:
The Tribunal acknowledged the Revenue's argument regarding the Explanation added to section 9(1)(vii) by the Finance Act, 2010, effective from 1.6.1976. However, it concluded that this aspect had already been examined by the jurisdictional High Court in CIT vs. M/s Model Exims, and thus, further adjudication on this basis was unnecessary.

4. Nature of Services Rendered by Non-Resident Agents:
The Tribunal emphasized that the non-resident agents were appointed solely as commission agents for procuring orders and not for providing technical, managerial, or consultancy services. This conclusion was supported by the High Court's definition of managerial, technical, and consultancy services in Director of Income-tax (International Taxation)-II vs. Panalfa Autoelektrik Ltd., which clarified that these terms should be interpreted in their common usage and not in a broad or speculative manner.

5. Classification of Payments to Non-Resident Agents as Fees for Technical Services:
The Tribunal reiterated that the payments to non-resident agents did not fall under the category of fees for technical services as defined in section 9(1)(vii). The agents were engaged in procuring orders and not in rendering specialized technical services.

6. Deletion of Addition on Account of Foreign Traveling Expenses:
The Tribunal found that the Assessing Officer made an ad-hoc disallowance of Rs. 1,00,000/- on foreign traveling expenses without pointing out specific defects in the accounts. The CIT(A) deleted this addition, and the Tribunal upheld the deletion, stating that ad-hoc disallowances are not permissible under the law.

7. Deletion of Addition on Account of Repair and Maintenance Expenses:
Similarly, the Tribunal upheld the CIT(A)'s deletion of the Rs. 2,00,000/- addition made by the Assessing Officer on repair and maintenance expenses. The Tribunal noted that the Revenue failed to point out any specific defects in the accounts.

8. Deletion of Addition on Account of Miscellaneous Expenses:
The Tribunal also confirmed the deletion of the Rs. 2,50,000/- addition on miscellaneous expenses, reiterating that the Assessing Officer's ad-hoc disallowance lacked specific evidence of defects in the accounts.

9. Confirmation or Quashing of the CIT(A)'s Order:
The Tribunal concluded that the CIT(A)'s order dated 24.05.2013 should be confirmed and the Assessing Officer's order dated 27.02.2013 should not be restored. Consequently, the Revenue's appeal and the assessee's cross objection were both dismissed.

Conclusion:
The Tribunal's judgment thoroughly examined the issues raised by the Revenue and upheld the CIT(A)'s deletions of various additions, emphasizing the lack of evidence for technical or managerial services by non-resident agents and the impermissibility of ad-hoc disallowances. The Tribunal's decision was consistent with prior rulings and the jurisdictional High Court's judgments.

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