2018 (10) TMI 1961 - AT - Income Tax

Disallowing the taxpayer s commission payments made to foreign export agents - non deduction of TDS u/s 40(a)(i) - HELD THAT - There is no dispute so far as the basic facts pertaining to the instant issue are concerned. The assessee has made commission payments to overseas agents in lieu of procuring export orders for outside markets. There is no material in case file which could suggest either of these to have received any service in details. It is in this backdrop of facts that CIT(A) has held the said overseas commission agents not to have rendered any service in India giving rise to taxability of their commission income in India. Hon'ble apex court s decision in G.E. India Technology Centre Pvt. Ltd. 2010 (9) TMI 7 - SUPREME COURT has settled the law that TDS deduction comes into play only if the corresponding income is taxable in the recipients hands in India. Assessee s payees / agents neither have any permanent establishment in India u/s 9(1)(i) nor they have any commission activity performed in India so as to be exigible to assessment in India. We therefore uphold CIT(A)'s detailed findings extracted hereinabove based on correct appreciation of facts in light of various judicial precedents to conclude that he has rightly deleted the impugned foreign agents commission disallowance made in the course of assessment. The Revenue fails in its first substantive ground. Disallowance u/s 14A r.w.r 8D - HELD THAT - It has come on record that Revenue s only endeavour is to revive proportionate interest expenditure disallowance only. It fails to rebut the CIT(A) s clinching findings that the instant taxpayer had sufficient interest free funds and also that the issue has attained finality in preceding assessment year. We therefore reject Revenue s second substantive ground as well by adopting judicial consistency. TDS u/s 194C - Transportation Expenses Addition u/s 40a(ia) - Revenue s only argument during the course of hearing is that although assessee had complied with the relevant conditions u/s 194(6) of obtaining the necessary declaration alongwith PAN No. of the payees, it has failed to satisfy all the necessary condition enshrined in sec. 194(7) - HELD THAT - We find no merit in the instant argument since the CIT(A) has considered a catena of case law vis- vis sec. 194(6) of the Act to conclude that assessee s liability to deduct TDS arises at the time of payments as against that envisaged in sec. 194C(7) of the Act. This tribunal s decision in Soma Rani Ghosh vs. DCIT 2016 (10) TMI 55 - ITAT KOLKATA also reiterates the very principle. We therefore uphold the CIT(A) s findings deleting the impugned disallowance qua the instant issue as well. Disallowing / adding assessee s employees contribution to PF ESI - HELD THAT - Hon'ble jurisdictional high court s decision in CIT vs. Vijay Shree Ltd. 2011 (9) TMI 30 - CALCUTTA HIGH COURT holds that the impugned disallowance is not sustainable in case the assessee deposits the impugned contribution the same before the due date filing its return. There is no exception pointed out to this legal position during the course of hearing. We decline Revenue s instant last substantive ground as well. Revenue s appeal is dismissed.

Summary

Issues Involved:
1. Disallowance of commission payments to foreign agents for non-deduction of TDS under Section 40(a)(i).
2. Disallowance under Section 14A read with Rule 8D for proportionate interest and administrative expenditure.
3. Disallowance of transportation charges under Section 40(a)(ia) for non-deduction of TDS.
4. Disallowance of employee's contribution to PF and ESI.

Detailed Analysis:

1. Disallowance of Commission Payments to Foreign Agents:
The Revenue challenged the CIT(A)'s decision to reverse the assessment findings that disallowed the taxpayer's commission payments to foreign export agents amounting to ?2,57,60,898/- for non-deduction of TDS under Section 40(a)(i). The Assessing Officer (AO) had assumed that all commissions were paid to foreign agents without TDS under Section 195, invoking Section 9(1) of the Income Tax Act, asserting that the income of non-residents would be deemed to accrue in India if there was a business connection. However, the CIT(A) found that the AO did not establish a business connection in India for the foreign agents and incorrectly applied clauses related to royalty instead of commission. The CIT(A) concluded that since the foreign agents did not have a permanent establishment (PE) in India and the services were rendered outside India, the payments were not liable for TDS. The Tribunal upheld the CIT(A)'s findings, citing the Supreme Court's decision in G.E. India Technology Centre Pvt. Ltd. vs. CIT, which established that TDS is applicable only if the income is taxable in India. Therefore, the disallowance was rightly deleted.

2. Disallowance Under Section 14A Read with Rule 8D:
The Revenue sought to revive a disallowance of ?20,48,875/- under Section 14A read with Rule 8D, which included proportionate interest and administrative expenditure. The CIT(A) deleted the interest component, noting that the taxpayer had sufficient interest-free funds and that the issue had attained finality in the preceding assessment year. The Tribunal upheld the CIT(A)'s decision, emphasizing judicial consistency and the lack of rebuttal from the Revenue regarding the sufficiency of interest-free funds.

3. Disallowance of Transportation Charges:
The Revenue contested the deletion of a disallowance of ?16,91,03,135/- for transportation charges under Section 40(a)(ia) due to non-deduction of TDS. The AO had argued that the taxpayer failed to comply with Section 194C(7) by not filing Form 26Q in time. However, the CIT(A) noted that once transporters furnished their PANs, the liability to deduct TDS under Section 194C(6) ceased. The CIT(A) held that non-filing of the form was a separate default and did not resurrect the liability to deduct TDS. The Tribunal agreed, citing case law that supported the CIT(A)'s interpretation, and upheld the deletion of the disallowance.

4. Disallowance of Employee's Contribution to PF and ESI:
The Revenue sought to revive the disallowance of ?1,67,642/- for late payment of employee's contributions to PF and ESI. The CIT(A) had deleted this disallowance, and the Tribunal upheld the decision, referencing the jurisdictional High Court's ruling in CIT vs. Vijay Shree Ltd., which held that such disallowances are not sustainable if the contributions are deposited before the due date for filing the return.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all substantive grounds, including the deletion of disallowances related to commission payments to foreign agents, proportionate interest and administrative expenditure under Section 14A, transportation charges, and employee's contributions to PF and ESI. The Tribunal's decision was based on a thorough evaluation of the facts, legal principles, and judicial precedents.