2017 (5) TMI 1164 - HC - Income Tax

TDS u/s 195 - Disallowance of commission payment to foreign agents - non deduction of tds - Held that - Keeping in view the decision of my predecessor on the issue of payment of commission without deduction of tax which related to payment to one Dr. Paul Le Provost who has received during this year about ₹ 47.76 lakhs out of total 61.37 lakhs, hereby agree with the decision taken by him on this issue. As the commission paid to the other agents is on the same line as paid to Dr. Paul Le Provost and all the details regarding services rendered and also the business of the assessee being the same so the payment of commission cannot be held as in genuine as well as provisions of Section 40(a)(ia) are not attracted so the whole amount of commission does not attract provisions of Section 40(a)(ia) r.w.s. 195 of the Act. As a result the grounds dealing with this issue are allowed and the disallowance made by the Assessing Officer is deleted. - Decided in favour of assessee. Disallowance of commission to foreign agents u/s 37(1) - AO has disallowed as he found that the appellant has failed to furnish the details of services rendered for the appellant - Held that - When the respondent assessee had produced necessary documentary evidence in the form of confirmation letters of the commission paid to the foreign agents, necessary documents /invoices on which the commission have been paid have been produced and the commission has been paid through banking channel and with respect to the very foreign agents in the previous years the claim of the respondent assessee had been accepted consistently, learned CIT(A) as well as the learned tribunal has rightly deleted the disallowance made by the Assessing Officer.- Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of commission payment to foreign agents under Section 40(a)(ia) of the Income Tax Act.
2. Justification of commission payment as a genuine business expenditure under Section 37(1) of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Commission Payment to Foreign Agents under Section 40(a)(ia):

The primary issue in both tax appeals was whether the Income Tax Appellate Tribunal (ITAT) erred in deleting the additions made by the Assessing Officer (AO) regarding the disallowance of commission payments to foreign agents. The AO doubted the genuineness of the commission payments and disallowed the claims under Section 40(a)(ia) of the Income Tax Act. The AO's disallowance was based on the respondent-assessee's failure to produce evidence of services rendered by the foreign agents and the absence of registered written agreements.

However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the disallowance, observing that the respondent-assessee had provided sufficient documentary evidence, including confirmation letters from the foreign agents, and the payments were made through banking channels. The CIT(A) noted that the commission payments were a consistent business expenditure and that the foreign agents did not have any operations in India, making the provisions of Section 9(1)(i) of the Income Tax Act inapplicable. Consequently, the CIT(A) ruled that no tax was deductible from the payments made to the foreign agents under Section 195, and thus, Section 40(a)(ia) was not applicable.

The ITAT upheld the CIT(A)'s decision, confirming that the commission payments were genuine business expenditures. The High Court agreed with the findings of the CIT(A) and the ITAT, noting that the respondent-assessee had consistently provided necessary documentary evidence, and the commission payments were accepted in previous years. Therefore, the High Court found no substantial questions of law and dismissed the appeals.

2. Justification of Commission Payment as a Genuine Business Expenditure under Section 37(1):

The second issue concerned whether the ITAT was justified in deleting the disallowance of commission payments under Section 37(1) of the Income Tax Act. The AO disallowed the commission payments, arguing that the respondent-assessee failed to provide evidence of services rendered by the foreign agents.

The CIT(A) disagreed with the AO, stating that the respondent-assessee had provided adequate explanations and documentary evidence regarding the services rendered by the foreign agents. The CIT(A) emphasized that the nature of the respondent-assessee's business required the engagement of agents to procure orders, and the commission payments were a consistent business practice. The CIT(A) concluded that the disallowance under Section 37(1) was not justified and deleted it.

The ITAT affirmed the CIT(A)'s decision, noting that similar issues had been resolved in favor of the respondent-assessee in previous cases. The High Court supported the ITAT's findings, highlighting that the respondent-assessee had consistently provided necessary evidence and that the commission payments were a genuine business expenditure. Consequently, the High Court found no substantial questions of law and dismissed the appeals.

Conclusion:

The High Court dismissed both tax appeals, affirming the decisions of the CIT(A) and the ITAT. The court concluded that the respondent-assessee had provided sufficient documentary evidence to justify the commission payments to foreign agents as genuine business expenditures, and the provisions of Section 40(a)(ia) were not applicable. The court found no substantial questions of law, thereby upholding the deletion of the disallowance made by the AO.