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2008 (8) TMI 602 - AT - Income TaxDisallowance u/s 40(a)(i) - commission paid to non-resident commission agents outside India - Income - Deemed to accrue or arise in India - Minimum alternate tax - Whether any services or facilities were rendered by the non-resident commission agent to the assessee-company in India - principal to principal relationship - Assessee had failed to deduct the tax at source from the commission so paid to foreign agents - HELD THAT - The ITAT, Delhi Bench in the case of Millennium Infocom Technologies Ltd. v. Asstt. CIT 2008 (1) TMI 437 - ITAT DELHI-E has also taken a similar view that the obligation of the assessee to deduct tax u/s 195 is limited only to the appropriate proportion of income chargeable under the Act. We find that no services were performed or rendered in India by the non-resident commission agents to whom the commission have been paid in India. Though the benefit of such booking may be obtained in India by the assessee s customers or clients. It is settled proposition of law that no income accrues or arises or deemed to accrue or arise to the non-resident agents in India where services were made by them outside India. The booking were undoubtedly made outside India by the commission agents. In this view of the matter we, therefore, hold that the authorities below were very much unjustified in holding that the sums by way of commission paid to the non-resident booking agents was taxable in India so as to attract the provisions of section 195(1) of the Act and section 40(a)(i) of the Act with a view to disallow the assessee s claim of deduction of commission. The non-resident commission agents having no permanent establishment in India had earned commission from booking of the hotel made by the assessee s customers at a place outside India. Further, no material has been pointed out to show and conclude that there was any business connection between the activities carried out by the assessee in India and earning of income from commission outside India by the non-resident commission agents. It has neither been alleged nor held by the authorities below that these foreign agents have permanent establishment in India. Therefore, the income derived by non-resident commission agents from commission earned on booking of hotels outside India is not assessable in India as business income on the ground that none of the payees had permanent establishment in India having regard to the provisions of DTAA entered into between India and USA. The assessee-company and foreign booking agents have principal to principal relationship , and such foreign commission agents have an independent status in the ordinary course of their business. We do not also find any material to hold that there exists any business connection of foreign agents with the assessee-company. The revenue authorities have given an emphasis on the fact that M/s. Radisson International Inc. and the assessee-company have a common brand name of Radisson which alone, in our considered view, cannot be made a basis to suggest that these two independent and separate entities are interconnected unless something more is established that either any of the shareholders of the assessee-company or any of the Board of Directors of the assessee-company are either representatives or nominees of M/s. Radisson International Inc. or have any interest in the resultant profit and/or in the management of the assessee-company. Therefore, we do not find any force in the contention of the revenue that the non-resident commission agents have any business connection in India so as to hold that the commission earned by them did accrue or arise or deemed to accrue or arise in India. We, therefore, hold that the authorities below were unjustified in disallowing the assessee s claim of deduction on account of commission paid to non-resident commission agents inasmuch as the assessee-company had no liability to deduct tax at source u/s 195(1) of the Act r/w section 40(a)( i) of the Act. An identical issue has been raised in the appeal filed by the revenue for the AY's 2000-01 and 2001-02, and by the assessee in the AY 2002-03. It is to be mentioned here that this issue has been decided in favour of the assessee by the CIT(A) in two AY's i.e., AY's 2000-01 and 2001-02, though an identical issue has been decided against the assessee by the CIT(A) in the AY 2002-03 as was so decided in the AY 1999-2000. Respectfully following our decision given above in the AY1999-2000, we uphold the order of the CIT(A) in deleting the disallowance on account of commission paid to non-resident commission agents outside India in the AY's 2000-01 and 2001-02 and set aside the orders of both the authorities below in AYr 2002-03 by directing the AO to allow assessee s claim of deduction on account of the aforesaid commission. Treatment of rental income - derived from commercial complex - HELD THAT - it is not the case of the department that the super-structure constructed by the assessee is not owned by the present assessee. At this stage, reliance may be placed upon the decision of Co-ordinate Bench Bench in the case of Premavati Estates Investments (P.) Ltd. 2006 (1) TMI 457 - ITAT MUMBAI where income from sub-letting of property was held to be assessable under the head Income from house property . We, therefore, hold that the rental income derived from commercial complex constructed by the assessee on leasehold land is to be assessed under the head Income from house property inasmuch as, the ground given by the AO that the assessee should be the owner of the land on which superstructure is made by the assessee. The AO shall compute the income from rent derived from the commercial complex under the head House property and shall give necessary deductions or allowance as may be admissible under the law. The assessee s claim of deduction on repair u/s 24, and the claim of deduction of interest paid on borrowed capital utilized for the purpose of construction of commercial complex shall be examined and adjudicate upon by the AO afresh having regard to the facts and evidences relating to the issue and after providing an opportunity of being heard to the assessee. Book profit determined u/s 115JB - depreciation debited to the profit and loss account - HELD THAT - In the light of the proposition laid down by the Supreme Court in the case of Apollo Tyres Ltd. 2002 (5) TMI 5 - SUPREME COURT and having regard to the fact that the assessee has prepared the profit and loss account as per the accounting standard and in accordance with the provisions of Parts II and III of the Companies Act, the CIT(A) is very much justified to delete the addition so made by the AO on account of depreciation debited to the profit and loss account. The order of CIT(A) on this issue is thus upheld, and the ground raised by the revenue is rejected. No other issue is involved in the appeal for the AY 2001-02 filed by the revenue. Further, in the AY 2002-03 filed by the assessee, no other issue has been raised except the first two issues decided above by us. In the result, the appeals filed by the assessee for the AY's 1999-2000 and 2002-03 are allowed, and the appeals filed by the revenue for the AY's 2000-01 and 2001-02 are dismissed.
Issues Involved:
1. Disallowance of commission paid to non-resident agents under Section 40(a)(i) due to non-deduction of TDS. 2. Classification of rental income from commercial property under 'Income from house property' or 'Income from other sources'. 3. Disallowance of bonus payment under Section 43B. 4. Addition to book profit under Section 115JB on account of arrears of depreciation. Issue-wise Detailed Analysis: 1. Disallowance of Commission Paid to Non-Resident Agents: The primary issue was whether the commission paid by the assessee-company to non-resident agents was chargeable under the Income-tax Act, thereby necessitating TDS under Section 195 and disallowance under Section 40(a)(i). The assessee argued that the services were rendered outside India, and hence, the income was not chargeable in India. The CIT(A) held that the income accrued in India as the services facilitated by the non-resident agents led to hotel bookings in India. However, the Tribunal found that the non-resident agents did not render services in India, and no business connection was established. The Tribunal concluded that the commission paid was not chargeable to tax in India, and thus, no TDS was required. Therefore, the disallowance under Section 40(a)(i) was not justified. 2. Classification of Rental Income: The second issue was whether the rental income from the commercial complex should be assessed under 'Income from house property' or 'Income from other sources'. The Assessing Officer assessed it under 'Income from other sources', arguing that the assessee was not the owner of the land. The CIT(A) had conflicting views in different assessment years. The Tribunal held that the assessee, being the owner of the superstructure constructed on leasehold land, should have the rental income assessed under 'Income from house property'. The Tribunal directed the Assessing Officer to compute the income under this head and allow necessary deductions. 3. Disallowance of Bonus Payment: The issue involved the disallowance of Rs. 14,69,592 on account of bonus paid during the year but pertaining to earlier years. The CIT(A) allowed the claim under Section 43B, which mandates deduction based on actual payment. The Tribunal upheld the CIT(A)'s decision, stating that the payment was allowable under Section 43B. 4. Addition to Book Profit under Section 115JB: The final issue was the addition of Rs. 3,68,60,000 to the book profit under Section 115JB due to arrears of depreciation. The CIT(A) reversed the Assessing Officer's addition, relying on the Supreme Court's decision in Apollo Tyres Ltd., which restricts the Assessing Officer from altering the net profit shown in the profit and loss account prepared as per the Companies Act. The Tribunal upheld the CIT(A)'s decision, confirming that the addition was not justified. Conclusion: The appeals filed by the assessee for the assessment years 1999-2000 and 2002-03 were allowed, and the appeals filed by the revenue for the assessment years 2000-01 and 2001-02 were dismissed. The Tribunal's decisions were based on the interpretation of relevant sections and judicial precedents, ensuring that the assessee's claims were justified under the law.
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