9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2013 (11) TMI 307 - AT - Income TaxDisallowance u/s 40(a)(ia) of the Income Tax Act for want of deduction of tax at source on commission paid to foreign agents Held that - Disallowance under Section 40a(i) for a reason that assessee could not take benefit of Circular No.786 dated 7.2.2000. However, the subsequent Circular No.7/2009 dated 22.10.2009, which allegedly withdrew the benefits given to an assessee under Circular No.786 dated 7.2.2000 and Circular No.23 dated 23.7.1969, were not there, when assessee made payments to non-resident agents since the relevant previous year was 2007-08. Once assessee held a bonafide belief that the payments made to non-residents, were not taxable in India, then it could not be fastened with a liability to deduct tax under Section 195 of the Act. In any case, Assessing Officer has not given any finding that the non-residents had rendered any services which were in the nature of technical services. There is nothing on record to show that any technical knowledge was made available to the assessee through the services rendered by the non-residents, which assessee could make use of in future. In any case, sub-clause (b) of clause (vii) of Section 9(1) of the Act clearly mentions that fees paid in respect of services utilized in a business or profession carried on by such person outside India or for the purpose of making or earning income from any source outside India, would not come within the purview of income by way of fees for technical services. Addition of Explanation to sub-section (2) to Section 9 through Finance Act, 2010 with retrospective effect from 1.6.1976 will therefore have no effect on taxability of income earned by non-resident outside India in the course of his business or profession carried out outside India by him Decided against the Revenue.
Issues:
Disallowance under Section 40a(i) for non-deduction of tax at source on commission paid to foreign agents. Analysis: 1. Issue: Disallowance under Section 40a(i) - The Revenue filed an appeal against the deletion of a disallowance of Rs. 58,02,597 made by the Assessing Officer under Section 40a(i) of the Income-tax Act, 1962 by the CIT(Appeals). The disallowance was due to the failure of the assessee to deduct tax at source on commission paid to foreign agents. 2. Assessing Officer's Position: - The Assessing Officer noted that the assessee had paid sales commission to agents abroad without deducting tax at source. Despite the assessee's reliance on Circular No.786 dated 7.2.2000 for non-deduction of tax at source, the AO disallowed the claim under Section 40a(i). 3. Assessee's Argument before CIT(Appeals): - The assessee argued that at the time of making payments to foreign agents, Circular No.786 of 7.2.2000 was applicable. The assessee contended that the subsequent withdrawal of benefits under Circular No.786 through later circulars should not penalize them as they acted in good faith. 4. CIT(Appeals) Decision: - The CIT(Appeals) held that there was no liability in India for non-residents' business earnings if they had no permanent establishment in India. The CIT(Appeals) found that the assessee was covered by Circular No.786 and deleted the disallowance. 5. Arguments Before ITAT: - The Revenue argued that an amendment to Section 9(2) of the Act with retrospective effect removed the requirement for non-residents to have a presence in India. The Revenue contended that the services by foreign agents fell under "fees for technical services" under Section 195, and tax should have been deducted at source. 6. ITAT's Decision: - The ITAT observed that the subsequent circulars withdrawing benefits were not in place when the payments were made to non-resident agents. The ITAT held that the doctrine of promissory estoppel protected the assessee. The ITAT found no evidence that the services rendered were technical in nature, and the income earned outside India by non-residents was not taxable in India. Therefore, the CIT(Appeals) was justified in deleting the disallowance under Section 40a(i). 7. Conclusion: - The ITAT dismissed the appeal filed by the Revenue, upholding the decision of the CIT(Appeals) to delete the disallowance. The ITAT's decision was based on the application of promissory estoppel and the absence of taxable income in India for the non-residents.
|
