2015 (9) TMI 602 - AT - Income Tax

Disallowance made on account of commission payment to non-resident - as per AO assessee has not paid the actual payment within the prescribed period of 12 months framed u/s 139(1) of the Act the whole expenses claimed by the assessee is not justified and hence not allowable u/s 195 - CIT(A) deleted the addition - Held that - From going through section 139(1), there is no such provision mentioned in which some time prescribed period of 12 months is required for making the payment of commission to non-resident. Therefore, the reference given by the AO of section 139(1) of the Act is not correct. Further the AO has disallowed the commission payment referred to section 195 of the Act but he has not dealt with the applicability of section 195 with reference to the facts of the case nor has brought on record any details for such application of section 195 and as the very basis of disallowance made by AO with reference to provisions of section 195 sub-section (1) are not correct and nor as discussed above, we do not find any error in the findings recorded by the CIT(A). We uphold the same. - Decided against revenue.

Summary

Issues:
Appeal against CIT(A) order deleting disallowance of commission payment to non-resident under section 195 of the Income Tax Act.

Analysis:
The appeal by Revenue challenged the deletion of disallowance of commission payment to a non-resident by CIT(A). The AO disallowed the commission expenses as the payment was not made within the prescribed period under section 139(1) of the Act. However, CIT(A) held that there was no provision for a 12-month period in section 139(1) or section 195 of the Act. The non-resident, a Dubai-based entity, had no permanent establishment in India, and the commission income was not taxable in India. The Supreme Court's interpretation of section 195 clarified that tax deduction was not required if the payment was not taxable. CIT(A) relied on relevant case laws and circulars to support the decision to delete the disallowance under section 195.

The appellant argued that the commission was for services rendered outside India and not taxable in India. They contended that the AO's reliance on section 139 for disallowance was unjustified as it pertained to filing returns, not payment to non-residents. The appellant cited legal precedents and provisions to support their claim that the disallowance was not justified. The AO did not address the applicability of section 195 to the case, and the Tribunal found no errors in CIT(A)'s decision.

The Tribunal upheld CIT(A)'s order, dismissing the Revenue's appeal. It concluded that the AO's disallowance based on section 139(1) was incorrect, and section 195 did not apply as the commission income was not taxable in India. The decision was pronounced in an open court on 28/8/2015.