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2019 (5) TMI 839 - AT - Income TaxTDS u/s 195 - addition u/s 40(a)(i) - disallowance of foreign commission expenses - expense paid to non-residents - income accrued in India - HELD THAT - As decided in assessee's own case 2019 (5) TMI 705 - ITAT AHMEDABAD Commission payments made to the non-resident agents did not have any taxability in India, even under the provisions of the domestic law i.e. Section 9. Once we come to the conclusion that the income embedded in these payments did not have any tax implications in India, no fault can be found in not deducting tax at source from these payments or, for that purpose, even not approaching the Assessing Officer for order u/s 195. In our considered view, the assessee, for the detailed reasons set our above, did not have tax withholding liability from these payments. - Decided in favour of assessee. TDS u/s 195 - Disallowance u/s 40(a)(ia) on account of professional consultancy fees - HELD THAT - the said consultancy fee was paid to Momaja SRO for the professional services having rendered outside India. It further appeared that in European country the import of chemicals from outside country is subjected to restriction establishing office there or by first registering the assessee company under REACH (EU Regulations, 1907/2006). Thus, to export in these countries is for making income from sources outside India, otherwise, it would not be able to earn any Income by exports to these EU countries. The said Momaja SRO already completed all necessary formalities in making compliance with REACH in EU Regulations to make the appellant eligible to export in EU countries and thus section 9(1)(vii) does not apply. CIT(A) came to a conclusion that the aforesaid service was rendered by the processional outside India and therefore the income has not accrued in India u/s 195 and thus the question of obligation to make the TDS u/s 195 does not arise. AO has failed to point out in what manner the professional income has arisen or accrued in India or the said party had any permanent establishment or business connection in India or rendered any services in India, in absence of which the case made out by the assessee has been accepted and the application of provisions of section 195 r.w.s. 40(a)(ia) as made by the Learned AO has been rejected by the first appellate authority upon deleting the addition correctly - Decided in favour of assessee.
Issues Involved:
1. Deleting the disallowance of foreign commission expenses amounting to ?1,13,88,363/-. 2. Deleting the disallowance under section 40(a)(ia) amounting to ?1,91,712/- on account of professional consultancy fees. Detailed Analysis: Issue 1: Deleting the Disallowance of Foreign Commission Expenses Amounting to ?1,13,88,363/- The assessee filed its return of income on 29.09.2012 declaring a total income of ?3,67,80,960/-. During the assessment proceedings, the Assessing Officer (AO) scrutinized the foreign commission expenses and found that the assessee had debited foreign commission expenses of ?1,13,88,363/- without deducting tax at source (TDS) as required under section 195 of the Income Tax Act, 1961. The AO disallowed the expenses under section 40(a)(i) of the Act. In appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the disallowance, relying on the judgment of the Jurisdictional High Court in CIT vs. Toshoku Ltd. (125 ITR 525). The CIT(A) concluded that the commission paid to foreign agents was not taxable in India as the services were rendered outside India and the agents did not have a permanent establishment in India. At the hearing, the assessee's counsel argued that the commission payments were not liable for TDS as the services were rendered outside India, and the agents did not have a business connection in India. The Departmental Representative (DR) supported the AO's decision. The Tribunal referred to a similar case (ACIT vs. Indo Colchem Pvt. Ltd.) where it was held that commission payments to non-resident agents are not taxable in India and upheld the CIT(A)'s decision. The Tribunal concluded that the commission payments were not taxable in India, and therefore, the assessee was not required to deduct TDS. The Tribunal upheld the CIT(A)'s order, confirming the relief granted to the assessee, and dismissed the revenue's appeal. Issue 2: Deleting the Disallowance Under Section 40(a)(ia) Amounting to ?1,91,712/- on Account of Professional Consultancy Fees During the assessment proceedings, the AO noticed that the assessee had paid professional consultancy charges of ?1,91,712/- to "Momaja SRO" without deducting TDS. The AO disallowed the expenses under section 40(a)(ia) of the Act. In appeal, the CIT(A) deleted the disallowance, noting that the consultancy services were rendered outside India, and the income did not accrue in India under section 195 of the Act. Therefore, there was no obligation to deduct TDS. The CIT(A) observed that the AO did not provide evidence of the income arising or accruing in India, nor did the AO establish that the service provider had a permanent establishment or business connection in India. At the hearing, the assessee's counsel reiterated that the services were rendered outside India and were not taxable in India, thus not requiring TDS deduction. The DR supported the AO's decision. The Tribunal reviewed the CIT(A)'s findings and concluded that the consultancy fees were for services rendered outside India, and the income did not accrue in India. Therefore, the provisions of section 195 and 40(a)(ia) did not apply. The Tribunal upheld the CIT(A)'s order, confirming the deletion of the disallowance of ?1,91,712/- and dismissed the revenue's appeal. Conclusion The Tribunal dismissed the revenue's appeal on both grounds, confirming the CIT(A)'s decisions to delete the disallowances of foreign commission expenses and professional consultancy fees. The Tribunal found no reason to interfere with the CIT(A)'s well-reasoned orders, which were based on relevant judicial precedents and the specific facts of the case.
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