2020 (5) TMI 230 - AT - Income Tax

TDS u/s 195 - payments made by the appellant AST Enterprise Inc., UAE for import of commodities - assessee to prove that agents are not securing orders in India mainly or wholly for non-residents - HELD THAT - Authorities have considered from the material placed before it that the agent is working mainly or wholly on behalf of the non-resident on the ground that more than 50% of the commission receipt is received from the non-resident. CIT(A) has also observed that an agent is regarded as economically dependent on the principal if it derives major revenue from principal or if he services the principal and bear entrepreneurial or business risk. CIT(A) observed that agent namely M/s. Ashapura Commodities it is stated that PKT Associates is from main client. In our view, this basis of the Ld. CIT(A) is not in confirmity with the law. The agent may be main client, but the law mandates that the non-resident should be the main client of the agent. Therefore, this reasoning of the Ld. CIT(A) cannot be affirmed. The A.O. has also observed that 52% of the revenue of the agent is from non-resident. In our view, 52% of the revenue would not make the agent falling in the category of the working mainly for the non-resident. Reliance is also placed on the circular no.23/1969 dated 23.7.1969. See HINDUSTAN SHIPYARD LIMITED 1975 (4) TMI 9 - ANDHRA PRADESH HIGH COURT We find merit into the contention that under the facts of the present case, it cannot be considered that the agent was mainly working for the non-resident. Moreover, the assessee has furnished various documents to demonstrate that agent was a general commission agent. He therefore, has no liability for deduction of tax cannot be fastened on the assessee. Therefore, we set aside the order declaring the assessee as assessee in default and direct the A.O. to delete the additions so made. Hence, ground No.1 of assessee's appeal is allowed.

Summary

Issues Involved:
1. Validity of tax demand under Section 195 read with Section 201(1) of the Income Tax Act.
2. Levy of interest under Section 201(1A) of the Income Tax Act.
3. Profit attribution in the hands of the appellant.
4. Grossing up of the entire amount for the purpose of Section 201(1) & 201(1A) read with Section 195 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Tax Demand under Section 195 read with Section 201(1) of the Income Tax Act:
The appellant, a partnership firm engaged in trading agro commodities, imported goods from non-residents and did not deduct TDS under Section 195. The AO treated the appellant as an assessee in default under Section 201(1) for non-deduction of tax. The appellant argued that the non-residents had no business connection in India as per Section 9(1)(i), and the agents in India were independent commission agents without authority to conclude contracts on behalf of non-residents. The Tribunal found that the agents were general commission agents acting independently, and there was no evidence of a "real and intimate relation" or control by non-residents. Thus, the appellant was not required to deduct tax, and the tax demand was invalid.

2. Levy of Interest under Section 201(1A) of the Income Tax Act:
Since the Tribunal ruled that the appellant was not liable to deduct tax under Section 195, the associated interest levied under Section 201(1A) was also deemed invalid. The Tribunal allowed this ground in favor of the appellant.

3. Profit Attribution in the Hands of the Appellant:
The appellant contested the CIT(A)’s decision to attribute profit at 10% of the purchase amount on an ad-hoc basis. However, since the primary grounds regarding tax deduction and interest were resolved in favor of the appellant, this issue became moot and did not require separate adjudication.

4. Grossing Up of the Entire Amount for the Purpose of Section 201(1) & 201(1A) read with Section 195:
The appellant argued that the grossing-up provisions under Section 195A were not applicable to their case. Given the Tribunal’s decision that the appellant was not liable for TDS under Section 195, this ground also became irrelevant and did not need further adjudication.

Conclusion:
The Tribunal found that the appellant was not liable to deduct tax under Section 195 as the agents in India were independent and did not constitute a business connection for the non-residents. Consequently, the tax demand and interest levied were invalidated. The appeal was partly allowed, with the primary grounds resolved in favor of the appellant.