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2020 (11) TMI 479 - AT - Income TaxTDS u/s 195 - disallowance made u/s 40(a)(i) - export commission paid to overseas agents, who arrange for exports and procure export orders for the assessee - assessee pleaded that these overseas agents are not having any permanent establishment (PE) in India and are residents of the respective foreign countries - CIT(A) also held that the payment of commission made to non-resident agents is not chargeable to tax in India in terms of section 195 of the Act and hence, there is no requirement to deduct tax at source as no part of income arises in India in the hands of the said non-resident agent - HELD THAT - It is not in dispute that the non-resident agents to whom commission was paid by the assessee have rendered services outside India for sale of the goods of the assessee outside India. It is not in dispute that the said non-resident agents do not have any PE in India and that they are domiciled in U.K and USA. In view of these facts, it could be safely concluded that there is no income chargeable to tax in India in terms of section 195(1) of the Act in the hands of the non-resident agents and accordingly, the provisions of section 195(2) of the Act would not come into operation at all. Reliance in this regard had been rightly placed by the Ld. CIT(A) on the decision of Hon ble Apex Court in the case of GE Technology Center Pvt.Ltd. 2010 (9) TMI 7 - SUPREME COURT wherein held The parties merely source the prospective buyers for effecting sales by the assessee, and is analogous to a land or a house / real estate agent / broker, who will be involved in merely identifying the right property for the prospective buyer / seller and once he completes the deal, he gets the commission. Thus, by no stretch of imagination, it cannot be said that the transaction partakes the character of fees for technical services as explained in the context of Section 9(1)(vii) of the Act. As the non-residents were not providing any technical services to the assessee, as held above and as held by the Commissioner of Income Tax (Appeals), the commission payment made to them does not fall into the category of fees of technical services and therefore, explanation (2) to Section 9(1)(vii) of the Act, as invoked by the Assessing Officer, has no application to the facts of the assessee's case. We hold that under factual matrix of the case no additions u/s 40(a)(i) of the 1961 Act read with Section 195 are warranted in the instant case on payments made by assessee to four overseas agents towards commission expenses for generating export orders or facilitating import for the assessee. We affirm the decision of learned CIT(A) and Revenue fails in this appeal. Disallowance u/s 14A of the Act r.w.Rule 8D(2) of the I.T.Rules - HELD THAT - We find that during the year under consideration, the assessee had not earned any exempt income from the investments made by it, on which fact, there is no dispute. We find that the Ld. AO proceeded to make disallowances in the sum of ₹ 3,78,632/- being the disallowances worked out u/s 14A of the Act r.w.Rule 8D(2) of the I.T.Rules CIT(A) deleted the said disallowance on the ground that since, no exempt income has been earned, there cannot be any disallowance made u/s 14A of the Act by placing reliance on the decision of various High Courts. We find that various High Courts already had held that when there is no exempt income, the disallowance u/s 14A of the Act would not come into operation at all. Hence, we do not find any infirmity in the order of the Ld. CIT(A) granting relief to the assessee in this regard. - Decided against revenue.
Issues Involved:
1. Disallowance under Section 40(a)(i) of the Income Tax Act for non-deduction of tax at source under Section 195. 2. Disallowance under Section 14A of the Income Tax Act read with Rule 8D(2) of the Income Tax Rules. Detailed Analysis: 1. Disallowance under Section 40(a)(i) of the Income Tax Act for non-deduction of tax at source under Section 195: The primary issue in the appeals was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the disallowance made under Section 40(a)(i) of the Income Tax Act, 1961, for non-deduction of tax at source under Section 195. The disallowance amounted to ?4,18,50,792/- for Assessment Years (AY) 2013-14 and 2014-15. The assessee, engaged in the business of trading pharmaceutical ingredients, chemicals, and intermediates, had paid export commission to overseas agents without deducting tax at source. The Assessing Officer (AO) disallowed this expense, invoking Section 40(a)(i) read with Section 195, arguing that tax should have been deducted at source. The CIT(A) deleted the disallowance, holding that the commission paid to non-residents who did not have a Permanent Establishment (PE) in India and were covered by Double Taxation Avoidance Agreements (DTAA) was not chargeable to tax in India. Therefore, there was no requirement to deduct tax at source. The Tribunal upheld the CIT(A)'s decision, relying on the Supreme Court's ruling in GE India Technology Center Pvt. Ltd. vs CIT, which clarified that tax deduction at source under Section 195 arises only if the payment is chargeable to tax in India. The Tribunal also referenced several other judicial precedents supporting this view, including CIT vs Toshoku Ltd and CIT vs Angelique International Limited. The Tribunal noted that the non-resident agents rendered services outside India and did not have any PE in India. Therefore, no income was chargeable to tax in India under Section 195(1), and the provisions of Section 195(2) did not apply. The Tribunal also referred to its own earlier decision in the assessee's case for AY 2009-10, which had similar facts and legal issues. 2. Disallowance under Section 14A of the Income Tax Act read with Rule 8D(2) of the Income Tax Rules: The second issue was the deletion of disallowance made under Section 14A of the Income Tax Act read with Rule 8D(2) of the Income Tax Rules. The AO had made a disallowance of ?3,78,632/- under these provisions, despite the fact that the assessee had not earned any exempt income during the year. The CIT(A) deleted the disallowance, relying on various High Court decisions which held that when no exempt income is earned, disallowance under Section 14A cannot be made. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the order. Conclusion: The Tribunal dismissed both appeals filed by the revenue, affirming the CIT(A)'s deletion of disallowances under Sections 40(a)(i) and 14A of the Income Tax Act. The Tribunal's decision was based on established judicial precedents and the specific facts of the case, which indicated that the payments to non-resident agents were not chargeable to tax in India and no exempt income was earned by the assessee.
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