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TMI Blog2001 (5) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer was of the view that the assessee ought to have deducted tax at source under chapter XVIIB of the I.T. Act on the sum payable outside India and as there was default in regard to tax deduction the commission amount was not deductible as provided in section 40(a)(i) of the Act. The Assessing Officer did not accept the assessee's explanation that the entire services had been rendered by the foreign party outside India and that there was no income arising in India on which tax was deductible as provided in Chapter XVIIB, and that in any case the remittance outside India had been made with the permission of the Reserve Bank of India. Accordingly in the assessment the Assessing Officer added back the sum of Rs. 15,09,290 under section 40(a)(i). The CIT(A) concurred with the Assessing Officer and held that the assessee ought to have deducted tax on the sales commission remitted outside India and that in view of the default, section 40(a)(i) was to be applied and so the disallowance was in order. Aggrieved with the order of the appellate authority confirming the disallowance, the assessee has filed this appeal before the Tribunal. 4. On behalf of the assessee, Sri G. Narayanaswam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircular No. 163 issued by the Central Board on 29-5-1975 clarifying that no income would be deemed to accrue or arise in India through or from operations which were confined to purchase of goods in India for the purpose of export. Further the mere existence of an agency established by a non-resident would not be sufficient to make the non-resident liable to tax if the sole function of the agency was to purchase goods for export. Reference was also made to the Circular No. 786 issued subsequently on 7-2-2000 with the contention that the question of deduction of the tax at source under section 195 would arise only if payment of commission to the non-resident was chargeable to tax in India. According to Sri Narayanaswamy, if the assessee found that sum payable to the non-resident was not chargeable to tax there was no need for deduction under section 195. For that proposition he relied on a decision of the ITAT, C-Bench, Mumbai in the case of Srikumar Poddar v. Dy. CIT [1997] 59 TTJ (Mum.) 304. It was stated that in the earlier years also the assessee had remitted sales commission outside India but there was no disallowance made under section 40(a)(i). He filed before us a paper book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmination of the income, if any, on which tax was to be deducted. The ld. D.R. added that in this case the assessee had not made an application under section 195(2) for determination of the taxable income of the non-resident. He contended that if every person remitting money outside India was determining on his own that no tax was to be deducted on such remittances, the very purpose of section 195 would be defeated and then there would be huge loss to the country. Sri. Babu also referred to the decision of the Hyderabad Bench of the Tribunal in the case of Cheminor Drugs Ltd. v. ITO [2001] 76 ITD 37. It was stated that in that case the Tribunal had held that a person making payments to a non-resident could not take a unilateral decision that the amount was not chargeable to Income-tax and so the payment could be made without deduction of tax at sources, without the concurrence of the Assessing Officer as provided in section 195(2). Drawing our attention to the assessment order, the ld. D.R. submitted that though the Assessing Officer wanted the assessee to show that the non-resident had no office in India and they had also not rendered any service in India, the assessee had not fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n responsible for paying to a non-resident any interest (not being interest on securities) or any other sum chargeable under the provisions of the Act (not being income chargeable under the heads 'salaries' or 'dividends') shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by any other modes whichever is earlier, deduct income-tax at the rates in force. The Assessing Officer took the view that tax was deductible under section 195 on the commission payable to the non-resident and so in view of the default, the same was disallowable under section 40(a)(i). The proposition strongly canvassed before us by the ld. Representative Sri Narayanaswamy is that the liability to deduct tax under section 195 would arise only if the sum was chargeable to tax under the provisions of this Act' and that if the sum was not chargeable under the provisions of the Act, there was no obligation on the payer to deduct tax. We are in agreement with the ld. Representative of the assessee that for settling the dispute in this case what is to be considered is whether the sum of Rs. 15,09,290 was chargeable to tax in the hands of the non-resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivities could have been conducted outside India only. In other words, the non-resident did not carry out any operations in India to entitle them for the sale commission. If that is the case, then no part of the income by way of sales commission would be attributable to any operations in India and in that sense it would not qualify as income deemed to accrue or arise in India. In the case of Toshoku Ltd. relied on by the ld. Representative, the assessee exported tobacco to Japan and France through non-resident sales agents. The question was whether the commission earned by the non-resident sales agents could be taxed in India, treating the assessee as a representative assessee under section 161 of the I.T. Act. In deciding the matter in favour of the assessee, the Supreme Court held as under: "The non-resident did not carry any business operations in that taxable territories, they acted as selling agents outside India. The receipt in India of the sale proceeds of tobacco remitted or caused to be remitted by the purchasers from abroad did not amount to an operation carried out by the non-resident, in India as contemplated by clause (a) of the Explanation to section 9(1)(i) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aised of this position, the Controller Auditor General has agreed to drop the objection referred to above. 3. The contents as above should be brought to the notice of all the officers in your region." Regarding the relevance of the circulars issued by the Department, this is what the Supreme Court held in Paper Products Ltd. v. CCE [2001] 247 ITR 128- "Apart from the fact that the circulars issued by the Central Board of Customs and Excise in exercise of its power under section 37B of the Central Excise Act, 1944, are binding on the Department, the Department is precluded from challenging the correctness of the said circulars even on the ground of the same being inconsistent with the statutory provision. So far as the Department is concerned, whatever action it has to take, the same will have to be consistent with the circular which is in force on the relevant point of time." When the Board's Circular says that no tax is deductible u/s 195 and consequently the expenditure on export commission and other related charges payable to a non-resident for services rendered outside India is allowable expenditure, the Assessing Officer is bound to follow that circular and not make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following goods: Buyers: Ms. New Pel S.P.A.-Via Orme 200, Martignana (F1) Mark "I.P.G." Description of goods:No. 2.100 Leather Garments, out of which: -------------------------------------------------------------------------------------- Sizes ---------------------------------------------- 46 48 50 52 54 56 58 ---------------------------------------------- Model 1625L Col. 690 20 60 60 40 20 200 pcs. US$ 110 xpc. Model 1625L Col. 600 23 27 90 80 26 4 300 pcs. US$ 110 xpc. Model 1625L Col. 107 22 64 29 71 45 2 284 pcs. US$ 118 xpc. Model 1625L Col. 693 13 90 68 76 23 1 271 pcs. US$ 118 xpc. Model 151IA Col. 693 17 35 60 60 30 3 200 pcs. US$ 144 xpc. Model 1605A Col. 600 50 76 80 54 26 13 300 pcs. US$ 130 xpc. Model 1609C Col. 350 21 49 51 45 16 8 200 pcs. US$ 137 xpc. Model 1610C Col. 350 18 80 85 80 35 2 300 pcs. US$ 142 xpc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion receivable by them from the exports it would not be correct to say that the non-resident was rendering services in India through M/s. Babu Co. for which they received sales commission. The AO is not correct in his view that the commission payable to the non-resident was for the services rendered in India through the resident concern M/s. Babu Co. It is our considered view that the assessee had to pay sales commission to M/s. Esopelli for the services rendered outside India in connection with the export sales only. In the light of the decision of the Supreme Court cited above we hold that there was no income arising or accruing to the non-resident out of the sales commission payable outside India. In accordance with the circulars issued by the Board no tax was to be deducted under section 195 on such remittances outside India. Further as clarified in the Board's circulars no disallowance is to be made under section 40(a)(i) in respect of the sales commission payable to the non-resident concern. 10. The ld. D.R. has relied on the decision of the Hyderabad Bench of the I.T.A.T in the case of Cheminor Drugs Ltd. for the contention that the assessee could not unilaterally dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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