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TMI Blog2014 (6) TMI 463X X X X Extracts X X X X X X X X Extracts X X X X ..... owable as deduction under section 40(a)(i) of the Act. On appeal, Commissioner of Income Tax (Appeals) considering the submissions of the assessees and the case law relied on by the assessees deleted the disallowance holding that sales commission paid by the assessees to the non-residents is not chargeable to tax in India and consequently, assessees are not under any obligation to deduct TDS under section 195 of the Act on the commission payments and therefore, provisions of section 40(a)(i) have no application. Against the orders of Commissioner of Income Tax (Appeals) Revenue came up before us. 3. Departmental Representative vehemently supported the orders of Assessing Officer in disallowing agency/sales commission paid by the assessee to the non-resident agencies, as assessees did not deduct TDS under section 195 of the Act. 4. Counsel for the assessees submits that agency/sales commission paid by the assessees to non-resident agents for the services rendered by them outside India in procuring export orders for the assessees. Counsel for the assessees submits that non-resident agents have no business connection in India nor they have any permanent establishments in India and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Tax Appellate Tribunal (A-Bench) of Chennai, vide its order in ITA Nos.359 & 360/Mds/2013 dated 11.04'.2013, in the cases . of M/s. Farida, Shoes P Ltd and M / s. Farida Prime Tannery P Ltd. In the said cases the payments made to the non-residents, without making TDS, were similar to those made by the assessee company. The Assessing Officer disallowed the said payments u/s.40(a)(i) for non-deduction of TDS u/s.195 of the Act. The CIT(A) allowed the appeals of the said companies. The Revenue preferred an appeals to the ITAT against the orders of the CIT(A). The Hon'ble Tribunal, vide its orders mentioned above, has held that the services provided by the concerned non-residents neither amounts to managerial/technical services nor the payments are assessable to tax in India and hence the provisions of sec.195 of the Act are not applicable to the facts of the said companies. The relevant portion of the order of the ITAT (in ITA No.159/Mds/2013 dated 11.04.2013 for A.Y. 2008-09 in the case of M/s. Farida Shoes P Ltd) is reproduced as under: "10. We have heard both sides, perused the materials available on record and case law cited. In this case the assessee has made certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r when ETUK was not rendering any service or performing any activity in India itself commission income could be said to have accrued, arisen to or received by ETUK in India merely because it was recorded in books of assessee in India or was paid by assessee situated in India - Held, no - Whether for applying section 9. Assessing Officer was required to examine whether said commission income was accruing or arising directly or indirectly from any business connection in India - Held, yes - Whether since facts found by Assessing Officer did not make our a case of business connection as stipulated in section 9(1)(i), commission income could not be said to have accrued to ETUK in India and, therefore, assessee was not liable to deduct tax at source from payment of commission to ETUK - Held, yes [In favour of assessee]. " 12. The Hon'ble Delhi High Court has considered the decision of the Hon'ble Supreme Court in the case of M/ s. Transmission Corporation of Andhra Pradesh reported in 239 ITR 587 and decided the issue in favour of the assessee." 13. In the case of Armayesh Global V. ACIT (supra), the Mumbai Bench of ITAT has observed that the commission payment was made to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no requirement to deduct TDS on these payments. For this purpose reliance is also placed on the decision of Apex court in the case of GE India Technology Cen. P Ltd. v . CIT [2010] (327 ITR 456) (sc) wherein it was held as under: , I Section 195 of the Income-tax Act, 1961- Deduction of tax at source - Payment to non-resident - , . Whether the moment a remittance is made to a nonresident, obligation to deduct tax at source does not arise; it arises only when such remittance is a sum chargeable under Act, i. e., chargeable under sections 4, 5 and 9 - Held, yes. Whether section 195(2) is not a mere provision to provide information to ITO(TDS) so that department can keep track of remittances being made to nonresidents outside India; rather it gets attracted to cases where payment made is a composite payment in which certain proportion of payment has an element of 'income' chargeable to tax in India and payer seeks a determination of appropriate proportion of sum chargeable - Held, yes. Further, under similar facts and circumstances, the Hon'ble ITAT of Chennai, in one of the assessee's related concerns (M/s. Farida Shoes P Ltd, in ITA No.159/Mds/ 2013 dated 11.04.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the sales commission is not chargeable to tax in India so as to deduct TDS on such payments under section 195 of the Act. Therefore, respectfully following the decision of the Hon'ble Supreme Court in the case of GE India Technology Centre P.Ltd. (supra) and the above cited decision of the co-ordinate bench of this Tribunal, we sustain the order of the Commissioner of Income Tax (Appeals) in deleting the disallowance made under section 40(a)(i) of the Act." 6. Respectfully following the said decision, we uphold the order of the Commissioner of Income Tax (Appeals) in deleting disallowance made under section 40(a)(ia) of the Act . Facts and circumstances being similar, we also uphold the view of the Commissioner of Income Tax (Appeals) in ITA No.84/Mds/2014 in the case of M/s. T.Abdul Wahid & Co. and delete the disallowance made under section 40(a)(ia) of the Act on the sales commission paid by the assessee to nonresident agents. 7. The next issue in the case of M/s. Farida Leather Company (ITA No.85/Mds/2014) is that Commissioner of Income Tax (Appeals) erred in restricting disallowance to 50% on the 15% disallowance made by Assessing Officer on expenditure of salary, wages, a ..... 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