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TMI Blog2014 (8) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... ible for prompt payment in respect of all shipments effected on cash against document basis. The assessee undertook to pay commission of 2.5% on FOB value on all orders procured by the non-resident agent. The said commission paid by the assessee was claimed as expenditure in terms of Section 37 of the Income Tax Act (for brevity, the Act ). 2.2. The Assessing Officer disallowed the above said claim of the assessee under Section 40(a)(i) of the Act and held that payment of commission to the non-resident agent is to be dealt with in accordance with the provisions of Section 9(1) read with Section 195 of the Act. In paragraph (5) of the assessment order, referring to Section 9(1)(i) of the Act, the Assessing Officer held that the payment made to non-resident agent abroad is deemed to have been arisen in India. However, in paragraph (11) of the assessment order, the Assessing Officer held that the amount paid over to the non-resident agent is deemed to have accrued or arisen in India under Section 9(1)(vii) of the Act and the assessee failed to discharge its onus to prove that the payments were not made for the services covered under Section 9(1)(vii) of the Act. On this premise, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. The Tribunal also held that the commission payment made to non-resident agent does not fall under the category of royalty or fee of technical services and, therefore, the Explanation to Section 9(2) of the Act has no application to the facts of the assessee's case. It was also held that the decision of the Supreme Court in GE India Technology Cen. (P) Ltd. case, referred supra, is in favour of the assessee. The Tribunal, while dismissing the appeal filed by the Revenue, held that the commission payments to non-resident agents are not chargeable to tax in India and, therefore, the provisions of Section 195 of the Act are not applicable. 2.5. Challenging the said order passed by the Tribunal, the Revenue has preferred this appeal raising the following substantial questions of law: 1. Whether the Tribunal was right in holding that the disallowance of Rs. 2,06,99,780/- being the payment made towards overseas agents commission paid to non-resident under Section 40(a)(i) for non deduction of TDS u/s. 195 is to be allowed? 2. Whether the finding of the Tribunal is proper, especially when the agent's service is technical in nature and would fall under the purview of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. The learned Standing Counsel relies on the following paragraphs of the said decision: Hence, in our view, there is no substance in the contention of learned counsel for the appellant that the expression any other sum chargeable under the provisions of this Act would not include cases where any sum payable to the non-resident is a trading receipt which may or may not include pure income . The language of section 195(1) for deduction of income-tax by the payer is clear and unambiguous and casts an obligation to deduct appropriate tax at the rates in force. We make it clear that learned counsel for the parties have not advanced any submissions with regard to other findings given by the High Court. In this view of the matter, the answers given by the High Court that (i) the assessee who made the payments to the three non-residents was under obligation to deduct tax at source under section 195 of the Act in respect of the sums paid to them under the contracts entered into ; and (ii) the obligation of the respondent-assessee to deduct tax under section 195 is limited only to the appropriate proportion of income chargeable under the Act, are correct. 4. Per contra, Mr.M.P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cipient chargeable under the head "Salaries". (2) Notwithstanding anything contained in sub-section (1), any pension payable outside India to a person residing permanently outside India shall not be deemed to accrue or arise in India, if the pension is payable to a person referred to in article 314 of the Constitution or to a person who, having been appointed before the 15th day of August, 1947, to be a Judge of the Federal Court or of a High Court within the meaning of the Government of India Act, 1935, continues to serve on or after the commencement of the Constitution as a Judge in India. Explanation.- For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the non-resident, whether or not,- (i)the non-resident has a residence or place of business or business connection in India ; or (ii)the non-resident has rendered services in India. 7. On a reading of Section 9(1)(vii) of the Act, we are not inclined to accept the plea taken by the learned Senior Standing Counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held as under: 8. The second aspect of the same question is whether the commission amounts credited in the books of the statutory agent can be treated as incomes accrued, arisen, or deemed to have accrued or arisen in India to the non-resident assessees during the relevant year. This takes us to s. 9 of the Act. It is urged that the commission amounts should be treated as incomes deemed to have accrued or arisen in India as they, according to the department, had either accrued or arisen through and from the business connection in India that existed between the non-resident assessees and the statutory agent. This contention overlooks the effect of cl. (a) of the Explanation to cl. (i) of sub-s. (1) of s. 9 of the Act which provides that in the case of a business of which all the operations are not carried out in India, the income of the business deemed under that clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. If all such operations are carried out in India, the entire income accruing therefrom shall be deemed to have accrued in India. If however, all the operations are not carried out in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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