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TMI Blog2014 (11) TMI 275X X X X Extracts X X X X X X X X Extracts X X X X ..... of the I.T. Act towards payment of sales commission made to the selling agents without deduction of TDS. 3. The brief facts of the case are that the assessee is a Public Sector Undertaking and is engaged in the manufacture and sale of transformers. The original return of income for the A.Y. 2006-07 was filed on 27-11-2006 declaring a net loss of Rs. 21,59,72,274/- and the assessment was completed on 29-12-2008 on a net loss of Rs. 11,92,34,369/-. Subsequently, the case was re-opened u/s. 147 by issue of notice u/s. 148 dated 16-03-2011. The Assessing officer completed the assessment vide order u/s. 143(3) r.w.s. 147 of the I.T. Act dated 22-12-2011. While completing the assessment the Assessing officer has made disallowance u/s. 40(a)(ia) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble in India. 6. On appeal, the CIT(A) observed that since the assessee has made payment to a company located and assessable in Oman, the Assessing officer was not correct in making disallowance holding that the income had accrued in India and since the agreement was for providing marketing services and the company does not have any permanent establishment in India therefore, the Assessing officer's stand was not correct in making this disallowance. Against this, the Revenue is in appeal before us. 7. The Ld. DR submitted that the selling agent in this case though had rendered services abroad, and was entitled to receive the commission abroad for the services rendered to the assessee. However, he received the amount through or from busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urce from that payment and no assessment of M/s. Al Hassan Electricals Company, Oman has been made in India. Further, he submitted that only when the income of the agent is chargeable to tax under the provisions of the Act, then only the assessee is liable to deduct TDS as per sec. 195C of the I.T. Act. The person paying the commission to a non-resident is not liable to deduct tax if such services are not chargeable to tax under the Act. Sec. 195 contemplates not merely amounts, the whole of which are pure income payments; it also covers composite payments which have an element of income embedded or incorporated in them. The obligation to deduct tax at source, is however, limited to appropriate proportion of income chargeable under the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so received by him abroad, therefore, no income would arise under the provisions of sec. 5(2)(b) r.w.s 9(1) of the Act. The Ld. AR relied on the order of the CIT(A) and submitted that there is no question of deduction of TDS on the above payments made to the non resident agent. 11. We have heard the parties and perused the record. At the outset, certain provisions of the Act needs to be looked into section 40(a)(i) which reads as under:- "40 Not withstanding ............. (a) In the case of any assessee - (i) Any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938) royalty, fees for technical services or other sum chargeable under this Act, which is payable A. Outside India - B. In I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is chargeable to tax in India or the payment has been received by the non resident agents in India or by any other person on their behalf. There is also no finding by the AO that the non resident agents have a permanent establishment in India or have any business connection in India, by virtue of which the payment of commission would have accrued or arose in India. The facts available on record clearly suggest that the non resident agents did not carry out any business operations in India and has acted as selling agents of the assessee outside India. Therefore, the commission earned by them for services rendered by them outside India cannot be considered as income chargeable to tax in India. That apart the submission of the learned AR that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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