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TMI Blog2015 (8) TMI 1029X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT(A) had erroneously held that, in the case where rent is paid to the partners by the firm, the provisions of Section 195-I of the Act will not be attracted. 3. The assessee has filed a letter dated 04.06.2014 requesting the Tribunal not to admit the additional grounds filed by the Revenue since there was no justification for the same. After perusing the letter, we do not find any merit in the contention of the assessee and therefore, we hereby reject the same. 4. The brief facts of the case are that the assessee is a firm, engaged in the business of exporting handloom clothes, filed its return of income on 11.09.2008 admitting its total income as `25,37,417/-. Subsequently, the case was taken up for scrutiny and the assessment u/s.143(3) was completed on 28.12.2010 wherein the Ld. Assessing Officer made disallowance of `15,37,994/- and `8,40,000/- U/s.40(a)(ia) of the Act towards non-deduction of TDS for the payment made to foreign agent and towards payment of rent to partners of the firm respectively. 5.1 Ground No.1 - Non-deduction of TDS for payment of product designing charges outside India for services rendered outside India. During the course of assessment proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent invention, model, design, secret formula or process or trade mark or similar property. (iii) the use of any patent, invention, model, design secret formula or process or trade mark or similar property; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic, or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films or (vi) the rendering of any services in connection with the activities referred to in sub-clauses (1) to (v)" From the above, it is clear that the royalty income in the hands of Ms.Joanne Collins, USA is assessable to tax in India by virtue of Section.9(1)(vi) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5/525(SC) wherein it was held that if services rendered outside India TDS need not be deducted. Therefore, provisions of section 40(a)(ia) are not applicable and addition made at Rs. 1537994 as remuneration is deleted." 5.3 Ld. D.R argued in support of the order of the Ld. Assessing Officer while as Ld. A.R relied in the decisions placed before us in the paper book and the order of the Ld. CIT (A). 5.4 We have heard both the parties and carefully perused the materials available on record. From the facts of the case, it is apparent that payment in foreign currency is made to non-resident outside India for services rendered outside India. As pointed out by the Ld. CIT (A), the decision of the Hon'ble Apex Court in the case Toshoku Ltd.,(supra) is squarely applicable to the facts of the case of the assessee. The assessee had also explained that Ms Joanne Collins was only acting as selling agent and also advising the assessee on the product trend in USA based on which the assessee was manufacturing garments for marketing in USA. The assessee had paid in foreign currency as remuneration to Ms Joanne Collins @3% on the value of the export sales proceeds. In such circumstances, the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains of business deemed to accrue in India through and from business connection in India shall be only such profits and gains as are reasonably attributable to that part of the operations carried out in the taxable territories. If no operations of business are carried out in the taxable territories, it follows that the income accruing or arising abroad through or from any business connection in India cannot be deemed to accrue or arise in India (See CIT v. R. D. Aggarwal and Co. [1965] 56 ITR 20 (SC) and Carborandum Co. v. CIT [1977] 108 ITR 335 (SC) which are decided on the basis of s. 42 of the Indian I.T. Act, 1922, which corresponds to s. 9(1)(i) of the Act). 9. In the instant case, the non-resident assessees did not carry on any business operations in the 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 does not amount to an operation carried out by the assessees in India as contemplated by cl. (a) of the Explanation to s. 9(1)(i) of the Act. The commission amounts which were earned by the nonresident assessees for services rendered outside In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the firm to its partners is not liable for deduction of tax at source since the firm is only collective entity and not different from the partners. However, the Ld. Assessing Officer opined that there was no exemption granted under the provisions of the Act for not deducting tax at source while making the payment of rent by firm to its partners. Therefore the Ld. Assessing Officer invoked the provisions of section 40(a)(ia) of the Act and added the aggregate amount of `8,40,000/- to the income of the assessee invoking the provisions of section 40(a)(ia) of the Act. On appeal, the Ld. CIT (A) deleted the addition of `8,40,000/- because he was of the view that the expenditure in the form of rent is not a deduction falling under any of the Sections 32 to 38 of the Act and only a legitimate debit in the trading account. 6.2 Ld. D.R argued in support of the order of the Ld. Assessing Officer while as Ld. A.R. relied on the order of the Ld. CIT (A) and also relied in the decision of the case CIT Vs. Chidambaram Pillai reported 106 ITR 292, the decision of CIT Vs. NSM Sankarapandian reported in 222 ITR 289 & the decision of the case CIT Vs. V.Sivakumar reported in 354 ITR 9. 6.3 We h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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