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TMI Blog2016 (2) TMI 798X X X X Extracts X X X X X X X X Extracts X X X X ..... spective buyer / seller and once he completes the deal, he gets the commission. Thus, by no stretch of imagination, it cannot be said that the transaction partakes the character of “fees for technical services” as explained in the context of Section 9 (1) (vii) of the Act. As the non-residents were not providing any technical services to the assessee, as held above and as held by the Commissioner of Income Tax (Appeals), the commission payment made to them does not fall into the category of “fees of technical services” and therefore, explanation (2) to Section 9 (1) (vii) of the Act, as invoked by the Assessing Officer, has no application to the facts of the assessee's case. In this case, the commission payments to the nonresident agents are not taxable in India, as the agents are remaining outside, services are rendered abroad and payments are also made abroad.. When the transaction does not atract the provisions of Section 9 of the Act, then there is no question of applying Explanation 4 to Section 9 of the Act. Therefore, the Revenue has no case and the Tax Case Appeal is liable to be dismissed. - Decided in favour of assessee - Tax Case Appeal No.484 of 2015 - - - Dated: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 9 (1) (vii) of the Act cannot be invoked. Thereby, the CIT (A) deleted the disallowance of monies paid to foreign agents made by the Assessing Officer, by invoking Section 40 (a) (i) of the Act. 2.3. Aggrieved over the order of the CIT (A), the Revenue has filed an appeal to the Tribunal and the Tribunal allowed the assessee's appeal, following the earlier orders of the Tribunal. The Tribunal held that no disallowance of expenditure of commission paid by the assessee can be made on the ground of non-deduction of tax at source, while making payments by invoking provisions of Section 40 (a) (i) of the Act. 2.4. Aggrieved over the order of the Income Tax Appellate Tribunal, the Revenue has preferred this Appeal, raising the following substantial questions of law:- 1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that no disallowance can be made as per Section 40 (a) (i) of the Act with respect to payment of commission to non-resident foreign agents without deduction of tax at source? 2. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the disallowance cannot be made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on at Source (TDS) is required to be made on all payments to non-residents, only if such payments are liable to be taxed in India. (c) following the decision of this Court, reported in The Commissioner of Income Tax v. Faizan Shoes Private Limited 2014 (8) TMI 170, the assessee is not liable to deduct tax at source, when the non-resident agent provides services outside India on payment of commission. 5.2. The contention of the Revenue is that such services are attracted by Explanation (2) to Section 9 (1) (vii) of the Act and therefore TDS certificate is essential. 6. Whether this contention is correct, is the issue to be decided. 7. In order to appreciate this contention, it is necessary to consider the relevant provisions of the Act:- (i) Section 40 (a) (i) of the Act :- Section 40 - Amounts not deductible: Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession , (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), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4LC) or section 194LD or any other sum chargeable under the provisions of this Act (not being income chargeable under the head Salaries ) 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 the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode : Provided further that no such deduction shall be made in respect of any dividends referred to in section 115-O. [Explanation 1] : ..... [Explanation 2.- For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-residen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. The question now is, whether the assessee ought to have deducted tax at source as contemplated under Section 195 of the Act, when the assessee paid commission to foreign agent. 9. This question has been answered by the Hon 'ble Supreme Court, in the case of G.E.India Technology Centre Pvt. Ltd. v. CIT (2010) 327 I.T.R. 456, in which, it is very categorically held that the tax deducted at source obligations under Section 195 (1) of the Act arises, only if the payment is chargeable to tax in the hands of the non-resident recipient. 9.1. Therefore, merely because a person has not deducted tax at source or a remittance abroad, it cannot be inferred that the person making the remittance, namely, the assessee, in the instant case, has committed a default in discharging his tax withholding obligations because such obligations come into existence only when the recipient has a tax liability in India. 9.2. The underlying principle is that, the tax withholding liability of the payer is inherently a vicarious liability on behalf of the receipient and therefore, when the recipient / foreign agent does not have the primary liability to be taxed in respect of income embedded in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer, has no application to the facts of the assessee's case. 13. In this case, the commission payments to the nonresident agents are not taxable in India, as the agents are remaining outside, services are rendered abroad and payments are also made abroad. 14. The contention of the learned counsel for the Revenue is that the Tribunal ought not to have relied upon the decision reported in G.E.India Technology's case, cited supra, in view of insertion of Explanation 4 to Section 9 (1) (i) of the Act with corresponding introduction of Explanation 2 to Section 195 (1) of the Act, both by the Finance Act, 2012, with retrospective effect from 01.04.1962. 15. The issue raised in this case has been the subject matter of the decision, in the recent case, reported in (2014) 369 I.T.R. 96 (Mad) (Commissioner of Income Tax v. Kikani Exports Pvt. Ltd.) wherein the contention of the Revenue has been rejected and assessee has been upheld and the relevant observation reads as under:- ... the services rendered by the non-resident agent could at best be called as a service for completion of the export commitment and would not fall within the definition of fees for tec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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