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TMI Blog2016 (11) TMI 1150X X X X Extracts X X X X X X X X Extracts X X X X ..... ake of convenience. ITA NO.1264/MUM/2011(2007-08):- 2. The assessee has raised the following grounds:- 1. The Learned Commissioner of Income Tax (Appeals) -23, Mumbai [hereafter referred to as the CIT(A)] erred in confirming the disallowance made by the Assessing Officer (AO) of the claim for deduction of overseas commission of ₹ 22,20,549/- paid to the non-resident foreign sales agents u/s.40(a)(i) of the Income Tax act, 1961, on the basis of wrong appreciation of the facts and the law. Your appellant submits that on the facts and circumstances of the case and in law and in any view of the matter, tax is not deductible at source on payment of commission made to foreign (non-resident)selling agents for services rendered outside India and the AO may be directed to delete the disallowance of ₹ 22,20,549/- made u/s.40(a)(i) of the Act. 3. The brief facts of the case are that the assessee filed the return of income declaring total income to the tune of ₹ 1,21,80,421/- on 30.10.2007. The return was processed u/s.143(1) of the Income Tax Act, 1961 ( in short the Act ) at the returned income. The case was selected for scrutiny. Notice u/s.143 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) in question. 5. Before going further it is necessary to advert the nature of the services provided by the non-resident on record which has been explained by the assessee in his letter dated 21.12.2009. Services rendered by commission agent: Business of the company The company is in 100% export business and a recognized export house, majority of its exports are to Africa, Middle East, South East etc. It exports the products like four wheeler engines, fuel pumps, and its spare parts for automobiles, trucks and tractors under the brand name ARROW It does not have any overseas office, neither any overseas staff. In export market there is always a cut throat competition from local as well as international traders and OEM suppliers. So these Commission Agents are imperative to work as representatives of the company and held in marketing the brand and products. They render following services: a) The company has developed its own brand ARROW . It market various products as explained above, under this brand. The agent helps the company to popularize the brand and products. b) He gives us the overall demand position in that country and appraise us of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is deemed to have accrued or arisen in India as per the provision of section 9 of the Act. c. Circular No.23 dt. 23.07.1969 dealing with meaning of business connection has dealt with the tax liability of foreign agents of Indian exporters in para 3(4) of the circular issued by the CBDT, as follows: A foreign agent of Indian exporter operates in his own county and no part of his income arises in India. His commission is usually remitted directly to him and is, therefore not received by him or on his behalf in India. Such an agent is not liable to income tax in India on the commission. This view has been reiterated by the Board in Circular No.786 dt. 07.02.2009. d. Vide circular no.7 of 2009 the Board has withdrawn w.e.f. 22.10.2009 its circular no.23 of 1969, circular no.163 of 1975 and circular no.786 of 2000 these circulars only reiterated the principles laid down by the Supreme Court in R.D.Agarwal Co. (56 ITR 20) and Toshoku Ltd. (125 ITR 525) for understanding the concept of business connection and attribution of profits to a business connection. However, the decision of the Supreme Court in these cases cannot be nullified merely by withdrawal of the aforesai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of CIT Vs. Gujarat Reclaim Rubber Products Ltd. dated 08.12.20015. In case of section 40(a)(ia) of the Act the co-ordinate bench of Hydrabad in case of DCIT Vs. Divi s Laboratories Ltd. 131 ITD 271 has also held that payment of commission made to overseas agent without deduction of TDS does not attract disallowance u/s.40(a)(ia) of the Act and also place reliance upon the CBDT Circular No.7 dated 22.10.2009. 8. In the instant case the services have been rendered outside India which is not liable to be taxable in India. Moreover, it is pertinent to subscribe the contents of the circular no.786 dated 07.02.2009 issued by CBDT which may clarify more in connection with the services rendered outside the India which is not liable to taxed in India, is hereby reproduced below:- Subject: Deduction of tax u/s.195 and the taxability of export commission payable to non-resident agents rendering services abroad clarification regarding: In the Audit Report for 1997-98 (D P No.79 (I.T). The Comptroller and Auditor General (C AG) raised an objection that the Assessing Officer in computing the Profits and Gains of Business or Profession, in a case in Mumbai charge, had wrongly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee has raised the following grounds:- 1. The Learned Commissioner of Income Tax (Appeals) -23, Mumbai [hereafter referred to as the CIT(A)] erred in confirming the disallowance made by the Assessing Officer (AO) of the claim for deduction of overseas commission of ₹ 22,20,549/- paid to the non-resident foreign sales agents u/s.40(a)(i) of the Income Tax act, 1961, on the basis of wrong appreciation of the facts and the law. Your appellant submits that on the facts and circumstances of the case and in law and in any view of the matter, tax is not deductible at source on payment of commission made to foreign (non-resident)selling agents for services rendered outside India and the AO may be directed to delete the disallowance of ₹ 18,59,299/- made u/s.40(a)(i) of the Act. 2. The CIT(A) erred in confirming the disallowance made by the AO in respect of payment of freight charges for the shipment of goods from the Ports in India to the destinations outside India to the non-resident shipping companies and / or their agents in India to the extent of ₹ 7,35,614/- u/s. 40(a)(ia) of the Act on the ground that tax was not deducted at source in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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