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TMI Blog2018 (5) TMI 1601X X X X Extracts X X X X X X X X Extracts X X X X ..... by : Dr. Jayant Jhveri, Sr. D. R. Respondent by : Shri G. C. Pipara, C. A. ORDER Per Waseem Ahmed, Accountant Member The captioned appeal has been filed at the instance of the Revenue against the appellate order of the Commissioner of Income Tax(Appeals)-2, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)-2/424/DC.Cir.2(1)(1)/2015-16 dated 14/07/2016 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) dated 18/03/2016 relevant to Assessment Year (AY) 2013-14. 2. The Revenue has raised the following grounds of appeal : 1. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance made by the AO on account of export commission of ₹ 54,06,265/- paid to overseas agents u/s. 40(a)(i) of the Act without properly appreciating the facts of the case and the material brought on record. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 3. It is, therefore, prayed that the order of the Ld.CIT(A) may be set aside and that of the Assessing Officer may be restored to the above extent. 3. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign commission agent, evidences of services rendered by them along with copies of the agreement. The AO was also of the view that the payment of commission to the foreign agents is subject to TDS u/s 195 of the Act. Accordingly, the AO sought an explanation from the assessee. In compliance thereto the assessee submitted that the amount of commission expense has been incurred in connection with the business and therefore, no disallowance for the same can be made. 6. The assessee also submitted that the commission paid to the foreign agents is not chargeable to tax in India. Therefore, there was no liability to deduct the TDS u/s 195 of the Act. 7. However, the AO disregarded the contention of the assessee and concluded that the commission income to the foreign parties/agents has accrued in India, therefore, the assessee was under the obligation to deduct TDS u/s 195 of the Act. Hence, the AO disallowed the same and added to the total income of the assessee. 8. Accordingly, assessee preferred an appeal to Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that the foreign agents do not have permanent establishment in India. Therefore, it can be concluded that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l as observed by me during the course of appellate proceedings to indicate that the services have been rendered in India. 2.11. The appellant has also submitted that during the year it has paid the commission to 8 foreign commission agents which included 2 new parties and 6 old commission agents to whom commission was paid in the preceding years also. Further submitted that the disallowance of foreign commission payments have also been made by the A.O. in the A.Yrs. 2012-13 and 2011-12 and after having examined the facts and submissions the same have been deleted by the CIT(A) in the appellate order passed in those years. For ready reference the details of the commission payments to the agents in the year under consideration and in the preceding years is noted as under:- Consolidated chart showing details of Export Sales Commission paid during F. Y. 2008-09 (A.Y. 2009-10) to F. Y. 2012-13 (A. Y. 2013-14) Sr. No. Name of Commission Agent Country of Commission Agent A.Y.2013- 14 A.Y.2012- 13 A.Y.2011- 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -- 3,13,042 -- -- -- 3,13,042 12 Pharmo Trade Dhaka 34,414 -- -- -- 34,414 13 S B R and Co., Pakistan P. Ltd. Pakistan -- 47,810 -- -- -- 47,810 14 Sevex Pharma Belgaria 2,501,419 -- 7,96,572 -- -- 3,297,991 15 Shine Resources Ltd. - Vietnam Vietnam 1.64,680 8,12.220 7,60.564 2,00,645 44,504 19,82,613 16 Tentra Chemie P. Ltd. -- -- -- -- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts had their offices on the foreign soil and nothing on record that they had PE in India. Further the assessing officer has also not pointed out any such fact in its order which indicate that there was any such office of the overseas agents in India which attract the deeming provisions. Further the observation that the source of income was in India is also not proper as it has clearly been discussed in the preceding paragraphs that none of the services have been rendered in India and source of income cannot be said to be in India as the source of income is the services rendered and not the sales. There is no business connection in India from which the income has been earned, there is no property through or from which the income has been earned. Therefore, the provisions of section 9(1)(i) also cannot be applied. 2.15. Reliance is placed on the judgement of honourable Supreme Court in the case of GE India Technology Centre Private Limited 327 ITR 456 and the judgement of honourable 1TAT Mumbai in the case of our Ardesi B Cursetjee 8. Sons Ltd. 115 TTJ 916. 2.16. With regard to AO's observation about obtaining the certificate of Nil deduction of tax by the appellant fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgements are not applicable to the present facts as there are several other decisions of Hon'ble ITAT, Mumbai in the case of ACIT (International Taxation) Vs. Star Cruise India Travel Services Pvt. Ltd. [14 ITR (T) 282 (Mum)], CLSA Limited Vs. ITO (International Taxation] [56 SOT 254], which hold that such kind of commission is not taxable in India and accordingly no liability to deduct tax was there. Further the decision of honourable Supreme Court of India in the case of Hon'ble Supreme Court in the case of CIT vs. Toshoku Limited 125 ITR 525, still prevails as on date and is the law of the land as regards applicability of TDS provisions to commission paid to overseas/non-resident agents by Indian Exporters. 2.20. Further, reliance is placed on the following decisions/judgments:- * ACIT Vs. Modern Insulators Ltd. [56 DTR 362 (Jaipur Trib.)] * Ishikawajama - Harima Heavy Industries Ltd. Vs. Director of Income Tax [207 CTR 361] * Dy. Commissioner of Income Tax Vs. Divi's Laboratories Ltd. [(2011) 60 DTR (Hyd) (Trib) 210] * ITO, International Taxation, Chennai Vs. Prasad Production Ltd. [(2010) 125 ITD 263 Chennai) (SB) * ACIT, Circle-16(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he agents did not have any permanent establishment for business connection or business place in India, Thus, in absence of any activity being carried out in India by a non - resident commission agent, the commission does not accrue or arise in India, and hence, not taxable in India. Therefore, the disallowance of ₹ 54,06,265/- under section 40(a)(ia) made by the AO is directed to be deleted. 9. Being aggrieved by the order of Ld. CIT(A) Revenue is in second appeal before us. Both the parties before us relied on the order of authorities below as favorable to them. 10. We have heard the rival contentions of both the parties and perused the material available on record. In the instant case, assessee has made payment to various agents as commission based in foreign countries on account of export made to the parties referred by them. The AO disallowed the same on two grounds, firstly, the identification of the parties, details of payment services rendered by them were not furnished, secondly no TDS was deducted under section 195 of the Act by the assessee on such payment. The view take by the AO was subsequently reversed by the ld. CIT-A. However the issue before us aris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act, which reads as under:- Income deemed to accrue or arise in India. 659. 66(1) The following incomes shall be deemed67 to accrue or arise in India :- 68(i) all income accruing or arising, whether directly or indirectly, through or from any business connection69 in India, or through or from any property69 in India, or through or from any asset or source of income in India, 70[* * *] or through the transfer of a capital asset situate in India. 71[Explanation 1].-For the purposes of this clause- (a) in the case of a business of which all the operations72 are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations72 carried out in India ; (b) in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export ; 73[* * *] 74[(c) in the case of a non-resident, being a person engaged in the business of running a news agency or of publishing newspapers, magazines or journals, no inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi), we find that this decision merely follows the earlier ruling in the case of Rajiv Malhotra, In re [2006] 284 ITR 564/155 Taxman 101 (AAR - New Delhi) which, in our considered view, does not take into account the impact of Explanation 1 to Section 9(1)(i) properly. That was a case in which the non-resident commission agent worked for procuring participation by other non-resident entities in a food and wine show in India, and the claim of the assessee was that since the agent has not carried out any business operations in India, the commission agent was not chargeable to tax in India, and, accordingly, the assessee had no obligation to deduct tax at source from such commission payments to the non-resident agent. On these facts, the Authority for Advance Ruling, inter alia, opined that no doubt the agent renders services abroad and pursues and solicits exhibitors there in the territory allotted to him, but the right to receive the commission arises in India only when exhibitor participates in the India International Food Wine Show (to be held in India), and makes full and final payment to the applicant in India and that the commission income would, therefore, be taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed April 11, 2018. The relevant extract of the order is reproduced below : 7. In the recent order in Tax Appeal No. 290 of 2018, we had dealt with similar situation making following observations: It can thus be seen that while confirming the order of CIT [A], the Tribunal relied on judgment of the Supreme Court in the case of G.E India Technology Centre P. Limited vs. Commissioner of Income-Tax Anr., reported in [2010] 327 ITR 456 (SC) = 2010-TII-07-SC-INTL. In such Judgment, It was held and observed that the most important expression in Section 195[1] of the Act consists of the words, chargeable under the provisions of the Act . It was observed that, ..A person paying interest or any other sum to a non-resident is not liable to deduct tax if such sum is not chargeable to tax under the Act, Counsel for the Revenue, however, drew our attention to the Explanation 2 to sub-section [1] of Section 195 of the Act which was inserted by the Finance Act of 2012 with retrospective effect from 1st April 1962. Such explanation reads as under:- Explanation 2 - For the removal of doubts, it is hereby clarified that the obligation to comply with subsection (1) and to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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