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TMI Blog2018 (7) TMI 1959X X X X Extracts X X X X X X X X Extracts X X X X ..... permanent establishment in India. Since the non- resident has no permanent establishment in India, the question of taxing the amount does not arise as the provisions of DTAA which over rides the provisions of Income Tax Act. In view of that, the order of CIT(A) cannot be upheld. Similar view was also expressed by the Co-ordinate Bench in the case of Dy.CIT Vs. M/s. Linkwell Telesystems (P.) Ltd. [ 2014 (1) TMI 1863 - ITAT HYDERABAD ] wherein also commission was paid to non-residents for the services rendered abroad and was held not taxable. In view of that, we cannot uphold the orders of AO disallowing the amount u/s. 40(a)(i). - Decided in favour of assessee. - I.T.A. No. 1246/HYD/2017 Assessment Year: 2013-14 - - - Dated:- 20-7-2018 - Shri B. Ramakotaiah And Shri Challa Nagendra Prasad, JJ. For Assessee: Shri A.V. Raghuram, AR For Revenue: Smt. N. Swapna, DR ORDER B. Ramakotaiah, This is an appeal by assessee against the order of Commissioner of Income Tax (Appeals)-1, Hyderabad dated 30-05-2017. The issue in this appeal is with reference to disallowance u/s. 40(a)(i) of the Income Tax Act [Act] made on the reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant had entered into an agreement with TM India LLC, Texas to pay a commission. However, this document is not registered or on a stamp paper. The TM India LLC is a company based in Houston, Texas, USA and the management of this company includes: a) Dr. Subba Rao Pavuluri, MD of M/s. Ananth Technologies Limited b) Sri Trevor Gosney, Managing Partner of TM India LLC is responsible for the day-to-day business of the Alliance. c) Sri Mike Garodia, Development Director of TM India based in Oregon and Calcutta manages the liaison between the alliance partners. He is also the President of M/s. Magna Commercial, an international trading consultancy company. TM India LLC was established in Houston, Texas, USA in 2006 to provide engineering support services with its Alliance Partner, M/s.Ananth Technology Ltd of Hyderabad, India. That is to say that the company has subsidiary in USA managed by Dr. Subba Rao Pavuluri who is MD of both the companies. Since the other two partners are indulged in managing the liaison and day-to-day business of the alliance partners. Hence, it is clear that M/s. TM India LLC is not a separate entity but it is a subsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irrelevant for the purpose of determining the situs of the income. It was submitted that the provisions of Section 195 would apply and accordingly the disallowance u/s. 40(a)(i) are validly made by the AO. 7. We have considered the rival contentions and perused the documents placed on record along with the case law relied upon. There is no dispute that assessee has entered into an agreement for following up with the customers in USA and has agreed to pay commission to the non-resident agent for the services rendered there only. There is no dispute that the said company has not rendered any services in India. It is also not disputed that the said company has no permanent establishment in India. The only issue raised by AO is that since the commission has been paid from the bank account in India and has been accounted in the books of account of assessee that has to be considered as deemed to arise or accrue in India. Similar issue has been considered by the Co-ordinate Bench in the case of CIT Vs. Sri Aurobindo Impex Company, (supra), the Hon'ble Jurisdictional High Court has rendered the judgment following the principles laid down by the Hon'ble AP High Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired to deduct tax, then the consequence would be that the Department would be entitled to appropriate the monies deposited by the payer even if the sum paid is not chargeable to tax because there is no provision in the IT Act by which a payer can obtain refund. As per s. 237 r/w s. 199 only the recipient of the sum i.e., payee would seek a refund. In view of the above, hence, no tax is deductible under s. 195 on commission payments and consequently the expenditure on export commission payable to non-resident for services rendered outside India becomes allowable expenditure and the same is outside rigours of the s. 40a(ia). The requirement of services of the nonresident being rendered in India and being utilized in India is still valid, despite withdrawal of earlier circulars issued on this subject by CBDT.-CIT vs. Toshoku Ltd. (1980) 19 CTR (SC) 192 : (1980) 125 ITR 525 (SC) and GE India Technology Centre (P) Ltd. vs. CIT Anr. (2010) 234 CTR (SC) 153 : (2010) 44 DTR (SC) 201 : (2010) 327 ITR 456 (SC) relied on . 7.1. Similarly in the case of Euroflex Transmissions (India) Pvt. Ltd., Vs. ACIT in ITA No. 1773/Hyd/2014, dt. 01- 04-2015, on similar issue the Co-ordinate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidents are not chargeable to tax under the provisions of IT Act, then, the provisions of section 195 would not apply. The Hon ble Supreme Court further observed that if the scope of section 195 is enlarged to that extent, then, it would result in a situation where, even though, the income will have no territorial nexus with India or is not chargeable in India, the Govt. would nonetheless collect taxes. In the present case, on a perusal of the assessment order or the order of ld. CIT(A), we do not f ind any conclusive f inding given by the authorities concerned that the payments made to non-residents are chargeable to tax under the IT Act. Applying the principles laid down by the Hon ble Supreme Court as aforesaid, it is to be held that the provisions of section 195 would not be applicable to payments made by assessee to non-resident agents. This view is also supported by the following decisions: 1. CIT Vs. Model Exims Kanpur, [2013] 358 ITR 72 (All.) 2. CIT Vs. Faizan Shoes Pvt. Ltd., [2014] 367 ITR 155 (Mad.) 9. Further, the coordinate bench while examining identical nature of dispute in case of Arobindo Pharma Ltd. (supra) held in the following mann ..... X X X X Extracts X X X X X X X X Extracts X X X X
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