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TMI Blog2019 (5) TMI 530X X X X Extracts X X X X X X X X Extracts X X X X ..... -Jan Beevers and/or his associated enterprises namely M/s Sahasra Europe and the fact that neither he nor his enterprises had Permanent Establishment (PE) in India. This assertion of the assessee was accepted by the learned Assessing Officer in these three years and also was acted upon.M/s Cee-Jan Beevers is a non-resident Indian and resident of Belgium whereas M/s MK group LLC is a resident of USA. In either case the payment of commission would not be 'Fee for Technical Services' (FTS) since such services did not make available any technical knowledge, experience, skill, know-how or processes or consists of the development and transfer of technical plan or a technical design. We find that the services rendered by two foreign entities are outside India and in respect of the sales effected by them, and at the same time neither of these entities had any permanent establishment in India nor does the assessee or its directors/associated enterprises had any interest in the ownership or management of these entities more particularly M/s Sahasra Europe. We, therefore, allow the grounds of appeal of the assessee. - ITA No.1189/Del/2013, ITA No.8049/Del/2018 - - - Dated:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of section 195 of the Act for withholding of tax on remittances to the non-residents on account of commission/managerial services/technical services and consultancy etc relying on the circular No. 786, dated 7/2/2000 of the CBDT. 4. After hearing the assessee on this aspect and considering the reply of the assessee, learned Assessing Officer recorded that during the Assessment year 2007-08, an addition was made under section 40(a)(i) of the Act on account of commission paid to the two parties abroad namely M/s Cee-Jan Beevers, Belgium and M/s MK group on the ground of the assessee company not complying with the provisions of the withholding tax, but in appeal Ld. CIT(A) had deleted the addition relying on the judgement of the Hon'ble Apex Court in the case of GE India technology Centre private limited vs. CIT 327 ITR 456 (SC), wherein it was held that section 195 of the Act has to be read in conformity with the charging provisions, that is, section 4, 5 and 9 of the Act and that the obligation to deduct TDS arises only when there is a sum chargeable to tax. 5. Learned Assessing Officer further recorded that for the Assessment year 2009-10, Ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, assessee is having control and management of the said commission agent company in India as per section 6(3) of the Act. Similarly in the case of M/s Cee-Jan Bevers, learned Assessing Officer had clearly mentioned that the assessee was having 50% shares in M/s Sahasra Europe BVBA after the completion of two years of agreement and Cee-Jan Bevers was simply a namesake to show that the payments were being made to a non-resident. On this premise, Ld. CIT(A) held that in case of both the commission agents, the control and management was with the assessee as per provisions of Section 6 (3) of Act and, therefore, these agents were residents in India during the year under consideration and the payments made to them were liable for deduction to tax at source, and in such case also learned Assessing Officer was justified in disallowing the commission expense under section 40(a)(i) of the Act. 8. Assessee is, therefore, before us in this appeal challenging the findings of the authorities below as to the disallowance of ₹ 98,27,357/-, being the amount of commission paid to the two non-resident sales agents namely Mr Cee-Jan Bevers, Belgium and M/s MK group LLC, U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) in support of his contention that in the absence of the learned Assessing Officer establishing on the basis of relevant material that there is business connection, llearned Assessing Officer is not justified in treating the commission paid to the non-residents for the sales affected outside India, as 'Fee for Technical Services' (FTS). 12. Ld. DR placed reliance on the orders of the authorities below and submitted that that the circular No. 786 dated 7/2/2000 relied upon by the assessee has no application to the facts of the case but, on the other hand, the facts for the AY 2010-11 are covered by circular 7 dated 22/10/2009 issued by the CBDT and also the amendment to section 9 by way of Finance Act 2010. He submitted that circular No. 786 dated 7/2/2000 was withdrawn by the CBDT by issuing a fresh circular No. 7 dated 22/10/2009. He further submitted that through the Finance Act 2010 further explanation was inserted in Section 9 stating that even if the non-resident has not rendered any services in India and received any income by way of interest, royalty and fee for technical services, the income shall be deemed to accrue or arise in India and this expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nent Establishment (PE) in Indian territory. So also in respect of the commission paid to M/s MK group, learned Assessing Officer disallowed the commission in excess of 3% stating that there was no reason or justification for making payment at any rate higher than the minimum commission agreed in the MOU at 3%. 15. Assessment order for the Assessment year 2010-11 was passed on 15/3/2013, whereas a coordinate Bench of this Tribunal remanded the matter for the assessment year 2007-08 on 6/9/2013. We are in agreement with the Ld. AR that as on the date of passing of the order for the Assessment year 2010-11 by the learned Assessing Officer on 15/3/2013 or the order for the Assessment year 2009-10 by the Ld. CIT(A) on 17/1/2013, Ld. CIT(A) could not have the benefit of the findings of a coordinate Bench of this Tribunal in ITA No.5101/Del/2011 by order dated 6/9/2013 of the post remand assessment order passed by the learned Assessing Officer for the Assessment Year 2007-08 on 26/6/2014. Now, we shall proceed to look at the law laid down by the Hon'ble jurisdictional High Court and followed by the coordinate benches of this Tribunal. 16. In EON technolo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no assistance to the revenue in anyway in disallowing the expenditure and basing on the decision of the Hon'ble Apex Court in the case of Toshoku Ltd (1980) 125 ITR 525 (SC), it was held that insofar as the overseas agent of Indian exporter operates in his own country and no part of his income arises in India and the commission is usually remitted directly to him, such overseas agent is not liable to income tax in India on the commission earned. 18. In Ciena communications (supra), the assessee was providing installation, commissioning services for equipment supplied by its group entities to customers and made several payments to foreign companies, on which no TDS was directed. Learned Assessing Officer made disallowance for non-deduction of TDS under section 195 of the Act read with section 40(a)(i) of the Act on payments so made. A coordinate Bench of this Tribunal held that the payments received by the associated enterprises for the services rendered outside India are not taxable in India and, therefore, the assessee was not expected to deduct TDS and section 195 of the Act has no application. Consequently, it was held that no disallowance under section 40(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SA. M/s Cee-Jan Beevers is covered by the India Belgium Double Taxation Avoidance Agreement which if read with the protocol dated 26/4/1993 and the Treaty between India and the USA is applicable. So also case of M/s MK group LLC is covered by the Double Taxation Avoidance Agreement between India and USA. In either case the payment of commission would not be 'Fee for Technical Services' (FTS) since such services did not make available any technical knowledge, experience, skill, know-how or processes or consists of the development and transfer of technical plan or a technical design. 22. In the circumstances, as a matter of fact, we find that the services rendered by these two foreign entities are outside India and in respect of the sales effected by them, and at the same time neither of these entities had any permanent establishment in India nor does the assessee or its directors/associated enterprises had any interest in the ownership or management of these entities more particularly M/s Sahasra Europe. We, therefore, allow the grounds of appeal of the assessee. 23. Since the appeal of the assessee for the AY 2010-11 is allowed, as above, we, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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