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TMI Blog2018 (11) TMI 1644X X X X Extracts X X X X X X X X Extracts X X X X ..... s also questioned the impugned order which was passed without appreciating the fact that in terms of the provision of Section 9(1)(vii) of the Act such payments are chargeable to tax and therefore assessee is required to deduct TDS on such remittances. 4. The assessee an Indian Company and engaged in the business of supply and erection of building on part thereof. On perusal of the Profit and Loss account for the year under consideration, it is noticed that the assessee debited an expenditure of Rs. 3,16,15,000/- being sales and commission under the head "Other Expenses". The assessee was directed to furnish details along with documentary evidences in respect of such payment of commission expenses upon which relevant documents were furnished by the assessee before the Learned Assessing Officer. It revealed therefrom that the assessee has paid commission amounting to Rs. 2,93,56,350/- to non-resident foreign agent without deducting the tax at source. The assessee then was asked to submit the copy of agreement with commission agents, nature of services rendered, basis of commission. 5. In reply thereof the assessee categorically mentioned that the assessee paid commission towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable on record. We find while coming to the conclusion in respect of liability to deduct tax at source by the assessee the Learned Assessing Officer came to a finding that the identity of commission agents has not been proved by the assessee, neither the agreements been submitted by the assessee. It was further observed by the Learned Assessing Officer that it could be ascertained from the agreement since not submitted by the assessee that the assessee made the commission payment to Stone Hill Electromechanical contracting of UAE whereas the assessee has made sales to other countries like Tanzania and Mozambique. Therefore the assessee failed to specify as to who this commission agents based in UAE made sales to countries like Tanzania and Mozambique. The terms and condition for such payment of commission and the role of commission agent has not been clarified by the assessee as also observed by the Learned Assessing Officer. The assessee has paid commission as high as 20% to the commission agent as contended by the Learned Assessing Officer. The proof of services rendered by the commission agents has not been submitted by the assessee as also one of the findings of the Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g office/s Overseas agent to whom commission is paid is not having any business establishment or set up in India and his income is not at all liable to tax in India, has provisions of Section 195 is not applicable. From (he details of commission given including the furnishing of the relevant forms required to be submitted at the time of Remittances such as 15CB/CA etc., that the liability towards the TDS on such payments were not arisen because the persons/parties to whom Commission has been paid has tendered the services outside India & also not having any permanent establishment and set up in India. In short, it is submitted that the payments so made by us towards commission to Non-resident does not having/involving income chargeable to tax in India & therefore not attracted at all for deduction of TDS. In furtherance, we have to submit as under: Section 40(a)(i) states that specified payments to non-residents on which tax in deductible at source shall not be allowed to be deducted in computing the business income, if the tax has not been deducted or paid in accordance with the relevant provisions. In this context, it is importance to note that there must be a clear finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to the provisions of section 9(1)(i), it was submitted that the overseas agent was not doing any business in India. It was merely providing export orders to facilitate appellant. Further, the overseas agent did not had any business connection in India, it was further claimed that there is no income deemed to accrue or arise in India in view of the explanations to the provisions of section 9(1)(i) of the I.T. Act as the overseas agent had rendered services outside India and the commission was also paid to them outside India. Hence, there was no obligation to deduct the tax from such commission payments as per the provisions of section 195 of the I.T. Act. 2.9. Thus, it has been submitted that the identity and genuineness of the overseas commission agent is proved with the evidences such as, credit notes to overseas agents, export invoices, shipping bills, bank certificate for export realization, copy of Form No. 15CA & 6CB and commission payment etc. as discussed above. 2.10. Having considered the facts and submissions, the issues which are to be examined and decided are as under:- 1. Whether the commission paid to foreign agents is taxable in India by virtue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of foreign county, from where the procurement service had been provided for which the commission has been paid, and therefore, THE ISSUE is directly and squarely covered by the Apex Court decision. 2.13. Regarding the observation of the AO that the income is deemed to accrue or arise in India by applying the provisions of section 9(1)(i), it is seen that there is no fact on record to indicate that the agent had any permanent establishment in India. The agent had its office on the foreign soil and nothing on record that it had PE in India, Further the assessing officer has also not pointed out any such office has also not pointed out any such fact in its order which indicate that there was any such office of the overseas agent 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 proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, considering the overall facts and circumstances the payment made to the agent is taken as genuine. Accordingly, in my considered opinion the appellant has given SATISFACTORY evidences regarding the services rendered by the agent and the genuineness of payment of commission. 2.18. The AO has also placed reliance on the decision of Hon'ble Authority of Advance Rulings in the case of SKF Boilers and Driers (P.) Ltd. (2012) 18 Taxmann 325 and Rajiv Malhotra (2006) 284 ITR 564 (Delhi). The Judgments are not applicable lo the present facts as there are several other decisions of Hon'ble 1TAT, Mumbai in the case of ACIT (International Taxation) Vs. Star Cruise India Travel Services Pvt. Ltd. [14 ITR (T) 282 (Mum)l. 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 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/nonresident agents by Indian Exporters. 2.19 Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on-deduction of TDS by the assessee under section 195 of the Act. In this regard we find important and relevant to reproduce the provision of Section 195 of the Act which reads as under:- "Other sums. 71195. 72[(1) 73Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest 74[***] or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries" 75[***]) 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 :" A plain look at the above statutory provision makes it clear that the assessee is liable to deduct TDS on the payment to Non Residents on any sum chargeable under the provision of this Act. Now, the question arose whether payment made to the foreign agent is chargeable to tax in India. For this purpose, we need to refer the provision of Sec. 5(2) of the Act which reads as under:- Scope of total income. 475. 48(1) Subject to49 the provisions of this Act, the total income49 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh or from activities which are confined to the collection of news and views in India for transmission out of India ;]" From the above proposition, we find that income shall be deemed to accrue or arise in India if it fulfills any of the conditions :- i) Business connection in India; or ii) From any property in India; or iii) From any asset or source of income in India or iv) Transfer of capital asset situated in India From the above, we note that the case of assessee is not falling in any of the category as discussed above. Similarly, we also note that it is not the case of Revenue that payment was made by assessee on account of technical services rendered by the foreign agents. Therefore, in our considered view, assessee was not liable to deduct TDS u/s 195 of the Act. In holding so, we find support and guidance from the judgment of Hon'ble Madras High Court in the case of CIT vs. Farida Leather Co. reported in 66 taxman.com 321 (Mad) wherein it was held as under:- "9.2 The underlying principle is that, the tax withholding liability of the payer is inherently a vicarious liability on behalf of the recipient and therefore, when the recipient / foreign a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Authority for Advance Ruling also held that "the fact that the agent renders services abroad in the form of pursuing and soliciting participants and that the commission is remitted to him abroad are wholly irrelevant for the purpose of determining situs of his income". We do not consider this approach to be correct. When no operations of the business of commission agent is carried on in India, the Explanation 1 to Section 9(1)(i) takes the entire commission income from outside the ambit of deeming fiction under section 9(1)(i), and, in effect, outside the ambit of income 'deemed to accrue or arise in India' for the purpose of Section 5(2)(b). The point of time when commission agent's right to receive the commission fructifies is irrelevant to decide the scope of Explanation 1 to Section 9(1 )(i), which is what is material in the context of the situation that we are in seisin of The revenue's case before us hinges on the applicability of Section 9(1)(i) and, it is, therefore. important to ascertain as to what extent would the rigour of Section 9(1)(i) be relaxed by Explanation 1 to Section 9(1)(i). When we examine things from this perspective, the inevitable conclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has- [i] a residence or place of business or business connection in India; or [ii] any other presence In any manner whatsoever in India. is indisputably true that such explanation inserted with retrospective effect provides that obligation to comply with subsection [1] of Section 195 would extend to any person resident or non-resident, whether or not non-resident person has a residence or place of business or business connections in India or any other persons in any manner whatsoever in India. This expression which Is added for removal of doubt is clear from the plain language thereof, may have a bearing while ascertaining whether certain payment made to a nonresident was taxable under the Act or not. However, once the conclusion is arrived that such payment did not entail tax liability of the payee under the Act, as held by the Supreme Court in the case of GE India Technology Centre P. Limited [Supra], sub-section [1] of Section 195 of the Act would not apply. The fundamental principle of deducting tax at source in connection with payment onl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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