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TMI Blog2017 (12) TMI 1730X X X X Extracts X X X X X X X X Extracts X X X X ..... A No. 1122/JP/2016 - - - Dated:- 26-12-2017 - SHRI BHAGCHAND, AM AND SHRI KUL BHARAT, JM For the Appellant : Shri S.L. Poddar Ms. Isha Kanoongo (Adv) For the Respondent : Shri R.A. Verma (Addl.CIT) ORDER PER: BHAGCHAND, A.M. This is an appeal filed by the assessee emanates from the order of the ld. CIT(A), Alwar, dated 03/10/2016 for the A.Y. 2013-14. 2. The assessee is engaged in the business of manufacturing and trading of granites and other stones. The assessee filed his return of income on 25/09/2013 declaring total income of ₹ 26,64,780/-. The case of the assessee was selected for scrutiny and the assessment was completed U/s 143(3) of the Income Tax Act, 1961 (in short the Act) on 15/11/2011 determining the income of the assessee at ₹ 63,74,430/- by making various additions. The ld. CIT(A) has confirmed the addition. 3. Now the assessee is in appeal before the ITAT by taking following grounds of appeal: 1. Under the facts and circumstances of the case, the ld CIT(A) has erred in sustaining the disallowance of ₹ 37,09,646/- U/s 40(a)(ia) of the Income Tax Act, 1961 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the nonresident, whether or not,- (i) the business or business connection in India; or (ii) the non-resident has rendered services in India. In view of the explanation inserted in the section 9(2) with regard to NRI, the Hon ble ITAT, Jaipur Bench Judgment in the appellant s cases for prior years will not be applicable for year under consideration. I have further considered the following points; Fee for technical services(FTS) is defined in explanation 2 to section 9(1) (vii) of the Act to mean any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under head Salaries . As per Article 12(a) of the DTAA, the term FTS means payments of any kind to any person in consideration fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that whether sales commission paid to a non-resident person for the services in the foreign country i.e. outside India is taxable in India with regard to section 195 of the Act? The Ld. AO has reject the assessee claim and disallowance of payment of sales commission to NRI without deducting TDS by taking a view that circular 7/2009 dated22-10-2009 (withdrawals of circular no.23 786 has been withdrawn by the CBDT) and treating the sales commission as fee for technical services (FTS) which was given for securing the export order outside India. To resolve the above issue we have to first go through to the section 5 Scope of total income section 9 Income deemed to accrue or arise in India of the Act Section 5 (1) of the Act subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever sources derived which (a) -Is received or is deemed to be received in India in such year by or on behalf of such person ; or (b) Accrues or arises or is deemed to accrue of arise in India during such year ; or (c) Accrues or arise to him outside India during such year: Provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the is Act (not being income chargeable under the head salaries ) 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 rate in force. The provision of the said section can be elaborate as - that A person is liable to TDS only when the services are rendered within the territory of India or paid within India. In this regard we would like to submit as under: - 3. No TDS to be deducted if commission paid to foreign agents for rendering services abroad ITAT Chennai Bench recently held that assessee is not liable to deduct tax at source for making payment to its foreign agents for rendering services abroad, if the foreign agent does not have a permanent establishment in India and the service rendered is not in the nature of technical service. Facts of the case: The assessee, a private limited company, manufactures and exports leather garments and incurred expenditure towards commission paid to non-residents for the purpose of procuring orders abroad. The A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not applicable and, consequently, section 195 did not come into play. Therefore, the disallowance made by the Assessing Officer towards export commission paid by the assessee to the non-resident was rightly deleted. When the transaction does not attract the provisions of Section 9 of the Act, then there is no question of applying Explanation 4 to Section 9 of the Act. Therefore, the Revenue has no case and the Tax Case Appeal is liable to be dismissed. Therefore the issue in present case is squarely covered by this decision. The scope of Explanation 2 to section 9(l)(vii) of the Act by the Finance Act, 2010 was also examined by the Allahabad High Court in the case of CIT vs. Model Exims (358 ITR 2) which was followed by the Tribunal in the assessee's own case for the immediately preceding year. The relevant observations of the Tribunal are extracted hereunder for the sake of reference:- The Id. counsel for the assessee has contended that this issue is covered by the order of the jurisdictional High Court and various orders of the Tribunal, particularly in the case of ACIT vs. M/s Model Exims, Kanpur in I.T.A. No. 697/LKW/2013 in the light of CB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de the India. The person to whom the commission paid was not having any business connection in the India and commission so earned by him is not taxable in the India. Therefore, the provisions of Section 195 of the Act are not applicable. The Hon ble Madras High Court in its order dated 20/1/2016 in Tax case Appeal No. 484 of 2015 has held as under: 9. This question has been answered by the Hon'ble Supreme Court, in the case of G.E. India Technology Centre Pvt. Ltd. v. CIT (2010) 327 I.T.R. 456, in which, it is very categorically held that the tax deducted at source obligations under Section 195 (1) of the Act arises, only if the payment is chargeable to tax in the hands of the non-resident recipient. 9.1 Therefore, merely because a person has not deducted tax at source or a remittance abroad, it cannot be inferred that the person making the remittance, namely, the assessee, in the instant case, has committed a default in discharging his tax withholding obligations because such obligations come into existence only when the recipient has a tax liability in India. 9.2 The underlying principle is that, the tax withholding liability of the payer is inh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax (Appeals), the commission payment made to them does not fall into the category of fees of technical services and therefore, explanation (2) to Section 9 (1) (vii) of the Act, as invoked by the Assessing Officer, has no application to the facts of the assessee's case. 13. In this case, the commission payments to the nonresident agents are not taxable in India, as the agents are remaining outside, services are rendered abroad and payments are also made abroad. 14. The contention of the learned counsel for the Revenue is that the Tribunal ought not to have relied upon the decision reported in G.E. India Technology's case, cited supra, in view of insertion of Explanation 4 to Section 9 (1) (i) of the Act with corresponding introduction of Explanation 2 to Section 195 (1) of the Act, both by the Finance Act, 2012, with retrospective effect from 01.04.1962. 15. The issue raised in this case has been the subject matter of the decision, in the recent case, reported in (2014) 369 I.T.R. 96 (Mad) (Commissioner of Income Tax v. Kikani Exports Pvt. Ltd.) wherein the contention of the Revenue has been rejected and assessee has been upheld and the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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