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TMI Blog2020 (2) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... at this issue is duly covered by various ITATs and High Courts in similar cases. 2. The appellant prays your honor to add, amend or alter all or any of the grounds of the appeal on or before the date of hearing." 2. The assessee is an individual and proprietor of M/s NAQ Global and engaged in the business of manufacturing and export of fertilizer improvement chemicals. During the course of assessment proceedings, the A.O. noted that the assessee has paid commission to foreign entity and also paid advertisement fee and registration charges to Arab Fertilizers Association and foreign exhibition without deduction of TDS as mandatory U/s 195 of the Income Tax Act, 1961 (in short, the Act). Accordingly, the A.O. proposed to disallow the said payment of Rs. 18,94,480/- by invoking provisions of Section 40(a)(i) of the Act. The assessee objected to the proposed disallowance made by the A.O. and submitted that the commission was paid to the foreign agent who has no PE in India and therefore, no income arises or accrued to the non-resident agent in India. The assessee, has thus, contended that the commission income is not taxable in India in the hands of the non-resident agent and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther contended that no TDS is deductible U/s 194H of the Act as the said Section is applicable for resident Indians only. Therefore, the provisions of Section 194H or Section 195 of the Act are not applicable in the case of the assessee as the payment are made to non-resident overseas agent for the services rendered outside India. In support of his contention, he has relied upon the following decisions: (i) JLC Electromet Pvt. Ltd. Vs. ACIT, ITA No. 1494/JP/2018 & 23/JP/2019. (ii) G.E. India Technology Centre P Ltd. Vs. CIT 327 ITR 456 (SC). 5. The ld AR has submitted that when the income in the hand of resident is not chargeable to tax in India then no TDS is required to be deducted on such payment. The explanation to Section 195 of the Act would not override the main Section 195 itself which requires that an income chargeable to tax in India under the provisions of this Act is required TDS. The ld AR has further submitted that the provisions of Section 194H of the Act are applicable in respect of the commission payment by a person to a resident. Since the payment in question is made to non-resident, therefore, Section 194H of the Act is not applicable in the case of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the payments are not liable to TDS as the same are not chargeable to tax in India in the hands of recipient as these payments do not fall in the ambit of income deemed to accrue or arise in India. The A.O. did not accept this contention of the assessee and treated these payments as fee for technical services and consequently made the disallowance U/s 40(a)(i) of the Act in para 5.10 to 5.12 as under: "5.10 Here, it would proper to examine the provisions of Section 9(1)(vii) of the Income Tax Act, 1961, which are cited as under:- "Income deemed to accrue or arise in India. 9.(1) The following incomes shall be deemed to accrue or arise in India :- (vii) income by way of fees for technical services payable by- (a) the Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or at the time of payment whichever is earlier. Alternatively, the assessee has to obtain certificate for no deduction or lower deduction of tax on the payments as required u/s 195(2) of the Act. The foreign agents can also obtain certificates for non-deduction or lower deduction of tax on amount receivable/received as prescribed u/s 195(3) of Act. Since, these conditions have not been certified payments have been made to non-residents without deduction of tax as required u/s 195 of the Act. Consequently, the expenditure on export commission and other related charges payable to a non-resident for services rendered outside India is not allowable expenditure and they deserve to be disallowed u/s 40(a)(ia) of the Act. Therefore, an amount of Rs. 18,94,480/- (9,90,672 + 5,64,740 + 1,12,036 + 2,27,032) is disallowed and added to the total income of the assessee." Thus, the A.O. after holding the payments as fee for technical services has invoked provisions of Section 40(a)(i) of the Act, though, the A.O. has made a reference to provisions of Section 40(a)(ia). On appeal, the ld. CIT(A) has confirmed the disallowance made by the A.O. in para 4.3. as under: "5.3 I have gone through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce on record to show that the sum paid by the assessee was not chargeable to tax under the Income Tax Act. Therefore, disallowance of Rs. 18,94,480/- made by the AO is hereby confirmed." The ld. CIT(A) has upheld the disallowance by relying on the explanation to Section 195 of the Act without going into the issue whether the payment in question is chargeable to tax in India in the hands of the recipient particularly when the recipients have no PE in India. We note that though the assessee has contended before the A.O. that the recipients have no PE in India, however, no reliance was placed by the assessee on "DTAA", if any, between the India and Jordan or the countries of the recipients. Even before us, the assessee has vehemently contended that in absence of PE of the recipient, the payment is not chargeable to tax in India and consequently no TDS was required to be deducted on such payment. 9. At the outset we note that the assessee and Mo'ab for fertilizer and chemical LLC had entered into an agreement dated 13/08/2013 thereby the assessee appointed Mo'ab as its sole marketing agent in Jordan. The said agreement contains the terms and conditions as well as respective obligatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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