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TMI Blog2021 (9) TMI 760X X X X Extracts X X X X X X X X Extracts X X X X ..... ber And Shri Sudhanshu Srivastava, Judicial Member For the Appellant : Ms. Anima, Sr. DR For the Respondent : Sh. Ved Jain, CA And Sh. Ashish Goel, CA ORDER PER SUDHANSHU SRIVASTAVA, JM: ITA No.3894/Del/2017 is the appeal of the Department preferred against order dated 10.02.2017 passed by the Ld. Commissioner of Income Tax (Appeals)-39, New Delhi {CIT(A)} for Assessment Year 2011-12 whereas ITA No.3895/Del/2017 is the Department s appeal against order dated 10.02.2017 passed by the Ld. Commissioner of Income Tax (Appeals)-39, New Delhi {CIT(A)} for Assessment Year 2013-14. Since, both the appeals involved identical issues, the same were heard together and are being disposed by this common order for the sake of convenience. 2.0 The brief facts of the case are that the assessee company is engaged in the business of manufacturing and sale of engineering tools. The return on income was filed for Assessment Year 2011-12 declaring income at ₹ 3,28,57,870/-. The assessment was completed at an income of ₹ 5,26,65,065/- after making a disallowance of ₹ 40,58,425/- out of payment of royalty, disallowance of ₹ 1,56,68,770/- out of commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled to prove any legal backing to the agreement and there is nothing mentioned in the agreement regarding the justification for these payments. 2. Whether on the facts and circumstances of the case in law, the Ld. CIT(A) erred in deleting the addition of ₹ 2,71,47,499/- made on account of non-deduction of TDS on commission payment made to foreign companies u/s 40(a)(ia) vide order u/s 143(3) of the I.T. Act 1961 passed by the DCIT, Circle 12(1) ignoring the fact that though the payment has been made for work done outside India but the profit is actually earned in India. 3. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing. 3.0 At the outset, the Ld. Authorized Representative (AR) submitted that both the issues being agitated by the Department are covered in favour of the assessee. It was submitted that the issue of disallowance of royalty payments treating the same as capital expenditure is covered by the orders of this Tribunal in assessee s own case for Assessment Year 2005-06, 2006-07 and 2007-08, Assessment Year 2008-09, Assessment Year 2010-11 and 2012-13 wherein similar issue has been deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observing as under: 6. In the impugned order, the ITAT has observed, on perusal of the very same agreement, that the royalty is essentially being paid for use of the trademark 'Macnaught' on the products of the Assessee and for using the drawings etc. The expenditure was incurred wholly and exclusively for the purposes of the business of the Assessee. From the payments made to MPL, the Assessee had deducted tax at source and deposited it with the Government. The genuineness of the payment was also not in doubt. In the circumstances, the ITAT was of the view that the CIT(A) was not justified in enhancing the addition made by the AO by capitalising the royalty. The appeals of the Assessee were, accordingly, allowed. 7. It is urged before us by Mr. Raghvendra Singh, the learned Junior Standing counsel for the Revenue, that the royalty agreement between the Assessee and MPL was vague. There was nothing to indicate that the use of the trademark was permitted only for a limited period after which it would revert to MPL. It was also not clear whether there was anything to indicate that the benefit thereunder could not continue indefinitely. He urged that document was dra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer has not made any efforts to establish any business connection for invoking section 9(1)(i) of the Act. Thus, in the absence of same, the AO is wrong in invoking the provisions of section 9(1)(i) and accordingly export commission paid by the assesse is not chargeable to tax in India. 5.5 Regarding taxability under section 9(1)(vii)(b) read with Explanation-2 the AO in Pg. 7 Para 4.7 has alleged that the payments made by the assessee are in the nature of Fees for Technical services for consultancy, Technical and Managerial Services provided by these agents and hence chargeable to tax in India in terms of section 9(1)(vii)(b) read with Explanation 2 of the Income Tax Act. In this regard it is pertinent to note that these non 11 resident agents have provided services of securing the orders in overseas market for the assessee company and are entitled to commission on the business procured by them as is evident from agreements placed in the Paper Book. Further, no managerial, technical consultancy services undisputedly have been rendered by these non-residents agents to the assessee and accordingly, the AO cannot invoke Section 9(1)(vii)(b) of the Act there is no i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e question of applying Section 195 (1) of the Act does not arise. 12. In CIT v. Model Exims Kanpur (supra), it was held that there was no obligation to deduct TDS under Section 195 of the Act from the commission paid to a non-resident recipient who was not liable to tax in India. In CIT v. Gujarat Reclaim Rubber Products Ltd. (supra), the commission earned by a nonresident agent who was in the business of selling Indian goods abroad, was held not to be income that had accrued and/or arisen in India. Therefore, Section 40 (a) (i) of the Act could not be invoked to disallow such payment as deduction on the ground that no TDS under Section 195 (1) was deducted from such payment. Further the CBDT Circular No. 23 dated 23rd July 1969 stated that A foreign agent of an Indian exporter operates in his own country and no part of his income arises in India. It acknowledges that such commission is remitted to the agent abroad and not received by him or on his behalf in India. Such agent is not liable to income-tax in India on the commission. This was reiterated by the subsequent Circular No 786 dated 7th February 2000. Both the circulars are binding on the Revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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