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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 ..... 2011-12 declaring income at Rs. 3,28,57,870/-. The assessment was completed at an income of Rs. 5,26,65,065/- after making a disallowance of Rs. 40,58,425/- out of payment of royalty, disallowance of Rs. 1,56,68,770/- out of commission payments and Rs. 80,000/- out of pollution expenses. 2.1 In Assessment Year 2013-14, the return of income was filed declaring an income of Rs. 67,97,84,740/- and assessment was completed at an income of Rs. 71,03,94,530/- after making disallowance out of royalty payment amounting to Rs. 34,54,190/-, disallowance u/s 40a(ia) of the Income Tax Act, 1961 (hereinafter called 'the Act') on account of non-deduction of TDS from commission payment amounting to Rs. 2,71,47,499/-, addition on account of difference between income returned and income as per Form 26AS amounting to Rs. 6,882/- and disallowance of expenses relating to previous years amounting to Rs. 1,220/-. 2.2 The assessee's appeals before the Ld. CIT(A) were allowed in both assessment years. 2.3 Aggrieved, the Department now is in appeal before the Tribunal and has raised the following grounds of appeal: ITA No.3894/Del/2017 for Assessment Year 2011-12:- "1. Whether on the facts and circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee'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 decided in favour of the assessee and the Tribunal had deleted the addition. It was submitted that the order passed by the Tribunal in Assessment Year 2008-09 was affirmed by the Hon'ble Delhi High Court vide order dated 04.09.2015 and the appeal filed by the Revenue was dismissed. It was submitted that the Ld. CIT(A) has deleted the disallowance made by the Assessing Officer by relying upon the judgment of the ITAT Delhi Bench in assessee's own case in ITA Nos.637, 638/Del/2013, and ITA No.4373/Del/2013 dated 14.10.2013 for Assessment Years 2005-06, 2006-07 and 2007-08 and further in ITA No.4776/Del/2013 dated 14.11.2014 for Assessment Year 2008-09. The Ld. AR drew our attention to the order of the Hon'ble Delhi High Court passed for Assessment Year 2008-09 upholding the order of the Tribunal and submitted that, thus, for all these years the issue stands decided in favour of the assessee and, therefore, the Ld. CIT(A) had rightly deleted the addition. 3.1 Coming to the second issue of non-deduction of TDS on commission pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was also not clear whether there was anything to indicate that the benefit thereunder could not continue indefinitely. He urged that document was drawn up in a very casual manner without completely spelling out the rights and obligations of the parties. According to him, the royalty agreement was a sham document without any legal sanctity. 8. There was sufficient opportunity for the AO, if he doubted the genuineness of the payment of royalty by the Assessee to MPL, to have conducted a detailed inquiry. The Assessee on its part furnished the agreement between itself and MPL under which it was inter alia permitted to use the trademark 'Macnaught' on its products. The royalty was payable per unit of the product and, therefore, was clearly linked to sales. There was also no doubt that such payment was in fact made by the Assessee to MPL. It is also not in doubt that MPL was not related to the Assessee in any manner. In the circumstances, there should have been some reasonable basis for the CIT(A) to simply conclude that this was a sham transaction and proceed to enhance the disallowance. The interpretation of the agreement by the ITAT appears to be plausible. The Court is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 iota of evidence with the AO that these non-residents have rendered any technical services. Therefore, in view of the above, 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. 5.6 On the issue of 'non-deduction' of TDS on commission payments made to foreign company, we also note that ITAT, Delhi Bench, in assessee's own case for Assessment Year 2012-13 in ITA No.5488/Del/2017 vide order dated 17.02.2021 has decided in favour of the assessee by holding as under: "5. Apropos ground No. 2 dealing with non-deduction of TDS on commission paid to foreign companies has also been dealt by the Co-ordinate Bench of the Tribunal for the A.Y. 2011-11 as well as for A.Y. 2013-14 wherein it was held that the commission has been paid to foreign agents deciding outside India and they have not rendered any technical services and hence do not come under the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equent Circular No 786 dated 7th February 2000. Both the circulars are binding on the Revenue. 13. The contention of the Revenue that the above Circulars cannot override the Act, was negatived by this Court in CIT v. EON Technology (P.) Ltd. (supra), by holding that when a nonresident operates outside the country, no part of his income arises in India. Further it was held that merely because an entry is made in the books of accounts does not mean that the nonresident received any payment in India. Since no part of the income could be deemed to have accrued to the non-resident in India, there was no obligation to deduct TDS from the payment made to such non-resident. Consequently, the question of disallowing the payment under Section 40 (a) (i) of the Act for failure to deduct TDS did not arise." 5.9 Similarly in the case of Commissioner of Income Tax-1, Vs. Angelique International Ltd. 2013 (10) TMI 17 Delhi High Court - [2012] 359 ITR 9, it was held as under: "10. So long as the circulars were in force, it aided in uniform and proper administration and application of the provisions of the Act. Read in this manner, we do not think the respondent-assessee was in default and had ..... X X X X Extracts X X X X X X X X Extracts X X X X
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