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TMI Blog2019 (6) TMI 1649X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue : Shri Vikas Suryavamshi, Addl. CIT (DR) ORDER PER MS. BEENA PILLAI, JUDICIAL MEMBER Present appeal has been filed by revenue against order dated 20/06/16 passed by Ld. CIT (A)-2 Bengaluru for assessment year 2011-12 on following grounds of appeal: 1. Whether CIT(Appeals) erred in deleting the disallowance made u/s. 40(a)(i) and 40(a)(ia) in respect of payment of ₹ 2,60,48,963/- being commission on export sales. 2. Any other ground to be adduced at the time of hearing. 2. Brief facts of the case are as under: Assessee filed its return of income for year under consideration declaring Nil income and revised subsequently on 28/09/2011, again declaring nil income. The return was processed under section 143 (1) of the Act, and the case was selected for scrutiny. Subsequently, notice under section 143 (2) along with questionnaire and notice under section 142 (1) was issued to assessee, in response to which representatives of assessee appeared before Ld. AO and filed requisite details as called for. 3. Is Ld. AO observed that assessee is engaged in manufacture and export of cotton yarn/knitted fibres. From the books of accounts produced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear from the terms and conditions of the agreement that the payment in question were made to the nonresident marketing agents for their services rendered outside India. It is admitted fact that these non-resident agents have non PE in India therefore the income in their hand which is not a royalt.x-.4.e.for Technical Services' (in short 'FTS') is not chargeable to tax in India, The Assessing Officer has not given a finding that the payment in question is in the nature of FTS or royalty as per the provisions of Section 9(1)(vi) and 9(1)(vii) of the Act. Once the payment in question is not treated as ETS or royalty then, the same being business income in the hands of the non-resident marketing agents is not chargeable to tax in India in the absence of PE. The CIT (Appeals) has allowed the claim of the assessee by giving the finding in paras 5 6 as under : 5. I have considered the appellant's submission also perused the assessment order. The appellant engaged in the manufacture and export of cotton yarn/knitted fabrics. The observation of the Assessing Officer is that the appellant has debited a sum of ₹ 1,68,59,037 towards an export soles and on such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a)(ia) of the Act. 10. The judgment of the Karnataka High Court in the case of Samsung Electronics Co. Ltd. Ors. vs. CIT Ors. (2009) 227 CTR (Kar) 335 (2009) 31 DTR (Kar) 257 : (2010) 320 ITR 209 (Kar) retied on by the Department, dealt on whether tax is to be deducted at source, under s. 195 of the Act, in respect of payment made to non-resident, on import of software. The judgment of the Karnataka High Court is largely based on the judgment of Supreme Court in the case of Transmission Corporation of AP Ltd. Anr. vs. CIT (1999) 155 CTR (SC) 489 (1999) 239 ITR 587 (SC). However, the Karnataka High Court not followed the subsequent binding judgment of the Supreme Court in the case of Vijay Ship Breaking Corpn. Ors vs CIT (2008) 219 CTR (SC) 639 : (2008) 14 DTR (SC) 74 : (2009) 314 ITR 309 (SC) wherein the apex Court has categorically held that the resident is not required to deduct TDS under s. 195(1) of the Act, if the income of non-resident recipient is not taxable in India. Given this binding precedent, the judgment of Karnataka High Court in the case of Samsung Electronics Co. Ltd Ors. vs. CIT Ors. (supra) would not apply to the cases where the non-resident rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to the addition made on this issue and hence, the CIT(A) is justified in directing the A0 to delete the said addition. After considering the totality of facts and the circumstances of the case, we are not inclined to interfere with the order of the CIT(A) on this issue and accordingly the same is upheld. Hence the grounds raised by the Revenue for all the years under consideration are rejected 6. A plain reading of the Hon'ble IIAT, Hyderabad the issue on hand is squarely applicable and respectfully following the said decision, the Assessing Officer is directed to allow of ₹ 1,68,59,037 as deduction under Section 37 of the Act. Thus it is clear that the CIT (Appeals) has followed the decision of the Tribunal in case of Divi's Laboratories Pvt. Ltd. (supra). The learned Departmental Representative has not brought to our notice any contrary decision/precedence. In view of the above facts and circumstances of the case where the commission payment in question is not treated by the Assessing Officer as ITS or royalty then in the absence of PE, it is not chargeable to tax in India. The learned Departmental Representative has relied upon the Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1953 has stated as follows:- Foreign agents of Indian exporters - A foreign agent of an Indian exporter operates in his own country and no part of his income arises in India. Usually, his commission is remitted directly to him; arid is, therefore, not received by or on his behalf in India. Such an agent is not liable to Indian incometax. The CBDT circular No.786 dated 07/02/2000 regarding taxability of export commission payable to non-resident agents rendering services abroad has stated that No tax is therefore deductible under section 195 and consequently the expenditure on export commission and other related charges payable to a non-resident for services rendered outside India becomes allowable expenditure. The conclusions of the A0 and CIT(A) that the non-resident had a business connection in India in our view is without any basis and cannot be sustained. 40. On applicability of Expin-2 to Sec.195(1) of the Act which was introduced by the finance Act 2012 w e f 1 4 i962 we are of the view. That the said explanation is applicable only when there is accrual of income in India. When the conclusion reached is that there is no accrual of income in India, we fail to s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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