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TMI Blog2022 (2) TMI 1203X X X X Extracts X X X X X X X X Extracts X X X X ..... o claim deduction of profits earned thereon u/s. 80IC of the Act. D.R. was unable to point out any distinguishing fact before us nor was any decision of the higher authorities brought to our notice holding to the contrary. No reason to interfere in the order of the Ld. CIT(A) allowing assessee s claim of deduction u/s. 80IC of the Act on Electricity Deposit, Recovery from Transporters and Sundry Balances of Vendors written off. - Decided against revenue. Disallowance of foreign commission paid to non-residents - CIT-A deleted the addition - HELD THAT:- CIT(A) deleted the disallowance of commission expenses finding that the issue was identical to that in Assessment Year 2013-14 [ 2019 (10) TMI 119 - ITAT AHMEDABAD] wherein identical disallowance was deleted and further noting on facts that most of the commission agents were same as in Assessment Year 2013-14, while the new commission agents fulfilled the criteria laid down for non deduction of tax at source on the commission so paid.We have also noted that the ITAT has upheld the order of the Ld. CIT(A) in Assessment Year 2013-14. Since the the Ld. D.R. was unable to point out any distinguishing fact before us nor was any d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) Interest on Electricity Deposit ₹ 16,18,184/- (b) Recovery from Transporters ₹ 11,37,585/- (c) Sundry Balances of Vendors written off ₹ 22,28,062/- 4. As pointed out at the outset itself by the Ld. Counsel for the assessee, the Ld.CIT(A) had allowed the assessee s claim of deduction of these incomes following the CIT(A) s order for Assessment Year 2012-13 2013-14. The relevant findings of the Ld. CIT(A) at Para 2.3 to 2.7 is as under: 2.3. I have carefully considered the facts of the case, assessment order and submission of the appellant. The AO has disallowed the claim of deduction u/s. 80IC of I. T. Act, 1961 in respect of the following income derived by the appellant in the year under consideration:- Particulars Amount Interest on NSC 15,956/- Interest on Electricity Deposit 16,18,184/- Interest on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, the nature of above incomes cannot be held as income derived from manufacturing activities. Thus, he held the same as non - eligible incomes for deduction under the provisions of section 80IC of the I. T. Act, 1961. 2.5. On the other side, the appellant submitted that all the aforesaid incomes have been derived directly or indirectly from the business of manufacturing as stipulated under the provisions of section 80IC of the I. T. Act, 1961. The appellant further claimed that as per the various decisions and judgements the income pertaining to the interest on electricity deposit, recovery from transporters and sundry balances of suppliers return back was held to be the income derived indirectly from the business / manufacturing activities of the appellant, and therefore, the same is eligible for the deduction u/s. 80IC of the I. T. Act, 1961. 2.6. It is seen from the facts of the case, that identical issue has been decided by this office in appellant's own case for A. Y. 2012- 13 vide Appellate Order in Appeal No.CIT(A)-2/506/DC. Cir. 2(1)(1)/2014-15 dated 20/08/2015. The relevant findings given in the order are reproduced hereunder:- 2.3. De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d deriving the interest thereupon cannot be said to for the purpose of the business for want of necessary details and documents establishing the requirement of investment in the NSCs. There was no reason to make the investment in the NSC for the purpose of the eligible business and thus the interest derived there-from cannot form part of the eligible profits for deduction. Further, with regard to interest on staff loan also, which was one kind of income on the funds lent to the staff members. Thus, this income is neither directly or indirectly linked with the business activities of the appellant. Even the appellant has not provided any details and documents in support stating that the loans were given to the employees who were engaged in the eligible business for which income was deductible u/s. 80IC of the I. T. Act. Thus, In view of the aforesaid discussion, the AOs action for not granting the deduction on the interest on NSC and Interest on staff loan is confirmed and no deduction u/s. 80IC fs granted upon the same. 2.7. Further, with regard to the claim of deduction on interest on electricity deposits, it was found that it was mandatory on the part of the appellant to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operation of manufacture and sale of the particular commodity or articles dealt in by the assessee. The assessee is therefore, entitled to claim deduction under s. 80HH on the amount of interest earned by it on the fixed deposits. 2.8. Further, with regard to the recoveries from transporters, it is found that it was the recovery on account of loss of material in transit i.e. in the nature of recovery of goods. Thus, it is a direct income relating to the eligible business of the appellant for the reason that the shortage derived on account of loss of material was the trading loss /business loss and the recoveries made from the transporters against such loss is the reimbursement towards such losses. Thus, the recoveries being in the nature of business income are eligible for deduction u/s. 80IC of the I. T. Act. 2.9. Further, with regard to sundry balances written off in respect of the Kasar / Discount received from supplier / supplier parties is also having a direct connection with the purchases made by the appellant and to this extent the purchases would be reduced and accordingly the eligible profits would consequently be increased. Thus, it has the direct nexus wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of the deduction upon the same by the AO is confirmed. With regard to the inferest on fixed deposit amounting to ₹ 3,834/-, the same is also not found derived from the manufacturing activities and hence the appellant is not entitled for the deduction u/s. 80IC of the I. T. Act, 1961. Thus, the disallowance of deduction by the AO is confirmed. 2.8. With regard to the other incomes such as interest on electricity deposit, penalties and fines recovered from transporters and sundry balances of vendors written back, the appellant is eligible for deduction u/s. 80IC of the I. T. Act, following the decision of the CIT(A) in the immediately preceding year and accordingly, the disallowance made by the AO on these incomes is deleted. The ground of appeal for this year is accordingly partly allowed. 2.6. On going through the above, it has been noticed that the deduction of the income on account of interest on NSC and interest on staff loan amounting to ₹ 15,9567- and ₹ 1,47,7457- respectively is not allowed for the reasons discussed in the aforesaid appellate order as the same cannot be said to be direct or indirect income from the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under section 80IC is admissible where the gross total income of an assessee includes any profit and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2) of section 80IC of the Act; sub-section (2) further contemplates that this section applies to an undertaking or enterprise which has begun or begins to manufacture or produce any article or things. There is no dispute that the assessee has begun to manufacture any article or thing. The question whether the alleged income sub-divided by the AO has nexus with the manufacturing activity or not. As far as interest income on fixed deposits made with electricity department is concerned, it has direct nexus with the manufacturing activity. Unless an electricity connection is there, no manufacturing activity would commence and for taking electricity connection, it is mandatory to give deposits. Similarly, the assessee had made recoveries from transporters on account of loss of material on transit. Therefore, it has a direct nexus with the manufacturing process. The goods manufactured or raw-materials purchased by it were lost in transit, which were compensated by the transporter. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the issue was identical to that in Assessment Year 2012-13 2013-14 in assessee s own case and further noting that most of the commission agents were identical to that in Assessment Year 2013-14 while in rest of the cases evidences had been filed by the assessee to show that the income did not accrue or arise in India nor any payment was made to them in India, accordingly, he deleted the disallowance made by the A.O. The relevant findings of the Ld. CIT(A) at para 4.3 4.5 4.6 is as under: 4.3. I have carefully considered the facts of the case, assessment order and submission of the appellant. The A.O. has disallowed the commission paid to foreign agents amounting to ₹ 4,55,58, 659/- by holding that the income arising on account of commission payable to overseas agents was deemed to accrue or arise in India and was accordingly taxable under the Provisions of section 5(2)(b) read with section 9(1)(i) of Income Tax Act. 4.4 It is seen from the facts of the case, that identical issue has been decided by this office in appellant s own case for A.Y. 2013-14 vide Appellate Order in Appeal No. CIT(A)- 2/316/DC. Cir. 2(1)(1)/2015-16 dated 20.05.2016. The relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce under section 143(2) was issued and served upon the assessee. The assessee at the relevant time was engaged in the business of manufacturing and trading of agro processing, maize processing, cotton spinning as well as generating powers through windmills. On verification of TDS details, and CA certificate for foreign remittances it revealed to the AO that the assessee has debited foreign commission expenditure of ₹ 1,56,17,547/-. He directed the assessee to explain as to why this commission be not disallowed. In response to the query of the AO, the assessee filed a detailed written submissions which was identically submitted before the ld.CIT(A), and we will be going to take note of the submission in the subsequent part. The AO has gone through the submissions of the assessee and rejected the same for two reasons. In the first fold of reasoning, he observed that the assessee has not provided the identity and the evidence of services rendered by foreign commission agent for which the commission was paid. In this regard, he observed that no copy of agreement or documentary evidence in support of commission payment etc. was given by the assessee. In the second fold of reasonin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from Taiwan, Hong Kong, Korea, Malaysia, Vietnam, Bangladesh, Philippines, Italy, Portugal, China and USA, as the product is used worldwide and demand comes from various countries through overseas brokers / commission agents working overseas. Whereas, very few demands comes through overseas brokers / commission agents for liquid glucose and starch and DOC. 3. It is further submitted that these overseas brokers / commission agents are providing export orders to us by searching / inquiring export import from their countries. These overseas brokers / commission agents also provides services for negotiating the rates, freight, conditions for payments, opening LCs of importers in foreign countries and informing us, take care of deliveries of goods to the importers and follow up for final payments, etc. 4. As called for by your goodself detailed chart containing name address of broker, name country of buyer to whom export was made, item exported, billed quantity, export value in USD and realization in INR with brokerage in USD and brokerage in INR amounting to ₹ 156,17,547/- furnished Exb-1. 5. Along with above chart, broker wise payment evidences along wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts are providing export orders to us by searching / inquiring export - import from their countries. These overseas brokers / commission agents also provides services for negotiating the rates, freight, conditions for payments, opening LCs of importers in foreign countries and informing us, take care of deliveries of goods to the importers and follow up for final payments, etc. However, they are not our agents in those countries. They work on behalf of many parties and on so many products / commodities independently. 3. As per provisions of section 5(2) of the IT Act, the total income of a person who is a non-resident is taxable in India, if it is received or is deemed to be received in India on behalf of such person or accrues or arises or is deemed to accrue or arise to him in India. In analogy, we submit that the commission payment to overseas brokers / commission agents is not falling either of the two conditions of section 5(2): (i) The payments are made to overseas brokers / commission agents in their countries through banking channel i.e. the payment is received by them in foreign country. (ii) The commission accrues / arises in foreign countries as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seas brokers / commission agents, it is submitted that commission does not accrue or arise or deemed to accrue or arise in India to such non-resident commission agents as they had rendered services outside India and commission was also paid to them outside India. Thus, the assessee company was no where under obligation to deduct tax from such commission payments to overseas brokers / commission agents as per provisions of section 195 of the IT Act. 5. In view of the above, it is submitted that the commission agent did not carry on any activity in India In the absence of any activity being carried in India by a non-resident commission agent, the commission does not accrue or arise in India. Therefore, such payments are not taxable in India. Accordingly, such payments do not require any deduction of tax or tax withholding. However, the company has taken certificate in Form no 15CB from Chartered Accountants, which also states that no TDS is require on payment of commission to the non resident commission agents. 6. It is further submitted that as per Double Taxation Avoidance Agreement (DTAA) with the countries where the non-resident commission agents resides, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / commission agents is genuine and paid through banking channel on export orders procured and final realization of export proceeds. The same is expense for the purpose of business incurred by company in prudent way to increase export and increase customer base in foreign countries. (v) As per provisions of section 5(2) of the IT Act, commission income to non-residents is not taxable in India, as they arc providing services from their countries and the payment is also received to them in their country. Thus, the commission is neither received / deemed to be received in India on behalf of such person nor accrues or arises / deemed to accrue or arise in India. Similarly, commission payment to overseas brokers / commission agents cannot be said as income deemed to accrue or arise in India in the light of above Explanations to the provisions of section 9(1 )(i) of the Act. (vi) The commission payment to overseas brokers /commission agents does not accrue or arise or deemed to accrue or arise in India as they had rendered services outside India and commission was also paid to them outside India. Thus, the assessee company was no whereunder obligation to deduct tax from such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without deduction of tax at source, itself shows that there is no need to deduct tax on such payments. 8.5 The AO has made various observations in assessment order on commission payment to non-resident rebuttal to such observations of the AO are furnished: Para No. AO s Observations Rebuttal by Appellant Company 7.3 The above reply of the assessee has been carefully considered but the same is not found acceptable. The assessee has not' provided the identity and the evidences of services rendered by the foreign commission agent for which commission was paid by the assessee. No copy of agreement or documentary evidences in support of commission payment etc. was given by the assessee which could justify the reasonableness of the commission payment to the nonresident as well as the genuineness of expenditure incurred for the purpo.se of business. Therefore, in absence of copy of agreement with the foreign commission agent, identity of commission agent and evidences pertaining to services rendered by the foreign commission agent having nexus with the business of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The appellant company has not discussed single line about Circular no. 786 dated 07-02- 2000 or Circular no. 7 of 2009. Whereas, the appellant company has merely stated that the commission payment to overseas brokers / commission agents does not accrue or arise or deemed to accrue or arise in India as they had rendered services outside India and commission was also paid to them outside India. Further, as per Double Taxation Avoidance Agreement (DTAA) with the countries where the nonresident commission agents resides, in Article 7: Business income, states that the income from business is liable to be taxed in the country where the person is having permanent establishment. None of the non-resident commission agents are having any PE in India, complete addresses of such nonresident commission agents are provided in above details. 7.8 Thus, the assessee Company has also failed to comply with the provisions of section 195(2) of the Income Tax Act 1961 while deciding the issue of applicability or otherwise of withholding tax u/s 195 of the Income fax Act 1961. Having failed to make an application before the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e through banking channel. All foreign commission agents are identifiable. Copies of the invoices and the contract with commission agents, copies of form no.15CA and 15CB for payment in foreign currency, copies of shipping bills were produced. The ld.CIT(A) has further observed that TDS under section 195 was required to be deducted if element of income involved in those foreign commission. In other words, if the alleged foreign agents were liable to tax with India only then element of income would be involved, on such payments and tax would be required to be deducted. For harbouring this plea, the ld.CIT(A) made reference to the decision of Hon ble Supreme Court in the case of GE India Technology Centre Pvt. Ltd., 327 ITR 456. In this way, the ld.CIT(A) has deleted the disallowance in both the years. 16. With the assistance of the ld.representatives, we have gone through the record carefully. A perusal of the assessment order would indicate that the ld.AO has disallowed the claim of commission expenses on two counts viz. (a) the assessee failed o submit basic details i.e. identity of the agents, copies of invoices and the contract agreement with the commission agents etc., ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he technical nitty-gritty of the assessee's business and could demonstrate the assessee's business profile and the quality of the products of the assessee to the potential clients to convince them to enter into a contract with the assessee for supply of the pipes etc. and other allied works. In order to perform the aforesaid highly technical activity, the assessee entered into a contract with foreign agents. In terms of the agreement, the agent was to develop, expand and promote the sales and marketing for assessee's products, make market plans and establish a marketing network of representatives to help and promote assessee's products, to provide information such as market development, activities of competitors, intentions and plans of clients and financial information on clients, to provide advanced information about the tenders, gathering technical specifications of project and work incidental thereto, and to identify sub-contractors and logistic service provider, such as shippers and cargo handling agencies, to ensure the smooth execution of contracts. During relevant year, the assessee made payment of export commission to commission agents wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. As regards the withdrawal of the CBDT circular holding that the commission payments to non-resident agents are not taxable in India, nothing really turns on the circular, as de hors the aforesaid circular, we have adjudicated upon the taxability of the commission agent's income in India in terms of the provisions of the Income Tax Act as also the relevant tax treaty provisions. 17. Therefore, considering the facts and circumstances of the present case, in the light of the above discussion, we are of the view that the ld.CIT(A) has examined issue with all possible angle in order to find out whether commission paid by the assessee is genuine or alleged commission has element of income taxable in India. After satisfying himself on both the counts, the ld.CIT(A) has allowed deduction of the above expenditure to the assessee in both these assessment years. On due consideration of the detailed finding, we do not find any merit in the grounds of appeal raised by the Revenue. Accordingly, ground no.2 is rejected in both the assessment years. 13. Further Ld. Counsel for the assessee pointed out from page 42 of the Ld.CIT(A) s order that an analysis of commission paid t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 0 0 17 OPULENT INTERNATIONAL 38-Baber Block, New Garden Town, Lahore, PAKISTAN 2600.73 161245 0 0 0 0 0 0 18 SKYTEX TEXTILE CONNECTION 5-E. Architects Housing Society shore PAKISTAN 3535.44 219387 0 0 0 0 0 0 19 PARITAS TRADING CORPORATION Unit 605 Park Trader Center, 716 Investment Dirve Madrigal Business Park Ayala labag 1760Muntinlupa City HILIPPINES 5628.51 345695 0 0 8566,83 393507 0 0 20 XALTCO INTERNATIONAL 6NERAL TRADING LLC 0 No.22752, eira Tower Unit 215 u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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