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TMI Blog2018 (10) TMI 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A)'s detailed findings extracted hereinabove based on correct appreciation of facts in light of various judicial precedents to conclude that he has rightly deleted the impugned foreign agents commission disallowance made in the course of assessment. The Revenue fails in its first substantive ground. Disallowance u/s 14A r.w.r 8D - HELD THAT:- It has come on record that Revenue s only endeavour is to revive proportionate interest expenditure disallowance only. It fails to rebut the CIT(A) s clinching findings that the instant taxpayer had sufficient interest free funds and also that the issue has attained finality in preceding assessment year. We therefore reject Revenue s second substantive ground as well by adopting judicial consistency. TDS u/s 194C - Transportation Expenses Addition u/s 40a(ia) - Revenue s only argument during the course of hearing is that although assessee had complied with the relevant conditions u/s 194(6) of obtaining the necessary declaration alongwith PAN No. of the payees, it has failed to satisfy all the necessary condition enshrined in sec. 194(7) - HELD THAT:- We find no merit in the instant argument since the CIT(A) has considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gn agents and that no TDS was effected u/s.195 of the I.T. Act, 1961. 1 2. A part of the AR's submission dated 14-03-2015 has been reproduced on page 2 of the AO's order, which claims that the commission was paid to overseas brokers for obtaining order outside India in respect of exports of raw cotton as well as other items. There is further plea from the appellant's AR that the income of those brokers did not accrue in India or was not deemed to accrue in India and thus the amounts were not liable to TDS as no business connection or establishment is claimed to be in existence in India. 1.3. The AO has not recorded any finding on the nature or details this commission claimed to have been paid to foreign agents. But, he has dealt at length with the provisions of Section 9(1) of the Income Tax Act and some circulars such as Circular No.786 of 2000 and Circular No.7 of 2009 and has concluded on page 3 of his order to the effect that income of a non-resident shall be deemed to accrue or arise in India in cases where business connection exists even if the said non-residents (foreign commission agents) have not rendered services in India. The relevant observation on pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed an aggregate sum of Rs.2,57,60,898 towards commission paid to its agents for procuring business which sum included the sum of Rs.2,21,30,255 to its foreign agents having no place of business, (commonly referred to as PE, in India and a sum of Rs.36,30,643 to its Indian agents. 1.2 It is most respectfully submitted that the Appellant Company was not statutorily required to deduct tax at source on commission paid to its overseas agents since they did not have any place of business in India. The commission of Rs.2,21,30,255 was paid to them for their services rendered outside India mainly for procurement of orders. It is settled law that no TDS is required to be deducted by an assessee on any amount paid to non-resident, having no PE in India, since such payment does not constitute income chargeable to tax in mote. Reference is made to the following judgments in support of the aforesaid submissions. (i) CIT vs. EON Technology (P) Ltd. [2011] 203 Taxman 266(Del) (ii) DCIT vs. Divi's Laboratories Ltd. [2011] 1311TD 271 (Hyd) (iii) Commissioner of Income Tax vs. Toshoku Ltd. [1980] 125 ITR 525 (SC) (iv) Vijay Ship Breaking Corporation Others vs. CIT [2009] 314 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. 1.4 The Appellant, in response to the aforesaid grounds raised by the Assessing Officer, in the impugned assessment order submits that the Ld. Assessing Officer has not understood the meaning of Explanation below section 9(2) of the Act and also misunderstood the content of CBDT Circular No. 7/2009. The Appellant most respectfully submits as under: (i) The provisions of section 9 and/or substitution of Explanation to section 9(2) of the Act does not change the existing law relating to nondeduction of TDS on payment of commission to overseas commission agents having no place of business or PE in India. This issue has been dealt in by various decisions of Appellate Courts including those cited herein above. Reference is made to the recent judgment of Hon'ble Madras High Court in the case of CIT vs. Faizan Shoes (P) Ltd. [2014] 48 taxmann.com 48 (Mad) equivalent to [2014] 367 ITR 155 (Mad). In this case the Hon Hon'ble High Court, after referring to the Explanation to Section 9(2) of the Act inserted by Finance Act 2010 and also the Circular No. 7/2009 dated 22.10.2009 and also the provisions of sec. 9 of the Act, held that the services rendered by the non-resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Assessing Officer was not justified in disallowing the same. Details of Commission paid, tax at source deducted and TDS certificates issued to the Indian agents are enclosed in the Paper book in support of the aforesaid submissions made by the assessee. 1. 6. It would be apposite to refer to relevant sections 9(1((i), 9( 1 )(vii) and 9(2) of the Act, which read as under: (1) all income accruing or arising, whether directly or indirectly through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate 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 mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s accrued, arisen, or deemed to have accrued or arisen in India to the non-resident assesses during the relevant year. This takes us to s.9 of the Act. It is urged that the commission amounts should be treated as incomes deemed to have accrued or arisen in India as they, according to the department, had either accrued or arisen through and from the business connection in India that existed between the nonresident: assesses and the statutory agent. This contention overlooks the effects of Cl. (a) of the Explanation to cl.(i) of sub-s.(l) of s.9 of the Act which provided that in the case of a business of which all the operations are not carried out in India, the income of the business deemed under that clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. If all such operations are carried out in India, the entire income accruing there from shall be deemed to have accrued in India. If however, all the operations are not carried out in the taxable territories, the profits and gains of business deemed to accrue in India through and from business connection in India shall be only such profits and ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case was to demonstrate that the income accrued or arose in India or is deemed to accrue or arise in India. There is no finding in the assessment order on this requirement of law whether income accrued or is deemed to have accrued in India in cases of payments of commissions to foreign agents. Similarly, it has not been shown by the AO that these foreign agents were residents in India. On the contrary, the AO has presumed that the said foreign agents were nonresidents as is clear from various clauses or parts of the assessment order. Once the payees are non-residents and the income does not arise in India or is not deemed to accrue in India the said income cannot be taxed under I.T Act. The test of business connection also becomes irrelevant once the income, whole of the business operation [Clause (a) of Explanation 1 under Sec.9(1)(i)] and the payees are outside Indi. The Assessing Officer's decision, therefore, cannot be sustained. Thus grounds No.1 2 and 3 are allowed. 3. We have given our thoughtful consideration to rival contentions. There is no dispute so far as the basic facts pertaining to the instant issue are concerned. The assessee has made commission pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Paper Book. It is seen that the CIT(A) in the said appellate order has decided the issue. The relevant portion of the said decision is reproduced as under:- After careful consideration of the facts of the case, it is observed that the AO has merely applied the formula provided in the Rule 8D in a mechanical manner by taking the average of total investment whereas appellant company has in its disallowance taken the average of those investment exempted within the relevant previous year. Hence, there is force in the appellant s contention has to determine and bifurcate the expenses between those relatable to taxable income and non-taxable and to disallow those which are relatable to non-taxable income. it is observed that the appellant company having sufficient own funds and there is force in the contention of the appellant that the total amount of Rss.8,78,92,349/- debited as finance cost in the P L A/c represented interest on packing credit it was for the purpose of the business. Considering the above discussion and the ratio of the cited case laws, it is found that the AO was unable to establish nexus between interests related to non-exempt income. Hence, the disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) read with Rule 31A within the prescribed time the liability ix] s.194C(6) would come back or resurrect itself. In other words the AO's case is that in cases Section 194C(7) are violated the waiver of tax deductions provided u/s. 194C(6) gets withdrawn. The AO has on this logic held the appellant liable to deduct TDS and since it failed to deduct the AO applied Section 40a(ia) to make additions of all the above sum of transportation and freight charges. 2.1 The appellant s plea as contained in its AR s submission dated 18-04-2016 is reproduced as under: GROUND NO. 6 7: 3.The issue raised in the aforesaid ground relate to disallowance of a sum of Rs.16,91,03,135 paid by the payment of freight charges to Transporter for alleged failure to deduct TDS and/or failure to file the statutory return in time. For making such disallowance the Assessing Officer relied on the provision of section 40(a)(ia) of the Income Tax Act, 1961 read with section 194c(6) and section 194(7) of the said Act. He has disallowed the same only on the ground that the Appellant Company failed to submit return in Form No. 26Q within the time allowed under section 194(7) of the Act read with Rule 31A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing judgments of High Court as well as the judgment of jurisdictional High Court which is binding on all the authorities below: (i) CIT Vs. Valibhai Khanbhai Mankad. (2012) 28 taxmann.com 119 (Guj) - In this Honble High Court held that on disallowance could be made under section 40(a)(ia) of the Act for failure to submit Form No. 15J as was required to submitted under Rule 29D. (ii) CIT vs. Sri Marikamba Trenspor: Co. (2015) 57 txmann.com 273 (Karnataka) - In this case also aforesaid view was taken and it was held that non-filing of Form No. 15-I/J is only a technical defect and the provision of Section 40(a)(ia) are not attracted in such a case. (iii) ITO, Ward 9(2) vs. Gautam Roadways (P) Ltd. ITA No.1290/Kol/2011 (Kolkata Tribunal) - In this case Hon'ble Tribunal in Para 5 of the order held that once the specified form have been collected under Rule 290(4)(J7) by the assessee even if the same is not submitted to the CIT for one reason or another, the assessee is not required to deduct tax at source u/s 194C of the Act and therefore provisions of section 40(a)(ia) cannot be applicable. 3.5 The appellant company most respectfully submits that the facts of the in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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