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TMI Blog2024 (11) TMI 1033X X X X Extracts X X X X X X X X Extracts X X X X ..... layudhaswamy Spinning Mills Ltd [ 2010 (3) TMI 860 - MADRAS HIGH COURT] . Disallowance of agency commission paid to non-resident without deducting tax at source, u/s. 40[a][i] - HELD THAT:- The facts are admitted to the effect that the commission agents are situated abroad. The factum of rendition of services abroad is also admitted. It is also not in question that no payments were made in India and that the commission was remitted through banking channels directly to the agents. In the facts of the present case, Circular No.786 issued by the Central Board of Direct Taxes, is clear to the effect that export commission would not be liable to tax. There has admittedly been no determination of tax made by any other authority holding the recipi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulating that the said undertaking should be considered as only the source of income of the assessee for the purpose of determining the eligible profits? 3. Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in deleting the disallowance of agency commission of Rs. 13,71,694/- paid to non-resident without deducting tax at source, u/s. 40[a][i] of the Act wrongly applying the decision of the Supreme Court in the case of GE India Technology Pvt. Ltd Vs. CIT [327 ITR 456] without appreciating Explanation to Section 9[1] introduced with retrospective effect from 1.6.1976?' 2. Mr.J. Narayanaswamy, learned Senior Standing Counsel for the appellant/Commissioner of Income Tax and Mr.R. Vijayarag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 009. 6. The assessing authority proceeded to complete the assessment effecting a disallowance under Section 40(a)(i) of the Act of the expenditure incurred. According to the authority, who places reliance on the judgment of the Supreme Court in the case of Transmission Corporation of A.P. Ltd. V. Commissioner of Income Tax [1999] 239 ITR 0587, it was incumbent on an assessee, who makes remittances overseas, to, without question, deduct tax at source. 7. In appeal, the first appellate authority, on the admitted facts of the case, accepted the assessee's submission to the effect that there was no liability for tax deduction. The order of the first appellate authority was confirmed in appeal filed at the instance of Revenue. Hence, this ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 2. The deduction of tax at source under section 195 would arise if the payment of commission to the non-resident agent is chargeable to tax in India. In this regard attention to CBDT Circular No. 23 dated 23rd July,1969 is drawn where the taxability of 'Foreign Agents of Indian Exporters' was considered alongwith certain other specific situations. It had been clarified then that where the non-resident agent operates outside the country, no part of his income arises in India. Further, since the payment is usually remitted directly abroad it cannot be held to have been received by or on behalf of the agent in India. Such payments were therefore held to be not taxable in India. The relevant sections, namely section 5(2) and section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Moreover, if the assessee ventures to unilaterally decide on the tax liability/or the quantum thereof, in respect of a remittance, it would be exposing itself to the legal consequences of such judgement/decision. To clarify, if the decision taken by the assessee not to deduct is seen to be erroneous in the light of any proceeding where the subject remittance is held to be taxable, then all penal consequences would stand attracted in respect of the act of non-deduction. 12. Mr. Narayanaswamy would attempt to distinguish the judgment in GE India relying specifically on paragraph 11 extracted below: '11. Before concluding we may clarify that in the present case on facts the ITO(TDS) had taken the view that since the sale of the concerned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he taxability or otherwise of a composite payment made to a foreign entity. It was in those circumstances that the Court held that in the case of a composite payment where it was unclear as to what component of the payment constituted income in the hands of the recipient, it was only appropriate for a deductor to approach the authorities and seek clarity on the taxability of the remittance/portion thereof, and the applicable rate. The ratio in Transmission Corporation has thus to be seen and understood in the context of that factual matrix only. 15. In the judgment in GE India Technology Centre (P) Ltd, the Court has clarified the position that as far as tax deduction is concerned, it is the deductor who would be responsible for making a ju ..... X X X X Extracts X X X X X X X X Extracts X X X X
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