Tribunal rules in favor of assessee, foreign agent's commission not taxable in India.

The Tribunal dismissed the Revenue's appeal and upheld the decision of the CIT(A), ruling in favor of the assessee. It was held that the commission paid to the foreign agent was not taxable in India and thus not subject to TDS under Section 195 of the Income-tax Act. The Tribunal emphasized the importance of applying circulars in force during the relevant assessment years and clarified that subsequent circulars do not have retrospective effect. The appeal by the Revenue was therefore dismissed, affirming the deletion of the disallowance under Section 40(a)(i) of the Act.

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Issues: Disallowance of commission on export for non-deduction of TDS under Section 195 of the Income-tax Act, 1961

Analysis:

Issue 1: Disallowance of Commission
The Revenue appealed against the order of the Ld.CIT(A)-II, Kanpur deleting the addition of Rs. 24,42,737 on account of commission paid to a foreign agent for procurement of Export Order. The Revenue contended that the Ld.CIT(A)-II erred in law by not appreciating the facts presented during the assessment proceedings. The Revenue also argued that the Ld. CIT(A)-II ignored the judgments of the Hon'ble Supreme Court in CIT Vs Gold Coin Health Food Pvt.Ltd. and CIT Vs. Moser Baer India Ltd. The AO disallowed the commission under Section 40(a)(i) of the Act for non-deduction of tax at source under Section 195.

Issue 2: Arguments Before CIT(A)
The assessee argued before the ld.CIT(A) that the commission paid to the foreign agent was not taxable under Section 9 of the Act as the income did not accrue or arise in India. The assessee relied on CBDT circulars to support the non-deduction of tax at source under Section 195. The ld.CIT(A) agreed with the appellant, stating that the withdrawal of earlier circulars had no bearing on the assessment year in question. The ld.CIT(A) deleted the disallowance under Section 40(a)(i) of the Act.

Issue 3: Tribunal's Decision
The Tribunal upheld the ld.CIT(A)'s decision, emphasizing that circulars in force during the relevant assessment years are to be applied, and subsequent circulars have no retrospective effect. The Tribunal cited precedents to support its decision, including the Hon'ble Bombay High Court's ruling in BASF (India) Ltd. vs. W.Hasan,CIT. The Tribunal also referenced the decision in the case of M/s. Siemens Aktiengesellschaft, where it was held that the withdrawal of circulars would be effective only from the date of withdrawal. The Tribunal concluded that the assessee was not liable to deduct tax at source under Section 195, and the appeal filed by the Revenue was dismissed.

In conclusion, the Tribunal's decision favored the assessee, ruling that the commission paid to the foreign agent was not taxable in India and therefore not subject to TDS under Section 195. The judgment highlighted the importance of applying circulars in force during the relevant assessment years and upheld the principle that subsequent circulars do not have retrospective effect.

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