Court rules against Revenue on commission payments via Indian banks. No contract = no agency. Books /= control.

The court ruled against the Revenue on both issues raised regarding commission payments made to agents through banking channels in India. It was determined that without a contract between a foreign bank and an Indian bank, the latter cannot be considered an agent, leading to a dismissal of the appeal. The court also found that entries in the books of accounts do not imply control or disposal of amounts by non-resident agents, resulting in a ruling against the Revenue on this matter as well. Consequently, both appeals were dismissed, and any pending miscellaneous petitions were also dismissed without costs.

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Issues:
1) Whether the Appellate Tribunal was justified in deleting the addition made under Section 40(a)(i) of the Income Tax Act for commission payments made to agents through banking channels in India.
2) Whether the Appellate Tribunal was justified in upholding the applicability of Circular No.786, dated 07.02.2000, for remittances made through banking channels in India to banks acting as agents of the payee abroad.

Analysis:
1) The Assessing Officer raised two issues against the assessee regarding commission payments: a) whether payments made by demand drafts to a non-resident abroad are deemed to have been received in India, and b) whether entries in the books of accounts maintained in India constitute receipt in India. However, the court found these conclusions contrary to established law. Citing the case of Sriram Refrigeration Industries Vs. Income Tax Officer, the court determined that without a contract between a foreign bank and an Indian bank, the latter cannot be considered an agent. Therefore, Section 195 is not applicable in such cases, leading to a ruling against the Revenue on the first question of law.

2) The second question of law revolved around whether entries in the books of accounts constitute actual or constructive receipt by non-resident agents. The court relied on the decision in Commissioner of Income Tax, A.P. Vs. Toshoku Limited, where it was established that entries in the books do not imply control or disposal of the amounts by the agents. Consequently, the court ruled against the Revenue on the second question of law as well.

In conclusion, both appeals were dismissed based on the above analysis. Any pending miscellaneous petitions in the appeal were also dismissed, with no order as to costs issued.

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