2017 (2) TMI 1416 - HC - Income Tax

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 ... TDS u/s 195 - commission payments made by way of demand drafts and sent through medium of couriers to a non-resident abroad, are remittances deemed to have been received in India, by virtue of Section 5(2)(a) - HELD THAT:- As decided in SRIRAM REFREGERATION INDUSTRIES VERSUS INCOME-TAX OFFICER [2014 (4) TMI 277 - ANDHRA PRADESH HIGH COURT] this Court held that in the absence of a contract between a foreign bank and a bank in India, the bank cannot be taken to be acting as an agent. Therefore, the first question of law has to be answered against the appellant/Revenue, since Section 195 itself is not applicable in such cases. Income accrued in India - Commission payments were made in the books of accounts of the assessee maintained in India, the commission payments would be deemed to have been received in India - HELD THAT:- The decision of the Supreme Court in Commissioner of Income Tax, A.P. Vs. Toshoku Limited [1980 (8) TMI 2 - SUPREME COURT] . It was held therein that the making of entries in the books of accounts of the assessee cannot be taken to be the receipt, actual or constructive by non-resident sales agents, as the amounts so credited in their favour were not at their disposal or control. Therefore, the second question of law is also answered against the appellant/Revenue. 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.