2023 (7) TMI 851 - AT - Income Tax

Tribunal upholds CIT(A)'s order on commission payments, finds not subject to TDS under Income Tax Act.

The Tribunal dismissed the Revenue's appeal and the assessee's cross-objections, upholding the CIT(A)'s order that admitted additional evidence and ... Admission of additional evidences by CIT(A) - application u/r 46A for admittance of additional evidence on the ground that the assessee was prevented by sufficient cause from producing the details / evidences / documents which were important for assessment before AO - HELD THAT:- The actual fact is that the assessee had filed Form 15CA for each of the transactions that was made outside the country. Veracity of evidence may not have direct linkage with the circumstance enumerated in Rule 46A(1)(a) to (d) yet the same evidence has lot of legal impact in deciding the issue involved in the appeal. Admittedly the Ld. CIT(A) has complied with the mandate of allowing reasonable opportunity to the Ld. AO as envisaged under sub-rule (3) of Rule 46A. Disallowance of claim of commission payment - Liability to deduct TDS for making payment to Non-Residents - withholding tax on “commission” payments made to two residents of Australia - HELD THAT:- AO completely disregarded the explanation of the assessee submitted to him vide reply emphasising therein that the recipient of commission were resident of Australia; had no PE in India; assisted the assessee in procuring service agreement with M/s. Tech Mahindra; received commission in foreign currency in Australia in lieu of services provided by them in Australia; income accrued to them outside India and cannot be deemed to have been accrued in India. Hence, their income is not liable for income tax in India. Therefore, no liability to deduct TDS arises thereto. It has been held in the following decisions that where payment of commission has been made by the assessee to non-resident agents for rendering services of procuring sales order etc. it was not FTS but business profit and in absence of PE of such agents in India, such commission payment was not taxable in India. Once we hold that the impugned payment by the assessee is not FTS the assertions made in the grounds of the Revenue do not have legs to stand. Moreover, these grounds do not arise out of the order of the Ld. CIT(A). We, therefore, reject them. Decided in favour of assessee. Issues Involved:1. Admittance of Additional Evidence under Rule 46A(1) of the Income Tax Rules, 1962.2. Disallowance of Commission Payment under Section 40(a)(i) and Section 37(1) of the Income Tax Act, 1961.3. Nature of Services Provided and Applicability of Fee for Technical Services (FTS) under Section 9(1)(vii) of the Income Tax Act, 1961.4. Cross Objection by the Assessee regarding the Admissibility of Evidence and Nature of Services.Summary:Issue 1: Admittance of Additional Evidence under Rule 46A(1) of the Income Tax Rules, 1962The Revenue contended that the CIT(A) erred in law and on facts by not adhering to Rule 46A(1), which restricts the production of additional evidence except under specific circumstances. The CIT(A) admitted additional evidence without proper justification and sent it to the AO for comments, which the Revenue argued was contrary to the rule. The Tribunal observed that Rule 46A(1) allows additional evidence under certain conditions. The assessee had filed Form 15CA, which was not initially requested by the AO. The CIT(A) admitted the evidence as it was crucial for the assessment, although reasons for admission were not recorded as required by sub-rule (2) of Rule 46A. However, such omission does not invalidate the admission of evidence. The Tribunal found no substance in the Revenue's grounds and rejected them.Issue 2: Disallowance of Commission Payment under Section 40(a)(i) and Section 37(1) of the Income Tax Act, 1961The AO disallowed the commission payment of Rs. 1,54,83,082 to two Australian residents, arguing that the assessee failed to withhold tax and that the services provided were not genuine. The CIT(A) deleted the disallowance, noting that the commission was paid for services rendered outside India, and no part of the service was provided in India. The CIT(A) found the transactions genuine, supported by Form 15CA and banking records. The Tribunal upheld the CIT(A)'s decision, noting that the payments were made for legitimate business purposes and were not disallowable under Section 37(1).Issue 3: Nature of Services Provided and Applicability of Fee for Technical Services (FTS) under Section 9(1)(vii) of the Income Tax Act, 1961The Revenue argued that the services provided by the agents contained elements of consultancy and thus qualified as FTS, making the payments taxable in India. The Tribunal disagreed, stating that the services were for marketing and procuring business, not consultancy. The Tribunal cited several decisions where similar payments were considered business profits and not FTS. Hence, the payments were not taxable in India, and no TDS was required under Section 195.Issue 4: Cross Objection by the Assessee regarding the Admissibility of Evidence and Nature of ServicesThe assessee's cross-objections supported the CIT(A)'s order, arguing that all necessary documents were provided, and the nature of services did not qualify as FTS. The Tribunal dismissed the cross-objections as infructuous since they were in support of the CIT(A)'s findings.Conclusion:The Tribunal dismissed the Revenue's appeal and the assessee's cross-objections, upholding the CIT(A)'s order that admitted additional evidence and deleted the disallowance of commission payments. The Tribunal found that the payments were for genuine business services rendered outside India and did not qualify as FTS, thus not attracting TDS under Section 195.