TaxTMI 
TaxTMI 
2001 (5) TMI 164
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....o Esopelli & Co., SAS, Italy. The Assessing Officer was of the view that the assessee ought to have deducted tax at source under chapter XVIIB of the I.T. Act on the sum payable outside India and as there was default in regard to tax deduction the commission amount was not deductible as provided in section 40(a)(i) of the Act. The Assessing Officer did not accept the assessee's explanation that the entire services had been rendered by the foreign party outside India and that there was no income arising in India on which tax was deductible as provided in Chapter XVIIB, and that in any case the remittance outside India had been made with the permission of the Reserve Bank of India. Accordingly in the assessment the Assessing Officer added back the sum of Rs. 15,09,290 under section 40(a)(i). The CIT(A) concurred with the Assessing Officer and held that the assessee ought to have deducted tax on the sales commission remitted outside India and that in view of the default, section 40(a)(i) was to be applied and so the disallowance was in order. Aggrieved with the order of the appellate authority confirming the disallowance, the assessee has filed this appeal before the Tribunal. 4. O....
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....of the assessee. Reliance was placed on the Circular No. 163 issued by the Central Board on 29-5-1975 clarifying that no income would be deemed to accrue or arise in India through or from operations which were confined to purchase of goods in India for the purpose of export. Further the mere existence of an agency established by a non-resident would not be sufficient to make the non-resident liable to tax if the sole function of the agency was to purchase goods for export. Reference was also made to the Circular No. 786 issued subsequently on 7-2-2000 with the contention that the question of deduction of the tax at source under section 195 would arise only if payment of commission to the non-resident was chargeable to tax in India. According to Sri Narayanaswamy, if the assessee found that sum payable to the non-resident was not chargeable to tax there was no need for deduction under section 195. For that proposition he relied on a decision of the ITAT, C-Bench, Mumbai in the case of Srikumar Poddar v. Dy. CIT [1997] 59 TTJ (Mum.) 304. It was stated that in the earlier years also the assessee had remitted sales commission outside India but there was no disallowance made under secti....
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....ssessing Officer under section 195(2) for determination of the income, if any, on which tax was to be deducted. The ld. D.R. added that in this case the assessee had not made an application under section 195(2) for determination of the taxable income of the non-resident. He contended that if every person remitting money outside India was determining on his own that no tax was to be deducted on such remittances, the very purpose of section 195 would be defeated and then there would be huge loss to the country. Sri. Babu also referred to the decision of the Hyderabad Bench of the Tribunal in the case of Cheminor Drugs Ltd. v. ITO [2001] 76 ITD 37. It was stated that in that case the Tribunal had held that a person making payments to a non-resident could not take a unilateral decision that the amount was not chargeable to Income-tax and so the payment could be made without deduction of tax at sources, without the concurrence of the Assessing Officer as provided in section 195(2). Drawing our attention to the assessment order, the ld. D.R. submitted that though the Assessing Officer wanted the assessee to show that the non-resident had no office in India and they had also not rendered ....
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....utside India. Section 195 requires that any person responsible for paying to a non-resident any interest (not being interest on securities) or any other sum chargeable under the provisions of the Act (not being income chargeable under the heads 'salaries' or 'dividends') shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by any other modes whichever is earlier, deduct income-tax at the rates in force. The Assessing Officer took the view that tax was deductible under section 195 on the commission payable to the non-resident and so in view of the default, the same was disallowable under section 40(a)(i). The proposition strongly canvassed before us by the ld. Representative Sri Narayanaswamy is that the liability to deduct tax under section 195 would arise only if the sum was chargeable to tax under the provisions of this Act' and that if the sum was not chargeable under the provisions of the Act, there was no obligation on the payer to deduct tax. We are in agreement with the ld. Representative of the assessee that for settling the dispute in this case what is to be considered is whether the sum of Rs. 15,09,290 was c....
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....ding to other matters relating to the sales. All such activities could have been conducted outside India only. In other words, the non-resident did not carry out any operations in India to entitle them for the sale commission. If that is the case, then no part of the income by way of sales commission would be attributable to any operations in India and in that sense it would not qualify as income deemed to accrue or arise in India. In the case of Toshoku Ltd. relied on by the ld. Representative, the assessee exported tobacco to Japan and France through non-resident sales agents. The question was whether the commission earned by the non-resident sales agents could be taxed in India, treating the assessee as a representative assessee under section 161 of the I.T. Act. In deciding the matter in favour of the assessee, the Supreme Court held as under: "The non-resident did not carry any business operations in that taxable territories, they acted as selling agents outside India. The receipt in India of the sale proceeds of tobacco remitted or caused to be remitted by the purchasers from abroad did not amount to an operation carried out by the non-resident, in India as contemplated by....
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.... outside India becomes allowable expenditure. On being appraised of this position, the Controller & Auditor General has agreed to drop the objection referred to above. 3. The contents as above should be brought to the notice of all the officers in your region." Regarding the relevance of the circulars issued by the Department, this is what the Supreme Court held in Paper Products Ltd. v. CCE [2001] 247 ITR 128- "Apart from the fact that the circulars issued by the Central Board of Customs and Excise in exercise of its power under section 37B of the Central Excise Act, 1944, are binding on the Department, the Department is precluded from challenging the correctness of the said circulars even on the ground of the same being inconsistent with the statutory provision. So far as the Department is concerned, whatever action it has to take, the same will have to be consistent with the circular which is in force on the relevant point of time." When the Board's Circular says that no tax is deductible u/s 195 and consequently the expenditure on export commission and other related charges payable to a non-resident for services rendered outside India is allowable expenditure, the A....
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....onfirming you the sale made for your account, as agents only" of the following goods: Buyers: Ms. New Pel S.P.A.-Via Orme 200, Martignana (F1) Mark "I.P.G." Description of goods:No. 2.100 Leather Garments, out of which: -------------------------------------------------------------------------------------- Sizes ---------------------------------------------- 46 48 50 52 54 56 58 ---------------------------------------------- Model 1625L Col. 690&....
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....t M/s. Esopelli s.a.s., Empolli, by the negotiating bank at the time of negotiating the bills." Air way bill must be consigned to the L/C opening Bank and notify the Buyer. Insurance: To be covered by Buyer. Arbitration: As per condition of International Hide & Skin Contract N "I" come per to condizioni del "Contrallo Internationate N "I". -------------------- ---------------------- --------------------- Sd. Sellers Sd. Agent Sd. Buyers." It can be seen from the above that it was for the sales made through M/s. Esopelli that they were paid commission at 5%. There is no basis for the view taken by the Assessing Officer that all the services were rendered by the resident M/s. Babu & Co. In the circular No. 163 issued by the CBDT on 29-5-1975 it i....