TaxTMI 
TaxTMI 
2012 (10) TMI 431
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.... Any other ground that may be urged at the time of hearing before the Tribunal." 3. Ground Nos. 1 and 5 are general in nature and they do not require any adjudication. 4. The sole issue arising for consideration is whether commission paid to non resident agents is chargeable to tax under the Act thereby necessitating deduction of tax at source u/s 195(1) of the Act. 5. Brief facts are the assessee is engaged in manufacture and sale of cotton and synthetic yarn. In course of the assessment proceedings, the AO found that the assessee has paid an amount of Rs.80,50,703/- to non resident agents without deducting tax at source. The AO therefore disallowed the entire amount u/s 40(a)(i) and added it to the total income. The assessee challenged the addition before CIT (A). The CIT (A) deleted the addition relying upon his order passed in case of M/s Newland Laboratories Limited. The CIT (A)'s order was challenged in appeal before the ITAT. The ITAT set aside the issue to the file of the AO with the following direction:- "In respect of the payment of commission, each case depends upon its own facts. The revenue authorities are expected to examine the agreement entered into in e....
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....em. Relying upon a decision of the Hon'ble Calcutta High Court in case of Indian Aluminium Co. Vs. CIT (140 ITR 114), the assessee contended that purchasing DDs from Banks in Hyderabad and sending them through courier will not lead to the inference that commission was paid in India. The CIT (A) on examining the terms of the agreement between the assessee and non-resident agents found that there is nothing in the agreement stipulating the mode or manner of payment like DDs are to be purchased in India . There is also nothing on record to suggest that the non resident agents have requested the assessee to purchase DDs in India and send them through courier. The CIT (A) came to the conclusion that when there is no such stipulation in the agreement, the AO unilaterally cannot presume that DDs were purchased in India and sent through courier at the request of the non resident agents. The CIT (A) relying upon the decisions of the ITAT, Hyderabad Bench in ITA No.692 and 693/Hyd/200 dated 24-8-2007 in case of Dr. Reddy's Laboratories vs. JCIT and in ITA No.84-85/Hyd/02 dated 30-5-2008 in case of DCIT vs. Hyderabad Industries Limited came to hold that no disallowance can be made u/s 40(a....
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....sion agents. (vi) When the commission payment was not chargeable to tax in India no disallowance could be made u/s 40(a)(i) even if no application has been made u/s 195 (2) or u/s 195(3). The learned AR also relied upon the decisions of the ITAT, Hyderabad Bench in case of Addl. CIT vs. Dr. Reddy's Laboratories and DCIT vs. Hyderabad Industries Ltd., (supra). 9. We have heard rival submissions and perused material available on record. We have also gone through the written submissions filed by the learned AR of the assessee. 10. At the outset, certain provisions of the Act needs to be looked into section 40(a)(i) reads as under:- "40 Not withstanding ............. (a) In the case of any assessee - (i) Any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938) royalty, fees for technical services or other sum chargeable under this Act, which is payable A. Outside India - B. In India to a non resident, not being a company or to a foreign company, On which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during the previous yea....
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....cting state shall be taxable on in that state unless enterprise carries on business in the order contracting state through permanent establishments also requires consideration. The AO has not established the fact on record that any one of the non resident agents is carrying on business through a permanent establishments. Therefore, when the commission paid to the non residents are not chargeable to tax under the provisions of the Act, no deduction of tax is required to be made u/s 195(1) of the Act. 13. The reasoning of the AO that since the DDs have been purchased from banks in India and have been sent through courier, the payment of commission deemed to have been paid in India is also not acceptable. It is worth noting that earlier while the ITAT has set aside the assessment to the file of the AO, a clear direction was given to find out whether the payment has been made in India at the request of the foreign agents. We find that the AO has failed to bring any material on record to show that the payments were made to the non resident agents in India at the request of the foreign agents. The ITAT, Hyderabad Bench in case of Dr. Reddy's Laboratories (supra), by relying upon Circu....