TaxTMI 
TaxTMI 
TaxTMI 
2013 (9) TMI 232
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.... that "Sec.195(2) is not a mere provision to provide information to ITO(TDS) so that department can keep track of remittances being made to non residents outside India; rather it gets attracted to cases where payments made is a composite payment in which certain proportion of payment has an element of income chargeable to tax in India and payer seeks a determination of appropriate proportion of sum chargeable. 2.2 It is submitted that the Apex Court in the case of MIs. Transmission Corporation of AP Ltd. v. CIT (239 ITR 587) held that the assessee who makes payments to non residents under contract entered into is under obligation to deduct tax at source u/s.195 and the obligation is limited only to appropriate proportion of income chargeable under the Act; 2.3 It is submitted that the assessee did not submit any application for non deduction of tax at source before the TDS authorities and it is not open to the assessee to assume the provisions of Act on the payments made to non residents suo moto and say that no part of income accrue or deemed to accrue in India; 2.4 It is further submitted that payments made to non residents at abroad is the commission for the services rende....
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....jection of the appeal: CIT v. Eon Technology P. Ltd. [2012] 343 ITR 366 (Del) Armayesh Global v. ACIT [2012] 32 CCH 159 (Mum. Trib.) DCIT v. Sanjiv Gupta [2011] 135 TTJ 641 (Lucknow) ACIT v. Modern Insulator Ltd. [2011] 140 TTJ 715 (Jaipur). We have heard both sides at length and perused the assessment order, CIT(A)'s order as well as other material on record produced during the course of hearing. 5. Admitted facts of the case are that the assessee is a company. It is engaged in the business of manufacturing and export of textile garments. On 28.09.2009, it had filed its 'return' declaring income of Rs. 92,88,070/-. Owing to merger duly approved by the Hon'ble Jurisdictional High Court and change in its name, the assessee also preferred to file a revised 'return' on 30.03.2010. This time the income stood at Rs. 1,30,71,350/-. 6. In the previous year relevant to the impugned assessment year, the assessee had paid an amount of Rs. 3,74,09,773/- to an Italian entity by name of B & T SRL., without deducting any TDS. Per Assessing Officer, the same attracted application of section 195 of the "Act". On this, the assessee pleaded that payee/agent did not....
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....erms of such orders and contracts with said foreign buyers but the terms thereof shall be subject to prior written concurrence of the appellant. (ii) To carry out systematic research with regard to the needs of the products in the territory and to send to the appellant reports and suggestions for adopting necessary measure in order to increase sale of the products. (iii) To coordinate with the appellant for the timely completion of all export obligations and to render all assistance in the fulfilment of the terms of the supply contract. (iv) To take all necessary efforts and ensure timely payment by the buyers for all exports performed by the appellant which have been negotiated by the foreign agent. (v) To render all other assistance to the appellant and its representatives while on visits to the territory and to make available the agency office for all secretarial and other assistance. 4.5 As seen from the agent obligations, it is clear that the agent was rendering the services with respect to the order to be executed by the appellant. The appellant exports the readymade garments as per the orders procured by the foreign agent. With regard to the systematic market resea....
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....ection 9 of the Income tax Act, 1961 refers to the deemed income to accrue or arise in India whether is applicable to the commission paid to British parent / holding company ETUK on sales and amounts realized on export contracts procured by ETUK for assessee. The AO held that commission income earned by ETUK had accrued in India or was deemed to have accrued in India and therefore the assessee was liable to deduct tax at source and as there was no failure, the said expenditure should be disallowed u/s 40(a}(ia). The Court held that for applying Section 9, the AO was required to examine whether said commission income was accruing or arising directly or indirectly from any business connection in India. Since the facts found by the AO did not make out a case of business connection as stipulated in Section 9(l)(i), the commission income could not be said to have accrued from ETUK in India and, therefore, the assessee was not liable to deduct tax at source from payment of commission to ETUK. Similarly, in the case of the appellant, the AO has not brought any fact on record to say that the income to the foreign agent has accrued or arisen in India directly or indirectly from any business....
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.... High Court in Samsung Electronics Limited case in the case of GE India Technology Cen.(P) ltd. v. CIT [2010] 3271TR 456 (sq. The ITAT, Mumbai 'D' Bench in the case of DICT Range-7(2), Mumbai v. Rediff.com India Limited in Appeal No.3061 (Mum.) of 2009 held that "As held by the Supreme Court in the case of GE India Technology Centre (P.) Ltd. v. OT [2010] 327 ITR 456/193 Taxman 234, tax deduction at source obligations under section 195(1) arise only if the payment is chargeable to tax in the hands of non-resident recipient. Therefore, merely because a person has not deducted tax at source from a remittance abroad, it cannot be inferred that the person making the remittance has committed a default in discharging his tax withholding obligations because such obligations come into existence only when recipient has a tax liability in India. The underlying principle is this. Tax withholding liability of the payer is inherently a vicarious liability, on behalf of the recipient, and, therefore, when recipient does not have the primary liability to be taxable in respect of income embedded in the receipt, the vicarious liability of the payer cannot but be ineffectual. This vicarious ....
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....co-ordinate with the FIRST PARTY for the timely completion of all export obligations and to render all assistance in the fulfillment of the terms of the supply contract. 4. To take all necessary efforts and ensure timely payment by the buyers for all exports performed by the FIRST PARTY which have been negotiated by the SECOND PARTY. 5. To render all other assistance to the FIRST PARTY and its representatives while on visits to the territory and to make available the agency office for all secretarial and other assistance." In the light thereof, the assessee would contend before us that the CIT(A) has rightly treated the services rendered by the foreign entity as market survey only, which does not partake the character of a 'technical' service. 10. We have given our thoughtful consideration to the rival contentions and perused the assessment order, CIT(A)'s order, paper book filed by the assessee, DTAA as well as agreement in question as available on record before us. In view of the different stands adopted by the parties, the issue which arises for our consideration is as to whether the 'systematic research' giving rise to payment in question made by the a....
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....in India.]" A combined reading of the above provision makes it clear that for the purpose of applicability of section 9, sub-section 1(i) prescribes that the income would be deemed to accrue and arises in India, whether directly or indirectly, if it is through or from any business connection. Then, in sub-section (1)(vii) income by way of 'fee for technical services' is defined. In other words, section 9(1)(i) is a general provision whereas, clause (vii) is in the nature of specific provision. Thereafter comes the Explanation substituted by the Finance Act, 2010 with retrospective effect from 01.06.1976. This explanation makes it categoric that in cases covered by clause (vii) or for that section 9, sub-section (1)(vi) - (vii), it would not be necessary for the non-resident to have residence or place of business or business connection in India. To simplify, in case of 'fee for technical services', the mandate of the legislative is that clause (vii) would have overriding effect by virtue of aforesaid explanation to section 9(1)(i). 11. Proceeding on this analogy, now we deal with assessee's agreement. There is no issue between the parties that the assessee has ....