TaxTMI 
TaxTMI 
2014 (9) TMI 268
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....visions of section 40(a)(i) read with section 195 of the Act on the commission payments made to non-residents holding that assessee has not deducted TDS on the said payment and therefore, commission is not allowable as deduction under section 40(a)(i) of the Act. On appeal, Commissioner of Income Tax (Appeals) considering the submissions of the assessee and the case law relied on by the assessee deleted the disallowance holding that sales commission paid by the assessee to the non-residents is not chargeable to tax in India and consequently, assessees are not under any obligation to deduct TDS under section 195 of the Act on the commission payments and therefore, provisions of section 40(a)(i) have no application. Against the orders of Commissioner of Income Tax (Appeals) Revenue came up before us. 3. Departmental Representative vehemently supported the orders of Assessing Officer in disallowing agency/sales commission paid by the assessee to the non-resident agencies as assessees did not deduct TDS under section 195 of the Act. 4. Authorized Representative for the assessees submits that agency/sales commission paid by the assessees to non-resident agents for the services ren....
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....icated by the Hon'ble Income Tax Appellate Tribunal (A-Bench) of Chennai, vide its order in ITA Nos.359 & 360/Mds/2013 dated 11.04'.2013, in the cases . of M/s. Farida, Shoes (P.) Ltd. and M/s. Farida Prime Tannery P Ltd. In the said cases the payments made to the non-residents, without making TDS, were similar to those made by the assessee company. The Assessing Officer disallowed the said payments u/s.40(a)(i) for non-deduction of TDS u/s.195 of the Act. The CIT(A) allowed the appeals of the said companies. The Revenue preferred an appeals to the ITAT against the orders of the CIT(A). The Hon'ble Tribunal, vide its orders mentioned above, has held that the services provided by the concerned non-residents neither amounts to managerial/technical services nor the payments are assessable to tax in India and hence the provisions of sec.195 of the Act are not applicable to the facts of the said companies. The relevant portion of the order of the ITAT (in ITA No.159/Mds/2013 dated 11.04.2013 for A.Y. 2008-09 in the case of Farida Shoes (P) Ltd. is reproduced as under: "10. We have heard both sides, perused the materials available on record and cas....
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.... at source there from and as there was failure, said expenditure should be disallowed under section 40(a)(ia) - Whether when ETUK was not rendering any service or performing any activity in India itself commission income could be said to have accrued, arisen to or received by ETUK in India merely because it was recorded in books of assessee in India or was paid by assessee situated in India - Held, no - Whether for applying section 9. Assessing Officer was required to examine whether said commission income was accruing or arising directly or indirectly from any business connection in India - Held, yes -Whether since facts found by Assessing Officer did not make our a case of business connection as stipulated in section 9(1)(i), commission income could not be said to have accrued to ETUK in India and, therefore, assessee was not liable to deduct tax at source from payment of commission to ETUK - Held, yes [In favour of assessee]." 12. The Hon'ble Delhi High Court has considered the decision of the Hon'ble Supreme Court in the case of Transmission Corporation of Andhra Pradesh [1999] 239 ITR 587 and decided the issue in favour of the assessee." ....
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....ia. In the instant case, the commission payments to the non-resident agents are not taxable in India as the services are rendered abroad and the agents have no PE in India. Therefore, there is no requirement to deduct TDS on these payments. For this purpose reliance is also placed on the decision of Apex court in the case of GE India Technology Cen. (P.) Ltd. v. CIT [2010] 327 ITR 456 (SC) wherein it was held as under: * Section 195 of the Income-tax Act, 1961- Deduction of tax at source - Payment to non-resident - * Whether the moment a remittance is made to a non- resident, obligation to deduct tax at source does not arise; it arises only when such remittance is a sum chargeable under Act, i. e., chargeable under sections 4, 5 and 9 - Held, yes. Whether section 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 payment made is a composite payment in which certain proportion of payment has an element of 'income' chargeable to tax in India and pay....
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....he assessees to non-residents are not chargeable to tax in India, therefore provisions of section 195 are not applicable. On going through the above order of the Commissioner of Income Tax (Appeals), we find that in all these cases assessees paid sales commission to its non-resident agents for the services rendered by them outside India and the sales commission is not chargeable to tax in India so as to deduct TDS on such payments under section 195 of the Act. Therefore, respectfully following the decision of the Hon'ble Supreme Court in the case of GE India Technology Centre (P.) Ltd. (supra) and the above cited decision of the co-ordinate bench of this Tribunal, we sustain the order of the Commissioner of Income Tax (Appeals) in deleting the disallowance made under section 40(a)(i) of the Act. 7. The next common issue in the appeals of K.H. Arind P. Ltd. for the assessment years 2008-09 to 2010-11 is that Commissioner of Income Tax (Appeals) erred in restricting disallowance under section 14A read with rule 8D at Rs. 8,01,368/-, Rs. 3,89,364/- and Rs. 6,12,969/- as against disallowances made by Assessing Officer at Rs. 1,51,77,757/-Rs. 96,72,958/- and Rs. 67,35,349/- respe....
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....hat 10% of income from the firm should be considered as disallowance under section 14A of the Act observing as under:- "I have considered the assessee's submissions carefully. As could be seen from the balance sheets of the assessee company for various financial years, the total interest-free own funds of the assessee ranged from 42.95 crores (in F.Y.2002-03) to Rs. 50.20 crores (in F.Y.2011-12). Out of these amounts, the paid up share capital of the assessee company is only Rs. 1.20 crores and the balance is reserves and surplus from the accumulated profits over the years. These are the non-interest bearing own and free funds available with the assessee company. The investments in the partnership firm, in none of the years (starting from F.Y. 2002-03 to 2012-13) exceeded the amounts of above free funds available with the assessee company. The details of the of the interest free funds available with the assessee, the amount of packing credit availed and the amount of investments in the partnership firm are given in the above table. On the other hand, what the assessee borrowed during the financial years relevant to A.Ys. 2....
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.... in the partnership firm were nil as on 31.03.2012 and 31.03.2013. However, the packing credit loans availed by the assessee continued to be more or less same even during the F.Ys.2011-12 and 2012-13. This also shows that the packing credit was availed for the purpose of purchase of raw material and manufacturing the goods for export and it was not used for investing in the partnership firm. Hence the Assessing Officer is not justified in coming to the conclusion that the interest bearing funds, especially the packing credit loans, were utilized for the purpose of making investments in the partnership firm and invoking the provisions of sec. 14A of the Act. Further, as could be seen from the P&L accounts of the financial years ending on 31.03.2008,31.03.2009 and 31.03.2010, the total business receipts/income (from export sales, local sales and the export sale related incomes like duty draw back, exchange fluctuation etc) are Rs. 66.38 crores, Rs. 55.0 1 crores and Rs. 51. 98 crores, respectively. Other incomes like interest income, share of profit from the firm, etc are Rs.O.68 crares, Rs. 0.42 crores and Rs.O.88 crores, respectively, for the correspondi....
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.... 18,65,000 Audit Fees: As Auditors 1,90,000 1,75,000 1,75,000 For Income Tax Matters 60,000 50,000 50,000 For Others 11,350 10,000 33,484 Professional Charges 7,16,353 2,98,839 4,31,682 Membership, Subscriptions 82,820 45,976 57,156 Loss on Sale of Assets 2,09,099 20,130 - Donation & Charities 62,58,337 37,27,180 59,91,797 General Expenses 90,813 56,449 83,240 Exchange Fluctuation - 46,94,01 - Total 2,16,52,890 2,27,57,914 1,80,89,321 Perusal of the above details of the P & L account clearly showed that all the expenses debited except the administrative expense are relating to the manufacturing and export activities. Therefore, none of the expenses debited in the form of (i) Materials Consumed, (ii) Salaries and Wages, (iii) Manufacturing Expenses, (iv) Selling Expenses, (v) Interest and Bank Charges and (vi) Depreciation, are attributable to the investments in the partnership firm and the income (profit) generated therefrom. ....
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....ch are attributable to the manufacturing and export activities as well as the investments in the partnership firm, are hardly Rs. 22,06,724/-, Rs. 21,56,449/- and Rs. 30,52,163/-, respectively during the financial years 2007-08, 2008- 09 and 2009-10. The rest of the expenses, either in the form of administrative expenses, or under other heads, are no way connected to the investments in partnership firm either directly or indirectly. Hence the disallowance of expenses, if any, for the purpose of sec.14A should be out of the said expenses of Rs. 22,06,724/-, Rs. 21,56,449/- and Rs. 30,52,163/-only. The main activity of the assessee requiring much of the attention was manufacturing and export of the goods. The investment in the partnership firm (M/s. M.A. Khazir Hussain & Sons, a group concern) is only an occasional affair and does not require any attention of either the man power or the infrastructural facilities of the assessee company. The process involved in the said investment in the partnership firm (M/s. M.A. Khazir Hussain & Sons) is only regarding deployment and/ or withdrawal of funds in the firm. This is the decision making process involving the management (directors). Furt....