TaxTMI 
TaxTMI 
2014 (10) TMI 748
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.... appeal are that the respondent is engaged in the business of manufacturing of insulators and bushings and is a limited company incorporated under the Companies Act. The short controversy relates to payment of commission made by the respondent-Company to (1) M/s Alavabond Ltd, London amounting to Rs. 3,17,93,218/-; (2) M/s Jacob & Jacob S.A. De C.V., amounting to Rs. 32,75,683/-; (3) M/s Trafalghar Trading FZC, Sharjah (UAE) amounting to Rs. 2,53,89,798/- and liability to deduct TDS thereon. While the claim of the respondent-assessee is that it relates to payments of commission to non-resident agents and in view of the circular of the Central Board of Direct Taxes, bearing No.786 dated. 07/02/2000, it was not required to deduct tax at sourc....
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....s 40(a)(ia) of the Act. 3. Dissatisfied with the disallowance us/ 40(a)(ia) and on account of business expediency, the matter was carried in appeal before the Commissioner of Income Tax (Appeals) (for short, "CIT(A)"), who was satisfied with the explanation offered by the assessee and the CIT(A) not only deleted disallowance of commission by holding that the assessee has been able to justify the payments on account of business expediency to the agents aforesaid but also held that in view of the circular No.786 dated 07/02/2000, which was in force during the previous year relevant to the year under appeal, there was no liability of the assessee to deduct tax at source u/s 195 of the Act and accordingly he was of the view that provisions o....
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....lar No.7 dt.22/10/2009, which was brought in by the Central Board of Direct Taxes on 22/10/2009, was applicable in the facts of the present assessee because the assessment was made by the AO on 31/12/2009 by which time the circular came into force and according to him it was applicable to all pending assessments as the said circular came into force immediately. He further contended that there was liability to deduct tax at source by the assessee of the commission payments to the foreign agents under Section 195 and since tax was required to be deducted at source and was not deducted, the AO was well within the provisions of law to disallow the entire amount under Section 40(a) (ia) of the IT Act. He also contended that the assessee was unab....
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....ion of tax at source under section 195 would arise if the payment of commission to the non-resident agent is chargeable to tax in India. In this regard attention to C.B.D.T Circular No.23 dated 23rd July, 1969, is drawn, where the taxability of "Foreign Agents of Indian Exporters" was considered along with certain other specific situations. It had been clarified then that where the non-resident agent operates outside the country, no part of his income arises in India. Further, since the payment is usually remitted directly abroad it cannot be held to have been received by or on behalf of the agent in India. Such payments were therefore held to be no taxable in India. The relevant sections, namely, section 5(2) and section 9 of the Income-ta....
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....e taxed in other contracting State in case the enterprise of a contracting State is having a permanent establishment in other contracting State and it has never been a case admittedly of the revenue that the aforesaid non-resident companies/entities are having their permanent establishment in India. The Circular No.786 dt. 07/02/2000 governs the case of the respondent-assessee as the year involved is the assessment year 2007-08 and in our view, the Circular No.7 dt.22/10/2009, which came into force from 22/10/2009, cannot be said to be applicable in the facts of the instant case or can be said to be retrospective in nature or even clarificatory in nature. 9. Though the ld. officer argued that huge payments to the tune of about Rs. 6 cror....