TaxTMI 
TaxTMI 
2015 (3) TMI 399
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....3,28,679 was claimed as deduction under the head "provision for doubtful debts which was disallowed in the previous year relevant to A.Y. 2007-08, now allowed on bank's approval for write off". The undisputed facts are that this balance pertained to a customer M/s. Starky & Associates located in U.S.A., from whom recovery had to be made in foreign exchange. Out of the sum of Rs. 1,33,28,679/-, Rs. 1,29,96,647/- represented the amounts due from the customer and balance Rs. 3,32,032/- is the corresponding credit allowable under the Duty Entitlement Pass Book Scheme (DEPB Scheme) which was taken credit on accrual basis at the time of effecting the exports, but could not be realised as export collections were not realised. 4. In that year (AY 2007-08), consequent to the above finding, this sum was fully provided for by debiting the profit and loss account (through the expense ledger) and crediting provision for doubtful debts. However, the debt in the party's a/c. was not written off as this pertained to export debts and certain approvals were required before the same could be written off. This provision for doubtful debts (credit balance) was reflected as a negative figure (dedu....
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....tatements for the period ending on the said balance sheet date." So, if these two conditions are satisfied, adjustments are to be made to the accounts for the period ending on the said balance sheet date for such events despite the fact that they occur after the balance sheet date. 9. Considering that both the balances of the debtor and of the provision (of equal amounts) were in the accounts as at 31st March, 2009 prior to the adjustment under dispute, according to the Assessee it was clear that such approval materially affected the determination of the amounts in the accounts as at that date. Moreover the approval specifically mentioned the date of write off as 31st March 2009. The approval, thus, attains the character of an event occurring after the balance sheet date warranting an adjustment in the accounts as on the balance sheet date. In fact, had this adjustment not been made, the truth and fairness of these figures in the financial statements could have come into question apart from noncompliance with the statutory approval. 10. The amount was thus written off by debiting the provision and crediting the debtor as at 31st March, 2009 without a debit to the profit an....
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....or doubtful debts account, the debts had not been written off in the debtors account. The provision for doubtful debts was, however, reduced from the figure of debtors in the balance sheet. This may amount to a technical write off in the books of account in the A.Y. 2007-08. The point, however, that needs to be taken note of is that the assessee did not claim the bad debts as a deduction in the computation of total income. The assessee added the bad debts written off in the A.Y. 2007-08 to the profit as per the profit & loss account in the computation of total income. In the previous year relevant to A.Y. 2009-10, there has been a write off in the debtors account and this should be sufficient to claim the deduction u/s. 36(1)(vii) of the Act. As far as the approval of Syndicate Bank for write off of the debts is concerned because the assessee was a non-resident, we find that the bank had given approval for write off of the debt as bad debt by its letter dated 21.4.2009. The letter of the Bank permits the write off of the debt as on 31.3.2009. On the one hand, the Revenue takes a stand that write off cannot be permitted unless the competent authority (which is the Bank in the presen....
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....relevant to A.Y. 2009-10. This should be sufficient for the Revenue to allow the claim of assessee us/. 36(1)(vii) of the Act. For the reasons given above, we direct the AO to allow claim of the assessee for deduction for the amount of bad debts. Disallowance of payments to non-residents (Rs.25,46,796) 23. The next issue that arises for consideration is with regard to the disallowance of Rs. 25,46,796 which was claimed as a deduction by the assessee under the head 'agency commission' u/s. 40(a)(i). The facts with regard to the aforesaid issue are as follows. In the relevant previous year, the assessee made payments of export commission to its various nonresident agents as follows:- Name of the Agent Country Amount (Rs.) Arredare Duo Textiles Glanvill Furnishings Goule Commercial In Common Nuera Trading Ltd. Overseas Marketers Tummers Interior Taxtiles Zanav USA Inc (Reversal) Spain South Africa U.K Brazil Sweden New Zealand Ausralia Netherlands U.S.A 3,05,854 6,97,345 3,16,712 1,11,677 6,78,030 1,88,719 1,94,086 59,418 (5,042) Total 2546796 24. The AO called upo....
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.... source u/s. 195(1) on commission payment definitely arose. As per Explanation 2 of section 195, obligation to comply with section 195(1) and to make a deduction is applicable and to be extended on all persons, resident or non resident even if the non resident has no residence or place of business or business connection in India, or any other presence in any manner whatsoever in India. 27. The CIT(A) noted that in the instant case, these non-residents definitely had business connection in India. According to him, even if it was assumed for a moment, that these payments are not through business connection and that these parties do not have a residence or place of business in India or 'Permanent Establishment' (as claimed in the grounds of appeal) in India, still, in view of Explanation 2 of Section 195, the assessee had an obligation to deduct tax at source from the said payments. 28. The CIT(Appeals) accordingly confirmed the order of the AO. 29. Aggrieved by the order of CIT(Appeals), the assessee has filed the present appeal before the Tribunal. 30. The ld. Counsel for the assessee submitted that the facts regarding the transactions are as follows:- (1) Agreements ....
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....)(i) reveals that it does not cover agency commission of the nature under consideration here and that, only if it arises from any business connection in India or from a source in India, such commission would attract the charge of income tax. 35. In concluding that the source of the commission is in India, the learned CIT (A) has presumed that the source of this commission income is the principal (the assessee). The ratio applied by the learned CIT(A) is that the commission income arises only because of the principal granting the agency rights to the agent and finally making the sales. The learned CIT(A) has concluded, therefore, that the source is the sale contract arising from the principal and that the source is, therefore, within India. It was submitted that this conclusion is erroneous and deserves to be struck down. The commission is consideration for the services rendered by the agent in identifying customers and obtaining orders for the principal. The source of this commission income, therefore, lies in the markets in which these services are being rendered. Considering that these services are rendered in markets outside India, the source of this commission income is clea....