TaxTMI 
TaxTMI 
2015 (5) TMI 709
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....ete the disallowance of export Commission of Rs. 92,14,509/-. (2) To delete the interest levied u/s 234A, B, C. (3) To delete the initiation of penalty u/s. 271(1)(c)." 2. Rival contentions have been heard and record perused. Facts in brief are that the assessee is engaged in exporting cotton yarn and trading in various types of fabrics in domestic markets. During the year under consideration assessee has made foreign remittance of Rs. 92.14.509/- by way of commission payment to foreign agents without deducting TDS on the same. Assessee was asked to show cause as to why TDS as per provisions of Section 195 of the IT Act was not deducted on such commission payment to foreign agents. The assessee vide its reply dated 12.11.2012 has stated as under:- "We would like to inform you that we are Government Recognized STAR EXPORT HOUSE selling Yam and Fabrics to 26 countries, across 5 continents. Also being merchant exporter, we outsource the material from various manufacturers. Hence, to do business, commission has to be paid to various Indian and Foreign commission agents Our foreign commission agents are Non-Residents, which do not have any Permanent Established or business connecti....
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....2009]. The ruling is based on the applicability of the provisions of sections 5(2)(b) and 9(1)(i). No reference to DTAA between India & Pakistan was made there as the applicant in that case did not contend that it was availing of benefits under the provision of the DTAA with Pakistan. The ruling in the case of Rajiv Malhotra (supra) had come however in the year 2006 when the said Circular 786 was in force but, the issue in that case was not the commission paid on export sales rather the issue was the payment of commission to foreign agents for mobilizing the foreign participants to take part into the 4th India Food a Wine Show organized by that applicant [in India]. Thus the Circular No. 786 was not applicable in the case of that applicant The AAR in that case, however had taken into account the various provisions contained in DTAA between India and the French Republic (the agents was from France] and had ruled that the taxability of commission income to a foreign agent was governed by Para 3 of Article 23 of that agreement which provided that the item of income of a resident of a contracting state not dealt with in the foregoing Articles and arising in other contracting state may ....
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....technical services, income could not be said to accrue or arise in India and thus, assessee was not liable to deduct tax at source while making payments to said agents. Similar view was taken by Chennai Bench of the Tribunal in the case of Dy. CIT v.Farida Prime Tannery (P.) Ltd. 64 SOT 145. 6. Learned AR also invited our attention to the decision of Hon'ble Supreme Court in the case of GE India Technology Cen. (P.) Ltd. v. CIT 327 ITR 456, wherein following was the observation of Hon'ble Supreme Court :- "Section 195 imposes a statutory obligation on any person responsible for paying to a non-resident any interest (not being interest on securities) or any other sum (not being dividend) chargeable under the provisions of the Act, to deduct income-tax at the rates in force unless he is liable to pay income-tax thereon as an agent. Payment to non-residents by way of royally and payment for technical services rendered in India are common examples of sums chargeable under the provisions of the income-tax Act to which the aforestated requirement of tax deduction at source applies q/. The tax so collected and deducted is required to be paid to the credit of the Central Governme....
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....rson responsible for making the payment to the non-resident is in no doubt that tax is payable in respect of some part of the amount to be remitted to a non-resident but is not sure as to what should be the portion so taxable or is not sure as to the amount of tax to be deducted. In such a situation., he is required to make an application to the ITO ('TDS) for determining the amount. It is only when these conditions are satisfied and an application is made to the ITO(TDS). that the question of making an order under section 195(2) will arise. While deciding the scope of section 195(2), it is important to note that the tax which is required to be deducted at source is deductible only out of the chargeable sum. This is the underlying principle of section 195. Hence, apart from section 9(1) sections 4. 5. 9. 90 and 91 as well as the provisions of the DTAA are also relevant, while applying tax deduction at source provisions. Reference to the ITO (TDS) under section 195(2) or 195(3) either by the non-resident or by the resident prayer is to avoid any future hassles for both resident as well as non-resident. Section 195(2) and 195(3) are safeguards The said provisions are of practica....
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....x Residency Certificates. More so when half of the transactions are entered into with agents of countries with whom India has no DTAA in such a scenario the proper course of action was to approach the assessing officer for determining the taxable portion. If the assessee has failed to do so then naturally TDS should have been deducted on the whole amount remitted whether or not the payments could be considered as FTS. 9. We have considered rival contentions, carefully gone through the orders of the authorities below and also deliberated on the judicial pronouncements cited before us in the context of factual matrix of the case. From the record we found that during the year assessee has paid commission to various non-resident foreign brokers amounting to Rs,92.14.509/- for rendering services outside India in relation to export orders and recovery of the sale proceeds. Nothing was brought on record by the AO to establish that the said non-resident brokers have their place of establishment in India because they were operating in their respective countries. The said non-resident brokers are not liable to any tax in India insofar as it is also not the case of Revenue that services were....