TaxTMI 
TaxTMI 
2015 (11) TMI 575
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.... The solitary issue arising for consideration is related to disallowance of commission payment of Rs. 78,46,489 to foreign agents by applying the provisions of section 40(a)(i) of the Income-tax Act, 1961. 3. Briefly the facts are, the assessee an Indian company is engaged in the business of manufacture and sale of high value technically advanced flexible disc couplings. For the assessment year under consideration, the assessee filed its return of income declaring total income of Rs. 31,95,37,980. During the assessment proceeding, the Assessing Officer while verifying the financial statements, noticed that the assessee has claimed expenditure towards commission payment to some foreign agents as under : (Rs.) (i)....
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....ents to even non-residents. The Assessing Officer, in this context, relied upon the decisions of the Authority for Advance Rulings (AAR) in the case of SKF Boilers and Driers Pvt. Ltd., In re (AAR Nos. 983-984 of 2010, February 22, 2012) [2012] 343 ITR 385 (AAR) and in the case of Rajiv Malhotra, In re [2006] 284 ITR 564 (AAR) wherein it was observed that the expression "accrue" or "arise" occurring in section 5 of the Act would mean income is said to accrue or arise when the right to receive it comes into existence. Therefore, the commission paid to non-resident agents would be deemed to accrue or arise in India. Accordingly, the Assessing Officer applying the provisions of section 40(a)(i) disallowed the commission payment of Rs. 78,46,48....
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....there is no requirement to deduct tax under section 195 of the Act. The learned authorised representative submitted, reliance placed by the Departmental authorities on the decisions of the Authority for Advance Rulings is also not correct as those decisions cannot be said to be laying down the correct proposition of law. The learned authorised representative specifically referring to the decisions of the Authority for Advance Rulings in the case of Rajiv Malhotra, In re [2006] 284 ITR 564 (AAR) submitted before us, while coming to its conclusion the Authority for Advance Rulings has completely overlooked the provisions contained under Explanation 1 to section 9(1). The learned authorised representative submitted that the issue in dispute is....
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....only were carrying on their business activities outside India, but, the commission payments were also related to services provided by those agents outside India. It is also not disputed that none of the commission agents have any permanent establishment or permanent business place in India. The Assessing Officer has also not disputed the fact that commission amounts were remitted to non-residents directly outside India. However, the Assessing Officer has held that the assessee is liable to deduct tax under section 195(1) on the reasoning that as per the decisions of the Authority for Advance Rulings, referred to by him, the income is deemed to accrue or arise in India when the right to receive it comes into existence. The learned Commission....
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....payments made to non-residents are not chargeable to tax under the provisions of the Income-tax Act, then, the provisions of section 195 would not apply. The hon'ble Supreme Court further observed that if the scope of section 195 is enlarged to that extent, then, it would result in a situation where, even though, the income will have no territorial nexus with India or is not chargeable in India, the Government would nonetheless collect taxes. In the present case, on a perusal of the assessment order or the order of the learned Commissioner of Income-tax (Appeals), we do not find any conclusive finding given by the authorities concerned that the payments made to non-residents are chargeable to tax under the Income-tax Act. Applying the p....