TaxTMI 
TaxTMI 
2016 (11) TMI 1150
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....n of Rs. 22,20,549/- paid to the non-resident foreign sales agents u/s.40(a)(i) of the Income Tax act, 1961, on the basis of wrong appreciation of the facts and the law. Your appellant submits that on the facts and circumstances of the case and in law and in any view of the matter, tax is not deductible at source on payment of commission made to foreign (non-resident)selling agents for services rendered outside India and the AO may be directed to delete the disallowance of Rs. 22,20,549/- made u/s.40(a)(i) of the Act." 3. The brief facts of the case are that the assessee filed the return of income declaring total income to the tune of Rs. 1,21,80,421/- on 30.10.2007. The return was processed u/s.143(1) of the Income Tax Act, 1961 ( in short "the Act") at the returned income. The case was selected for scrutiny. Notice u/s.143(2) of the act was issued on 05.08.2008 and served upon the assessee on 13.08.2008. Thereafter, the notice u/s.142(1) of the Act was also issued and served upon the assessee. The assessee is a firm engaged in the business of exports. Under the year of assessment, the assessee has paid overseas commission to the tune of Rs. 22,20,549/- and did not deduct TDS ....
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.... Middle East, South East etc. It exports the products like four wheeler engines, fuel pumps, and its spare parts for automobiles, trucks and tractors under the brand name "ARROW" It does not have any overseas office, neither any overseas staff. In export market there is always a cut throat competition from local as well as international traders and OEM suppliers. So these Commission Agents are imperative to work as representatives of the company and held in marketing the brand and products. They render following services: a) The company has developed its own brand "ARROW". It market various products as explained above, under this brand. The agent helps the company to popularize the brand and products. b) He gives us the overall demand position in that country and appraise us of the respective government policies, restrictions and requirements. c) Apart from that he gives valuable information about the competition, their products their strength and weaknesses. d) He coordinates with the existing customers for their periodical requirements, availability of ships, shipment schedules. e) He coordinates with customers and follows up for payment if and when required. f) He gives....
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....on is usually remitted directly to him and is, therefore not received by him or on his behalf in India. Such an agent is not liable to income tax in India on the commission. This view has been reiterated by the Board in Circular No.786 dt. 07.02.2009. d. Vide circular no.7 of 2009 the Board has withdrawn w.e.f. 22.10.2009 its circular no.23 of 1969, circular no.163 of 1975 and circular no.786 of 2000 these circulars only reiterated the principles laid down by the Supreme Court in R.D.Agarwal & Co. (56 ITR 20) and Toshoku Ltd. (125 ITR 525) for understanding the concept of 'business connection' and attribution of profits to a business connection. However, the decision of the Supreme Court in these cases cannot be nullified merely by withdrawal of the aforesaid circulars. e. Moreover, the circulars have been withdrawn w.e.f. 22.10.2009 and therefore it at all a view has to be taken that TDS is liable to be deducted from payment of commission to foreign agents irrespective of the conclusion whether any income has accrued or arisen in India, it can be applicable only to any payments made or effect after 22.10.2009. Further the circulars of the Board which are beneficiary in natur....
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....ase the services have been rendered outside India which is not liable to be taxable in India. Moreover, it is pertinent to subscribe the contents of the circular no.786 dated 07.02.2009 issued by CBDT which may clarify more in connection with the services rendered outside the India which is not liable to taxed in India, is hereby reproduced below:- Subject: Deduction of tax u/s.195 and the taxability of export commission payable to non-resident agents rendering services abroad - clarification regarding: In the Audit Report for 1997-98 (D P No.79 (I.T). The Comptroller and Auditor General (C &AG) raised an objection that the Assessing Officer in computing the Profits and Gains of Business or Profession, in a case in Mumbai charge, had wrongly allowed a deduction in respect of a payment to a nonresident where tax had not been deducted at source. The nature of the payment in this case was export commission and charges payable for services rendered outside India. In the view of C&AG the expenditure should have been disallowed in accordance with the provisions of section 40(a)(i) of the Income Tax Act, 1961. It has come to the notice of the Board that a similar view, on the same set ....
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....bmits that on the facts and circumstances of the case and in law and in any view of the matter, tax is not deductible at source on payment of commission made to foreign (non-resident)selling agents for services rendered outside India and the AO may be directed to delete the disallowance of Rs. 18,59,299/- made u/s.40(a)(i) of the Act." 2. The CIT(A) erred in confirming the disallowance made by the AO in respect of payment of freight charges for the shipment of goods from the Ports in India to the destinations outside India to the non-resident shipping companies and / or their agents in India to the extent of Rs. 7,35,614/- u/s. 40(a)(ia) of the Act on the ground that tax was not deducted at source in respect of these payments. Your appellant submits that no tax was deductible at source on the basis of the declaration given by these companies relying on circular no.723 dt. 19.09.1995 issued by CBDT and applicable to these companies who are assessed to tax u/s.172 of the Income Tax Act. Your appellant therefore submits that the AO may be directed to allowed the deduction of Rs. 7,35,614/- as claimed." 11. The facts of the present case are quite similar to the above said ITA N....