TaxTMI 
TaxTMI 
2016 (8) TMI 1153
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.... Chemicals India Pvt Ltd (ITA No 5/Ahd/16; order dated 29th June 2016). Learned counsel, however, hastens to place his reliance on the stand of the Assessing Officer, and that, in the present case, reliance has been placed on Section 9(1)(vii) rather than 9 (1)(i) as was the case in the Excel Chemicals (supra). 4. As learned counsel rightly points out, the issue, as to whether the commission paid to non resident agents could be disallowed when it was paid without deduction of tax at source under section 195, came up for consideration in the case of Excel Chemicals (supra). Rejecting the contentions of the revenue, the coordinate bench, inter alia, observed as follows: 3. To adjudicate on this appeal, only a few material facts need to be taken of. The assessee before us is a resident company engaged in the business of trading in chemicals. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has claimed deduction of Rs. 58,73,635 in respect of the commission paid, out of which sums aggregating to Rs. 51,79,355 were paid to be non-resident entities without any tax withholding at source. In response to the Assessing Offi....
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....ave included, "by means of", "in consequence of" and "by reason of". The claim of the assessee that the income did not accrue or arise in India was thus rejected. As regards the reliance on the certificate issued by the chartered accountant, certifying that no tax deduction at source was warranted from the remittances for commission, the Assessing Officer relied upon decision of the Tribunal, in the case of DCIT Vs Rediff.com India Limited [(2011) 47 SOT 310 (Mum)] in support of the proposition that such a certificate cannot be conclusive determination of taxability in the hands of the recipient. As regards all the judicial precedents cited by the assessee, the Assessing Officer rejected the same by observing that "various decisions cited by the assessee, CBDT circular no. 786 by way of new circular 7 of 2009 dated 22/10/2009 whereby all the payments to non-residents without deduction of tax at source have been withdrawn". On the basis of this line of reasoning, the Assessing Officer held that the commission paid to nonresident agents, amounting to Rs. 51,79,355, is to be disallowed under section 40(a)(i). Aggrieved, assessee carried the matter in appeal before the CIT(A) who delet....
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.... clearly fallacious. 6. As for the AAR ruling in the case of SKF Boilers (supra), on which so much reliance has been placed by the Assessing Officer, we find that this decision merely follows the earlier ruling in the case of Rajiv Malhotra (supra) which, in our considered view, does not take into account the impact of Explanation 1 to Section 9(1)(i) properly. That was a case in which the non-resident commission agent worked for procuring participation by other non-resident entities in a food and wine show in India, and the claim of the assessee was that since the agent has not carried out any business operations in India, the commission agent was not chargeable to tax in India, and, accordingly, the assessee had no obligation to deduct tax at source from such commission payments to the nonresident agent. On these facts, the Authority for Advance Ruling, inter alia, opined that "no doubt the agent renders services abroad and pursues and solicits exhibitors there in the territory allotted to him, but the right to receive the commission arises in India only when exhibitor participates in the India International Food & Wine Show (to be held in India), and makes full and fina....
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.... holding that given the undisputed and uncontroverted facts of this case, the nonresident commission agents were not taxable in India in respect of their commission earnings from orders procured abroad. 8. It is also now well settled in law that when the payment made to a non-resident does not have an element of income, tax deduction source requirements under section 195(2) do not come into play at all. Hon'ble Supreme Court, in the case of G E India Technology Centre Pvt Ltd Vs CIT [(2010) 327 ITR 436 (SC)], has inter alia observed as follows: In our view, Section 195(2) is based on the "principle of proportionality". The said sub-Section gets attracted only in cases where the payment made is a composite payment in which a certain proportion of payment has an element of "income" chargeable to tax in India. It is in this context that the Supreme Court stated, "If no such application is filed, income-tax on such sum is to be deducted and it is the statutory obligation of the person responsible for paying such 'sum' to deduct tax thereon before making payment. He has to discharge the obligation to TDS". If one reads the observation of the Supreme Court, the words "s....
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...., outside India, in procuring export orders for the assessee, would not attract or partake the character of "fees for technical services" as explained in the context of 9 (1) (vii) of the Act and therefore, there is no scope for the application of the provisions of Section 195 of the Act (Tax Deducted at Source). It is also contended that as the non-resident agents have neither business connection in India nor they have permanent establishment in India, they are liable to be taxed in India. 5.1 Yet another contention of the learned counsel for the assessee is that: (a) the assessee paid the amount by way of commission to foreign agents for the services rendered outside India; (b) the Tax Deduction at Source (TDS) is required to be made on all payments to non-residents, only if such payments are liable to be taxed in India. (c) following the decision of this Court, CIT v. Faizan Shoes (P.) Ltd. [2014] 367 ITR 155/226 Taxman 115/48 taxmann.com 48 (Mad.), the assessee is not liable to deduct tax at source, when the non-resident agent provides services outside India on payment of commission. 5.2 The contention of the Revenue is that such services are attracted by Expl....
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....e of the previous year in which such tax has been paid. Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.' (ii) Explanation 2 to Section 195(1) of the Act :- 'Section 195 - Other sums: (1) Any person responsible for paying to a non-resident not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) or section 194LD or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the r....
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....ss tax is paid thereon or is deducted therefrom under Chapter XVII-B of the Act. 7.3 Section 195(1) of the Act deals with deduction of tax from payment to non-residents and foreign companies. Section 195(1) of the Act comes into play at a stage where the payer, who is enjoined to deduct the tax, either credit such income to the account of the payee or make payment thereof, whether in cash/cheque/draft or any other mode. The taxability of such amount in the hands of the payee or occasioning of the taxable event is alien for the purpose of Section 195(1) of the Act. 7.4 Section 195(2) is an enabling provision, enabling an assessee to file an application before the Assessing Officer to determine the appropriate proportion of the sum chargeable and upon such determination, the tax has to be deducted under Section 195(1) of the Act. The payment is made credited to the account of the payee. 8. The question now is, whether the assessee ought to have deducted tax at source as contemplated under Section 195 of the Act, when the assessee paid commission to foreign agent. 9. This question has been answered by the Hon 'ble Supreme Court, in the case of G....
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....lved or consist in the development and transfer of a technical plan or design. The parties merely source the prospective buyers for effecting sales by the assessee, and is analogous to a land or a house/real estate agent/broker, who will be involved in merely identifying the right property for the prospective buyer/seller and once he completes the deal, he gets the commission. Thus, by no stretch of imagination, it cannot be said that the transaction partakes the character of "fees for technical services" as explained in the context of Section 9(1)(vii) of the Act. 12. As the non-residents were not providing any technical services to the assessee, as held above and as held by the Commissioner of Income Tax (Appeals), the commission payment made to them does not fall into the category of "fees of technical services" and therefore, explanation (2) to Section 9(1)(vii) of the Act, as invoked by the Assessing Officer, has no application to the facts of the assessee's case. 13. In this case, the commission payments to the non resident agents are not taxable in India, as the agents are remaining outside, services are rendered abroad and payments are also made abroad....
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....ountries, and required the assessee to show cause as to why this expenditure, which results in substantial and enduring benefits to the assessee, not be treated as capital expenditure. It was explained by the assessee that the expenditure is routine marketing expenses as it is mandatory to obtain registration of products in the countries in which these products are sold, and that, even after paying this registration fees-which is valid for a limited time period, the fees is required to be paid on recurring basis. The Assessing Officer, however, rejected this explanation, proceeded to treat this as an asset as the registration of product "entitles the assessee for a benefit of enduring nature in the form of marketing right (intangible asset) in that country", grant depreciation in respect of the same, and disallow the balance amount which worked out to Rs. 30,86,537. Aggrieved, assessee carried the matter in appeal before the CIT(A) who deleted this disallowance. The Assessing Officer is aggrieved and is in appeal before us. 10. Having heard the rival contentions and having perused the material on record, we find that this issue is now covered, in favour of the assessee, by Hon'b....