TaxTMI 
TaxTMI 
2017 (5) TMI 909
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....on of bills etc outside India and CIT (A) erred in confirming the addition without appreciating the fact that: *Agent is a non-resident. *Agent is operating his business activities outside India. * The commission paid related to services provided outside India. *The agent does not have any permanent establishment or permanent business place in India. * The commission was remitted to the agent directly outside India. All the above conditions bring to a reasonable conclusion that the commission paid in the facts of the present case to the non-resident agent is not taxable in India and hence Sec.195(1) or Sc.9(1)(vii) are not attracted and therefore there being no case for TDS, provisions of sec. 40(a)(i) cannot be invoked to the facts of appellant's case. vide ClT v. Faizan Shoes (P.) Ltd. [2014] 367 ITR 155/226 Taxman 115/48 taxmann.com 48 (Mad.) 2. Ld. Counsel for the assessee submitted that assessee was aggrieved on two counts. Both were on disallowance made for want of deduction of tax at source on claims of expenditure. According to him, assessee had paid interest of A9,67,348/- to M/s. Reliance Capital Ltd. As per ld. Authorised Representative, assessee wh....
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....ct tax at source on payments effected to them. Thus, as per ld. Authorised Representative, lower authorities fell in error in applying Sec. 40(a)(i) of the Act to the payments made to the Non-resident agent. 4. Per contra, ld. Departmental Representative submitted that if assessee was of the opinion that it was not necessary to deduct tax at source on the commission given to Non-resident agent, it should have made an application to the Assessing Officer as prescribed under section 195(2) of the Act. Having not done so, as per the ld. Departmental Representative assessee could by itself conclude that it was not liable to deduct tax on the commission paid to the foreign agents. Further as per ld. Authorised Representative the agent had done managerial/consultancy services to the assessee and this was nothing but technical service as defined in Explanation 2 to Sec. 9(1)(vii) of the Act. Failure to deduct tax, therefore as per the ld. Departmental Representative, attracted Section 40(a)(i) of the Act. In so far as interest payment to M/s. Reliance Capital Ltd was concerned, submission of the ld. Departmental Representative was that assessee never preferred any claim that the payees....
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....her was not directly to the assessee but to M/s. Tara Leather Exim Pvt. Ltd through an exclusive agency agreement entered by M/s. Tara Leather Exim Pvt. Ltd with M/s. Freedom Leather. M/s. Tara Leather Exim Pvt. Ltd had distributed the orders received by them through M/s. Freedom Leather to various parties, inter-alia including assessee. For such services M/s. Tara Leather Exim Pvt. Ltd charged 2.5% on the assessee and admittedly assessee had deducted tax on such payments. However, as per agreement assessee had with M/s. Tara Leather Exim Pvt. Ltd, it was obliged to pay 4% commission to M/s. Freedom Leather. The buyers abroad while effecting payments to the assessee had deducted 4% commission. In my opinion services rendered by M/s. Freedom Leather would not come within the meaning of the term "Fees for Technical Services'' as given in Explanation (2) to Sec. 9(1)( vii) of the Act. There is nothing on record to show that M/s. Freedom Lather had done any managerial or consultancy or technical service to the assessee. Only if services rendered came within the meaning of "technical services'' as mentioned in Sec. 9(1)(vii) of the Act, the question of applying the Explanation given und....
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....cified in sub-section (1) of section 139. Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in subsection (1) of section 139 thirty per cent of, such sum shall be allowed as a deduction in computing the income 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 t....
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....ther sum chargeable under this Act. The section provides that the sums covered by the subclause, which are chargeable under the Act and are payable outside India, shall not be allowed as an expenditure to the assessee, unless 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 ....
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....chnical operations or other support in respect of any other technical matters. It also does not require any contribution of technical knowledge, experience, expertise, skill or technical know-how of the processes involved 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 assesse....