TaxTMI 
TaxTMI 
2018 (3) TMI 294
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....a, in relation to export of cotton yarn, without deduction of tax at source u/s. 195 of the Act. 2. For that in view of the facts and circumstances of the case the Ld. CIT is wholly wrong and unjustified in confirming the said disallowance of commission payment without considering the facts and the explanation of the assessee company that (i) the non-resident agents had procured the export orders for the assessee outside India and rendered the requisite services also outside India to earn the said commission and (ii) those agents had no business place / establishment / connection in India and (iii) the commission payable / paid to them cannot be deemed to have accrued and arisen in India through or from any business connection in India. 3. For that in view of the facts and circumstances of the case the Ld. CIT is wholly wrong and unjustified in confirming the said disallowance of commission payment on a wrong impression based on mere assumption and presumption that the export orders procured by the non-resident agents were executed by the assessee company in India and as such the Commission amount payable by the assessee to the non-resident agents shall be deemed ....
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....rty which sought such opinion. The assessee also submitted that the provision of Section 5(2)(b) r.w.s. 9(1)(i) as relied by the AO are not applicable to the instant facts of the case as the party had no business connection, property in India or no source or income liable to tax in India. However, Ld. CIT(A) disregarded the contention of assessee confirmed the order of AO by observing as under:- "5.2 I have considered the facts of the case and the appellant's submission. The facts are not disputed. The appellant paid total commission of Rs. 15,42,673/- to non-resident agents without deducting tax at source. It is the appellant's case that the gents do not have any place of business or business connection in India. The commission paid to them cannot be deemed to accrue or arise in India within the meaning of section 9(1)(i) of the Act. the AO relied upon the decision of AAR in the case of SKF Boilers and Driers Pvt. Ltd. (2012) 343 ITR 385 in which it has been held as under:- 'It is the appellant's contention that the agents have rendered services abroad and would be entitled to receive commission abroad for the services rendered to foreign clients of the applicant....
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....he appellant has paid Commission to the non-resident agents which have arisen only when the orders procured by them were executed in India. Thus, the Commission income has arisen in India. As mentioned by the Assessing Officer, there is no DTAA between India and Hong Kong, the country of resident of the agents. In the judgement of Hon'ble Supreme Court in the case of Carborandum Co. V CIT (1978) (108 ITR 335 (SC) relied upon by the appellant, the facts were different. The assessee company had been paid technical fee by an Indian company for making services of foreign personnel available to Indian Company outside taxable territory. It was held that the service rendered by the assessee in that connection was wholly and solely rendered in the foreign territory. Hence, its income could not be deemed to accrue or arise in India. The case of the appellant is different as the Commission income has arisen only on execution of the orders in India. In the decision of ITAT in the case of Gujrat Reclaims Rubber Products Ltd. relied upon by the appellant, the date of Commission payment was prior to the date of withdrawal of the aforesaid circular no 786 and circular no. 23 by circular no 7 ....
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....paying to a non-resident, not being a company, or to a foreign company, any interest 74[***] or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries" 75[***]) 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 rates in force :" A plain look at the above statutory provision makes it clear that the assessee is liable to deduct TDS on the payment to Non Residents on any sum chargeable under the provision of this act. Now, the question arose whether payment made to the foreign agent based in Hong Kong is chargeable to tax in India. For this purpose, we need to refer the provision of Sec. 5(2) of the Act which reads as under:- Scope of total income. 475. 48(1) Subject to49 the provisions of this Act, the total income49 of any previous year of a person who is a resident includes all income from whatever source derived which- XXXXXXXXXXXXXXX (2) Subject to49 the provisions of this Act, the total income49 of any previou....
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....hat income shall be deemed to accrue or arise in India if it fulfils any of the conditions :- i) Business connection in India; or ii) From any property in India; or iii) From any asset or source of income in India or iv) Transfer of capital asset situated in India From the above, we note that the case of assessee is not falling in any of the category as discussed above. Similarly, it is not the case of Revenue that payment was made by assessee on account of technical services rendered by the foreign agents. Therefore, in our considered view, assessee was not liable to deduct TDS u/s 195 of the Act. In holding so, we find support and guidance from the judgment of Hon'ble Madras High Court in the case of CIT vs. Farida Leather Co. reported in 66 taxman.com 321 (Mad) wherein it was held as under:- "9.2 The underlying principle is that, the tax withholding liability of the payer is inherently a vicarious liability on behalf of the recipient and therefore, when the recipient / foreign agent does not have the primary liability to be taxed in respect of income embedded in the receipt, the vicarious liability of the payer to deduct tax....
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....nts and that the commission is remitted to him abroad are wholly irrelevant for the purpose of determining situs of his income". We do not consider this approach to be correct. When no operations of the business of commission agent is carried on in India, the Explanation 1 to Section 9(1)(i) takes the entire commission income from outside the ambit of deeming fiction under section 9(1)(i), and, in effect, outside the ambit of income 'deemed to accrue or arise in India' for the purpose of Section 5(2)(b). The point of time when commission agent's right to receive the commission fructifies is irrelevant to decide the scope of Explanation 1 to Section 9(1 )(i), which is what is material in the context of the situation that we are in seisin of. The revenue's case before us hinges on the applicability of Section 9(1)(i) and, it is, therefore. important to ascertain as to what extent would the rigour of Section 9(1)(i) be relaxed by Explanation 1 to Section 9(1)(i). When we examine things from this perspective, the inevitable conclusion is that since no part of the operations of the business of the commission agent is carried out in India, no part of the income of the com....