TaxTMI 
TaxTMI 
2018 (4) TMI 517
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....h 15% disallowance being allowed since the purchase of Assets to 10%. 3. That on the facts and in the circumstances of the case, in estimating and assessing being allegedly notional interest calculated on old brought forward interest free advances aggregating to Rs. 25, 97,038/- ignoring the facts that there was old advances since earlier years on which no notional interest was ever assessed and where appellant had its own interest free funds aggregating to over Rs. 23.44 Crores. 4. The revenue has filed appeal raising following two grounds in ITA No. 5997/Del/2014 : 1. The Ld. CIT(A) erred in law and on facts in restricting the disallowance out of polishing charges to the extent of 7.5% of total polishing charges despite assessee failed to justify the claim with evidence. 2. The Ld. CIT (A) erred in law and on facts in deleting the additions of foreign commission of Rs. 47,77,826/- on account of non deduction of TDS. 5. Brief facts of the case are that assessee is a partnership firm engaged in the manufacturing and export of stainless steels, utensils, and cutleries items etc. The assessee filed its return of income on 14.10.2010 for Rs. 11658590/- . Assessment u/s 143(3) ....
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....onsidered the rival contentions and also perused the orders of the lower authorities. In the present case, the Ld. CIT (A) had discussed the above issue in para No. 8 of his order. Ld. CIT (A) has obtained the remand report of the Ld. AO and after admitting the additional evidence, It was held that assessee could get the payments confirmed from only 8 out of 18 parties amounting to 91.44 % of the Polishing Charges and therefore, according to him the disallowance is required to be made. He further held that in case of the assessee the coordinate bench in earlier years have decided the identical issue 50% of the disallowance of total expenditure made by the Assessing Officer, which was restricted to 15% by the CIT (A), was upheld. Therefore, we are also of the opinion that some disallowance is required to be upheld on the facts of the present AY and the history of the assessee in previous A.Y. In the present case, the Ld. CIT (A) after discussion of the whole issue in detail in para No. 9 to 9.21 has restricted the disallowance to 7.5 % of the total payment. In the details submitted by the assessee before us the assessee also could not submit the confirmation with respect to total pa....
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....at in earlier years disallowance was restricted to 15 %. Further, as we have narrated the complete facts of the case while deciding the above ground of the appeal of the assessee, where in the facts are quite better compared to the year in which 15 % disallowance was confirmed, we have reduced it to 5 % in assessee's appeal. Hence, ground No. 1 of the appeal of the revenue is dismissed. . Therefore, we dismiss the ground No.1 of the appeal of the revenue. 12. The ground No. 2 of the appeal of the assessee is against confirmation of disallowance of Rs. 59931/- by reducing the WDV of the block of the asset. The brief facts of the case shows that assessee has claimed depreciation of electrical fittings @ 15% whereas the Ld. Assessing Officer observed that the correct rate of depreciation is 10% as it falls under the classification of " Furniture & fittings". On appeal before the CIT (A), the same was confirmed. 13. The Ld. AR submitted that it is confirming part of the block of the asset from the earlier years. In opening balance, the rate of depreciation was 15 %. 14. The Ld. DR submitted that depreciation has been correctly allowed by the Assessing Officer at the appropriate rate....
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....se of Reliance Utilities Ltd. 313 ITR 340 has held that if the assessee has more interest free funds then advances given free of interest for that case presumption is available to the assessee that amount is advance out of non interest bearing funds. In view of this disallowance of Rs. 3113654/- out of interest expenditure is not sustainable. However, there is also a statement that assessee has paid interest on Fixed capital of partners. This fact requires to be verified. In the result ground, No. 3 of the appeal is set aside to the file of ld AO where the assessee is directed to show that assessee has interest free funds available in the form of partner's current account. Accordingly, this ground is allowed with above direction. 20. This leaves us with the ground No. 2 of the appeal of the revenue wherein the Ld. CIT (A) has deleted the disallowance of Foreign Commission expenditure of Rs. 4777826/- . The assessee has paid Foreign Commission and has not deducted tax at source u/s 195 of the Income Tax Act. The assessee submitted that no tax is required to be deducted as no part of the income arises in India. The Ld. CIT (A) deleted the above addition. The Ld. AR relied on the or....
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....reon at the rates in force : Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode : Provided further that no such deduction shall be made in respect of any dividends referred to in section 115-0. Explanation-For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. (2) Where the person responsible for paying any such sum chargeable under this Act (other than salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Assessing Officer to determine, by genera....
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....equires deliberation. 12.6 In the present case, it is observed that the non resident agents did not receive the Commission in India, so it cannot be said that they had received any income in India. Further, Section 7 of the Income Tax Act lists the income which is deemed to be received in India and this does not include Commission income. Therefore, it can also not be said that the impugned Commission income has accrued or arisen to the Non Resident agent in India. The aforesaid Commission payment may, however, be deemed to accrue or arisen in India under - (i) section 9(1 )(i) of the Act if the commission agent has a 'business connection' in Indiaand the income arises through such 'business connection' or (ii) section 9(1 )(vii) of the Act if the services rendered by the commission agent could be characterized as defined in Explanation 2 to that section. 12.7 The concept of 'business connection' was dealt with in the decision of Hon'ble Supreme Court in the case of CIT vs. R.D. Aggarwal & Co. & Anr., 56 ITR 20, wherein the Apex Court held that a business connection "involves a relation between a business carried on by a non resident which yields profit or gains and some ac....
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....only represents a debt and a mere book entry in the debtor's own books does not constitute payment which will secure discharge from the debt. They cannot, therefore, be charged to tax on the basis of receipt of income actual or constructive in the taxable territories during the relevant accounting period. The second aspect of the same question is whether the commission amounts credited in the books of the statutory agent can be treated as incomes accrued, arisen, or deemed to have accrued or arisen in India to the non- resident assessees during the relevant year. This takes us to s. 9 of the Act. It is urged that the commission amounts should be treated as incomes deemed to have accrued or arisen in India as they, according to the department, had either accrued or arisen through and from the business connection in India that existed between the non-resident assessees and the statutory agent. This contention overlooks the"effect of cl. (a) of the Explanation to cl. (i) of sub-s. (1) of s. 9 of the Act which provides that in the case of a business of which all the operations are not carried out in India, the income of the business deemed under that clause to accrue or arise i....
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....mission paid to an Agent in South Africa for distribution of the products of the applicant in South Africa was not chargeable to tax in India. On similar facts, the Hon'ble AAR held in the case of Ind Telesoft P. Ltd, in Re, 267 ITR 725, that for payment of Commission thereon to nonresident companies for securing business outside India, there is no liability to deduct tax at source under the Indian Income Tax 1961. 12.11 Similar decisions have been made in the following judgments also: i. DCIT vs. Angelique International Ltd. [(2013) 55 SOT 226 (Delhi)] "Commission paid to a non-resident agent for services rendered outside India is not chargeable to tax in India and that hence, no disallowance can be made under s. 40(a)(ia).Where the relationship between the assessee and its nonresident agents is on a principal to principal basis, sales commission paid to non- residents for services rendered outside India could not be deemed to be income accrued or arise in India." ii. ACIT vs. Priyadarshini Spinning Mills (P.) Ltd. [2013] 55 SOT 432 (Hyderabad) "Section 195, read with section 40(a)(i), of the Income-tax Act, 1961 - Deduction of tax at source - Payments to non-reside....
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....ring orders from a source outside India cannot be deemed to be income accruing or arising in India for the purposes of section 9(1 )(i) of the Act. Therefore, I am of the considered opinion that the Commission paid by the Appellant to the Non-Resident Agents for services rendered outside India cannot be deemed to be income which has accrued or arisen in India in terms of section 9(1 )(i) of the Act. 12.13 The Assessing Officer has relied upon the decision of the Delhi Bench of the Hon'ble ITAT in the case of Asia Satellite Telecommunications Company Ltd. vs. DCIT, 85 ITD 478 (Delhi), where it was held that since the payment to non resident agent had been made for Commission which is originating in India due to the Indian goods, the Commission income is attributable to the operations carried in India. In this regard, it is observed that this order of the Hon'ble ITAT has been reversed by the Hon'ble Delhi High Court in the case of Asia Satellite Telecommunications Co. Ltd. Vs. Director of Income Tax, 322 ITR 140 wherein the Hon'ble High Court of Delhi has held that in order for income to be taxable u/s 9(1) (i), the carrying on of operations in India is a sine qua non. As disc....
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....rawal did not imply that the relief was to be denied to all taxpayers. The withdrawal of the Circular No. 23 alongwith Circular No. 163 and Circular No. 786 only left the field open for the Assessing Officer to establish that the Assessee in question was amongst those "some" taxpayers who were claiming relief not in accordance with the Act. The Ld. Assessing Officer without establishing that the present Assessee was amongst those "some" taxpayers who were claiming relief which was not in accordance with the Act, sought to use the withdrawal of Circular No. 23 alongwith Circular No. 163 and Circular No. 786, as if the relief was to be denied to all taxpayers irrespective of the facts of the case or the genuineness of the relief claimed. 12.17 The withdrawal of the relevant Circular and its effect on the allowability of foreign Commission has been discussed by Hon'ble Bangalore Bench of ITAT in the case of Exotic Fruits Pvt. Ltd. vs. ITO [in ITA 1008 to 1013/Bang./2012, order dated 04-10-2013], according to which even after the withdrawal of the said circulars, Foreign Agent's Commissions paid in the above circumstances do not become income chargeable to tax in India. In this j....
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.... taxability of such commission to income tax has to be decided as per the provisions of section 9(1) of the Act. I am of considered view that the provisions of sec. 9(1) are not applicable to the commission paid to such non-resident agents. Such income (commission) in the hands of non-resident commission agents did not accrue or arise directly or indirectly, through or from any business connection in India. Such income to the non-resident commission agents did not accrue or arise in India through or from any property in India or through the transfer of capital asset situated in India. In the facts and circumstances the provisions of sec. 9(1) were not applicable to such payment of commission by appellant to nonresident agents " Para 7.7-" in the absence of permanent establishment(s) of such agents in India, the incomes of the said agents were NOT liable to be taxed in India and, as such, the assessee was not obliged to effect any deduction of tax on the commission payments made to the agents who were positioned overseas." 12.18 The Hon'ble ITAT in the case of Gujarat Reclaim & Rubber Products Ltd. vs. Addl. DIT dated 19 April, 2013 [2013] 35 taxmann.com 587 (Mum) -Trib.] has al....
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....n-resident agents." 12.19 The Assessing Officer has also relied upon the ruling of the Hon'ble AAR in the case of SKF Boilers and Driers P. Ltd., 343 ITR 385 wherein it was ruled that commission paid to agents outside India is deemed to accrue and arise in India under section 5(2)(b) read with section 9(1 )(i) of the IT Act. However, on a careful perusal, it appears that in the aforesaid case, Section 9(1 )(i) was applied without examining the concept of 'business connection'. In this context, the term 'business connection'as defined in Explanation 2 to Section 9(1) would mean: "any business activity carried out through a person who, acting on behalf of the non-resident (a) has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the non-resident; or (b) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or (c) habitually secures orders in India, mainly or wholly for the nonresident or for that non-resident and other non-re....
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....(b) r/w s. 9(1 )(i) as the right to receive the Commission under the terms of the agency agreement had arisen in India, the Commission was held be taxable in India under the provisions of the act. But in the Appellant's case, the facts are entirely different. In this case, the Appellant has paid foreign Commission to Non Residents for Commission due on export orders procured by them, i.e. the Non Residents. These foreign Commission Agents are not resident in India. These agents operate their activities outside India in their own countries i.e. UAE & USA, and no part of their activities arise in India. They were paid Commission which relates to services provided to the Appellant from outside India .The relation between the Appellant and the Agents are principal to principal. These Agents did not have any Permanent Establishment or permanent place of business place in India. The Commission was remitted directly to these Agents directly outside India and not received by them or on their behalf in India by any third party (or by them). Moreover, the Hon'ble AAR in the case of Ind Telesoft P. Ltd. 267 ITR 725 have held that tax was not required to be deducted out of foreign Agent's ....
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....n, if the services are characterised as "contract work" under sec-tion 194C of the Act, then the income received should be necessarily treated as business income. The non-resident company does not have permanent establishment in India. The services are rendered and utilised outside India and the payments for the services rendered is also received outside India. There is no business connection in India. In such circum-stances, the income of the non-resident company is not taxable in India. The questions raised by the applicant are answered as follows : (1) The payments made by the applicant towards line production services provided by Endemol ARG in accordance with the agreement entered into by the applicant with Endemol ARG is not "fees for technical services" as the services falls under "work contract" as defined in the Explanation to section 194C of the Income-tax Act. (2) The question is not dealt with because of our answer to question No. 1. (3) The payments made by the applicant to Endemol ARG for availing of the line production services under the agreement is not chargeable to tax as per the provisions of section 9(1 )(i) of the Income-tax Act. (4) The receipts by....
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....ed that the nature of operations undertaken by a sales agent is similar to those under-taken by a buying agent and, therefore, if the income of a sales agent cannot be taxed in India the income of buying agent also cannot be taxed in India. J. K. (Bombay) Ltd. v. CBDT [1979] 118 ITR 312 (Delhi) and SkyceW Communications Ltd. v. Deputy CIT [2001] 251 ITR 53 (Mad) applied. The assessee was a tax resident of Hong Kong. Its sourcing division provided buying agency services to various customers including an Indian company, an associate enterprise. For such services the assessee entered into a "buying agency services agreement" with the Indian company for sourcing of merchandise in respect to which the assessee received buying commission at 8.25 per cent, of the value of merchandise. The assessee provided services which included centralised media and advertisement planning, market research, public relations, sports marketing and other marketing services such as catalogue production, development of retail shop systems, etc. Another division of the assessee's group, provided certain regional marketing and administrative support services to the group's Asia-Pacific distribution ....
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....f procurement services and could not be characterised as "managerial", "technical" or "consultancy" services. Accordingly, the consideration received by the assessee was appropriately classified as "commission" as against "fees for technical services". It was not taxable in India." 12.25 It has been held by the Hon'ble ITAT Mumbai in the case of Armayesh Global vs. ACIT 45 SOT 69 as under:- "The overseas agent did not render any services in India. It had no place or permanent establishment in India. It worked abroad and procured orders. The orders were sent directly by the foreign purchasers remitted to the assessee in India and even the payment for export was received by the assessee in foreign currency directly from foreign purchasers and the commission was paid to foreign agent thereafter as a percentage of sales in terms of the agency agreement. The payment made to overseas commission agent by the assessee was not for technical/managerial services. Therefore, in the absence of any service having been rendered in India, no part of the commission paid to the overseas agent could be said to be chargeable in India and in the absence of any income chargeable to tax in India, que....
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....ons of law are covered by the judgments of this court cited as above, and are decided in favour of the assessee and against the Department." 12.28 It is also noted that there is no requirement for the agreements with the Agents to be in writing as held by Delhi Bench of Hon'ble Income Tax Appellate Tribunal in the case of DCIT vs. Angelique International Limited [(2013) 55 SOT 226 (Delhi)]. However, the letter for appointment of the Agents dated 6.3.05 and 25.4.07 of the two Agents i.e. A1 Mehtab Trading Co. Ltd., Dubai, UAE and Global Purchasing Inc., New Jersey, USA were filed before the Assessing Officer and it was stated by the Appellant that these letters constituted the final contracts duly evidence by the conduct of the parties. It was also claimed that similar payments were made in the earlier years which were allowed and that following the principle of consistency, the payments made towards Commission to Non-Residents should be allowed in this year also. Though merely because disallowance was not made in earlier years, the Assessee cannot claim that no disallowance be made, as each year is separate, and there is no res judicata in taxation proceedings as discussed ab....