AI Drafter 
TaxTMI 
TaxTMI 
2015 (8) TMI 1456
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....pplicable to it. 2. Without prejudice to the above, on the facts and circumstances of the case and in law the Ld.CIT(A) erred in deleting the disallowance u/s 40(a)(i) of the Income Tax Act of Rs. 85,21, 138/- without appreciating that, if the provisions of sections 195 of the Income Tax Act was not applicable on the said payments then the claim of the said amount as business expenditure in the books was not allowable to the assessee. 3. Without prejudice to the above grounds, on the. facts and circumstances of the case and in law the Ld.CIT(A) has failed to appreciate the fact that the payments to the extent of Rs. 71 ,5~,596/- pertains to the prior period and therefore not allowable as expenditure, because as per the provisions of section 145 of the Income Tax Act as to follow the mercantile system of accounting is mandatory for the company assessee." 2. The only issue that arises for consideration and adjudication is whether the CIT(A) is justified in deleting the disallowance of Rs. 85,21,138/- made by the AO u/s 40(a)(i) of the IT Act,1961 on account of non-deduction of tax on commission paid to non-resident outside India. 3. We have heard the learned D....
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.... absolutely erroneous and based on mis-interpretation of the term 'accrue or arise in India' as per the provisions of sec.9(1) of the Act. The commission is paid to foreign agent for services rendered by the agent outside India and the agent has no business link or source of income in India. Therefore, in absence of any business connection or source of income and consequently any permanent establishment in India, the said income in the hands of the foreign agent is not taxable in India. An identical issue has been considered by the co-ordinate bench of the Tribunal in the case of ACIT vs. Vilas N Tamhankar (supra) in para 4 as under: "4. We have heard the parties, and perused the material on record. The payment to the payee, Sangeeta Choudhary, even as clarified before the assessing authority, was for sales and marketing support outside India. No part of the services, toward which payment had been made to her, was rendered in India; the payee also having no place of business or establishment in India. There was thus, as per the assessee, no question of any part of the impugned sum being chargeable to tax in India; further relying on the decision in the case of GE ....
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....f the recipient, he may make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable.' The ld. CIT(A) having allowed relief to the assessee on the basis that the decision by the apex court in GE India Technology (supra), rendered after considering the decision in the case of Transmission Corpn. of A.P. Ltd. (supra), covers the assessee's case, so that no tax was deductible u/s. 195, what we are required to, in order to decide the Revenue's appeal there-against, do is to examine the validity of the said finding, and toward the same, the said decision. As explained by the apex court therein, if the interpretation being accorded by the Revenue to section 195, i.e., that the moment payment to a non-resident is made, the obligation to deduct the tax at source (TAS) arises, is accepted, the same would imply obliterating the words 'chargeable under the provisions of the Act' occurring in section 195(1). Section 195 falls under Part B of Chapter XVII of the Act, t....
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....nable us to disturb the like finding by the ld. CIT(A), ought to have explained as to how it is infirm or does not amount to a correct reading of the said decision, or is otherwise not applicable in the facts of the case. In fact, the assessee having admittedly neither deducted tax at source nor made any application u/s.195(2) to the A.O., on the footing that no part of the relevant payment represents income chargeable to tax in India, the Revenue ought to, in our view, have impugned the said basis, on which the assessee's case rests. And which it has failed to in any manner. If, as maintained throughout by the assessee, no part of the services, for which payment has been made, stand rendered in India, how we wonder could he be faulted in holding it to be not chargeable to tax in India. This in fact is also the requirement and an essential ingredient of s. 40(a)(i), so that the A.O., invoking the same, is in fact obliged in law to render a finding as to the chargeability of the impugned sum to tax under the Act, which is absent in the instant case. We are conscious that Explanation 2 to section 195(1) has since been co-opted on the statute, i.e., by Finance Act, 2012 w.e.f. 01.04.1....
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....he department appeal is bad in law as well as on facts and liable to be dismissed. 2. Because the learned CIT(Appeals) erred in disallowance of compensation paid of prior period export sales in spite of knowing that respondent following method of accounting for this expenses as payment basis consistently throughout all previous years." The assessee has claimed compensation of Rs. 10,88,152/- being paid on account of damage of goods exported. AO has disallowed the claim of the assessee on the ground that these are prior period expenses and cannot be allowed in the year under consideration. AO has recorded reasons that the assessee is following mercantile system of accounting and the expenses which have been incurred during the relevant previous year can only be allowed. 8. The assessee challenged the action of the AO before the CIT(A) and submitted that the claim of damage by the purchaser has been crystallized in the year under consideration. Therefore, this claim is an allowable claim of the assessee. The CIT(A) has not accepted the contention of the assessee and held that sale rebate, sale discount, compensation for damage of goods relate to the year of sale and no....