TaxTMI 
TaxTMI 
2019 (4) TMI 568
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....dditional evidences submitted by the assessee during the appellate proceedings, in violation of Rule 46(A)(1) of Rules?" (B) Whether the Appellate Tribunal has erred in law and on facts in upholding the order of the CIT(A) deleting the addition made on account of disallowance under section 40(a)(ia) of the Act for non-deduction of tax on commission payable to foreign agents of Rs. 1,73,17,755/-?" 3. In Tax Appeal No.1398 of 2018, the appellant has proposed the following question, stated to be substantial question of law: "(A) Whether the Appellate Tribunal has erred in law and on facts in upholding the order of the CIT(A) deleting the addition made on account of disallowance under section 40(a)(ia) of the Act for non-deduction of tax on commission payable to foreign agents of Rs. 2,41,37,454/-?" 4. Question (B) in Tax Appeal No.1397 of 2018 and the question proposed in Tax Appeal No.1398 of 2018 are more or less identical. The assessment years are 2011-12 and 2012-13 respectively. For the sake of convenience, reference is made to the facts as appearing in Tax Appeal No.1397 of 2018. 5. The respondent assessee filed its return of income on 29.9.2011 declar....
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....e course of appellate proceedings that the respondent was called upon to prove the genuineness of the commission also and, therefore, it was at the instance of the Commissioner (Appeals) that the additional evidence was adduced. Reference was made to rule 46A of the rules, to point out that under subrule (4) thereof, the Deputy Commissioner (Appeals) or as the case may be, the Commissioner (Appeals), is duly empowered to direct production of any documents or examination of any witness to enable him to dispose of the appeal or for any substantial cause. It was submitted that in the present case, since the additional evidence had been produced at the instance of the Commissioner (Appeals), the case falls under this sub-rule, and hence, the requirements of sub-rule (4) of rule 46A of the rules are not required to be satisfied. 9. Since violation of rule 46A of the rules has been alleged, it may be germane to refer to the said rule, which reads as under:- "Production of additional evidence before the Deputy Commissioner (Appeals) and Commissioner (Appeals). 46A. (1) The appellant shall not be entitled to produce before the Deputy Commissioner (Appeals) or, as the c....
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....ssessing Officer has not examined the aspect relating to genuineness of the commission expenses during the assessment proceedings and that the disallowance was on technical basis. The assessee has now given the evidence in the course of appellate proceedings as it was asked to prove the genuineness of the commission expenses also. Therefore, it is evident that it was at the instance of the Commissioner (Appeals) that the assessee had produced the additional evidence on record, which would fall within the ambit of subrule (4) of rule 46A of the rules, and hence, the question of violation of such rule on the ground urged on behalf of the appellant based on sub-rules (1) and (2) of rule 46A, does not arise. Moreover, the Assessing Officer has been given opportunity to deal with the additional evidence produced by the assessee as the remand report was called for. Under the circumstances, no substantial question of law can be said to have arisen insofar as this issue is concerned. 11. Insofar as the second question which relates to disallowance under section 40(a)(ia) of the Act is concerned, which arises in both the appeals, during the course of assessment proceedings, the Assessing....
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....eign commission payment which was clearly in violation of the provisions of section 195 of the Act. It was submitted that in the present case, the non-resident foreign agents have rendered services abroad to procure the export sales order and were entitled to receive commission for the services rendered to foreign clients of the assessee. As per section 5(2)(b) of the Act which deals with the scope of total income, the income of a non-resident includes all income from whatever sources derived, which accrues or arises or is deemed to accrue or arising directly or indirectly, through or from source of income of India during such previous year. Under section 9(1)(i) of the Act, income accruing or arising directly or indirectly, through or from any business connection in India or source of income in India shall be deemed to accrue or arise in India. It was submitted that while the agents must have rendered services abroad and have solicited the orders, but the right to receive the commission arose in India when the order was executed by the assessee in India. In this case, the income generated to the overseas commission agents from the receipt of commission income paid by the assessee ....
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....rein such nonresident was rendering services from outside India does not accrue in India. It was pointed out that the decision in the case of Commissioner of Income tax v. Toshuku, (supra) was rendered prior to the insertion of Explanation 4 to section 9 of the Act. 14. In the above backdrop, reference may be made to subsection (1) of section 195 of the Act, which reads thus:- "195. Other sums.(1) Any person responsible for paying to a nonresident, not being a company, or to a foreign company, any interest (not being interest referred to in Section 194-LB or Section 194-LC) or Section 194-LD 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 rates in force" 15. Thus, to fall within the ambit of the above section, a person should be responsible to a nonresident for payment of any sum chargeable under the provisions of the Act. Therefore, to deduct tax at source, the nonresident sh....
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....ovak Ocean Shipping International Joint Stock Co. v. ITO [(1971)81 ITR 162 (Cal)] that an application for NOC cannot be said to be an application under Section 195(2) of the Act." "13. If the contention of the Department that the moment there is remittance the obligation to deduct TAS arises is to be accepted then we are obliterating the words "chargeable under the provisions of the Act" in Section 195(1). The said expression in Section 195(1) shows that the remittance has got to be of a trading receipt, the whole or part of which is liable to tax in India. The payer is bound to deduct TAS only if the tax is assessable in India. It tax is not so assessable, there is no question of TAS being deducted. (See Vijay Ship Breaking Corpn. v. CIT (2010) 10 SCC 39.) 14. One more aspect needs to be highlighted. Section 195 falls in Chapter XVll which deals with collection and recovery. Chapter XVll-B deals with deduction at source by the payer. On analysis of various provisions of Chapter XVll one finds the use of different expressions, however, the expression "sum chargeable under the provisions of the Act" is used only in Section 195. For example, Section 194-C casts an o....
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....ms which are "chargeable to tax" under the IT Act. It is true that the judgment in Eli Lilly [(2009) 15 SCC 1] was confined to Section 192 of the IT Act. However, there is some similarity between the two. If one looks at Section 192 one finds that it imposes statutory obligation on the payer to deduct TAS when he pays any income "chargeable under the head 'Salaries"'. Similarly, Section 195 imposes a statutory obligation on any person responsible for paying to a non-resident any sum "chargeable under the provisions of the Act", which expression, as stated above, does not find place in other sections of Chapter XVII. It is in this sense that we hold that the IT Act constitutes one single integral inseparable code. Hence, the provisions relating to TDS applies only to those sums which are chargeable to tax under the IT Act. 18. If the contention of the Department that any person making payment to a non-resident is necessarily required to deduct TAS then the consequence would be that the Department would be entitled to appropriate the monies deposited by the payer even if the sum paid is not chargeable to tax because there is no provision in the IT Act by which a payer can ob....
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.... "Income deemed to accrue or arise in India. 9. (1) The following incomes shall be deemed to accrue or arise in India:- (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India. Explanation-1.- For the purposes of this clause- (a) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India; (b) in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export; (c) in the case of a non-resident, being a person engaged in the business of running a news agency or of publishing newspapers, magazines or journals, no income shall be deemed to accrue or arise in India to hi....
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....ere a business is carried on in India through a person referred to in clause (a) or clause (b) or clause (c) of Explanation 2, only so much of income as is attributable to the operations carried out in India shall be deemed to accrue or arise in India". (ii) income which falls under the head "Salaries", if it is earned in India. " 19. Explanation 4 which came to be inserted vide Finance Act, 2012 with effect from 1.4.1962, reads thus: "For the removal of doubts, it is hereby clarified that the expression "through" shall mean and include and shall be deemed to have always meant and included "by means of", "in consequence of' or "by reason of"." 20. Thus, after the insertion of Explanation 4, income arising through, by means of, in consequence of or by reason of any business connection in India, or through, by means of, in consequence of or by reason of or from any property in India, or through, by means of, in consequence of or by reason of or from any asset or source of income in India, or through, by means of, in consequence of or by reason of the transfer of a capital asset situate in India, would be deemed to accrue or arise in India. 21. Examining the....
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.... present case, neither of the conditions is satisfied. Therefore, when the commission paid to the non-resident agents was neither received or deemed to be received in India nor accrued or was deemed to accrue in India, no income was chargeable to tax under the provisions of the Act. When the payment made by the assessee to the overseas agent for services rendered abroad is not income chargeable to tax in India, there was no obligation cast upon the respondent assessee to deduct tax at source under section 195 of the Act and consequently, the provisions of section 40(a)(ia) of the Act would not be attracted. The Tribunal, therefore, did not commit any error. No question of law can therefore, be said to arise. 23. Another contention advanced on behalf of the appellant is that if the assessee was not liable to deduct tax at source under section 195 of the Act in respect of the payment made to the overseas agents, it ought to have made an application under sub-section (2) of section 195 of the Act seeking exemption from deducting tax at source. In this regard it may be noted that sub-section (2) of section 195 starts with the words "where the person responsible for paying any sum ch....