TaxTMI 
TaxTMI 
2018 (7) TMI 1959
X X X X Extracts X X X X
X X X X Extracts X X X X
....ture in the P&L A/c. AO has asked assessee to explain why TDS was not affected on these payments. Assessee submitted that the said agent has rendered services abroad only and has not rendered any technical or other services and the agent has no permanent establishment in India, being a non-resident and having covered by DTAA India and USA. The commission paid to the said agent for the services rendered outside India are not taxable in India as per the provisions of Section 9 and hence no TDS is required to be deducted. AO, however, contended that as per the provisions of 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. AO relied on the decision of the Authority for Advance Ruling (AAR) in the case of SKF Boilers and Driers (P.) Ltd., in AAR Nos. 983 & 984 of 2010 [343 ITR 385] to conclude that the commission paid to foreign agent is deemed to accrue or arise in India and accordingly, the provisions of Section 195 are applicable. As assessee has failed to deduct tax, AO was of the opinion that the same is disallowable u/s. 40(a)(i). ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vuluri is MD of both the companies. It was submitted that Mr. Trevor Gosney is the Managing Partner of the non-resident agent and not Dr. Subba Rao. It was further submitted that TM India LLC is a separate entity and not a subsidiary of assessee. 5. Coming to the issue of payment of commission, Ld. Counsel relied on the decision of the Co-ordinate Bench in the case of DCIT Vs. Divi's Laboratories Ltd., [131 ITD 271], which is directly on the issue along with another Co-ordinate Bench decision in the case of Euroflex Transmissions (India) Pvt. Ltd., Vs. ACIT in ITA No. 1773/Hyd/2014, dt. 01-04-2015 and another Co-ordinate Bench decision in the case of Dy.CIT Vs. M/s. Linkwell Telesystems (P.) Ltd., [2014 SCC OnLine ITAT 9568], for the proposition that the services rendered outside India are not taxable in India and accordingly, no tax will be deducted u/s. 195 of the Act. Ld. Counsel also relied on the decision of the Hon'ble Jurisdictional High Court at Hyderabad in the case of CIT Vs. Sri Aurobindo Impex Company, ITTA No. 24/2015, dt. 20-02-2017, in which also similar issues were raised and Hon'ble High Court has given decision in favour of assessee. The provisions of S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in India at all and assessee has no business connection. This issue was considered by the Coordinate Bench in the case of DCIT Vs. Divi's Laboratories Ltd., [131 ITD 271], wherein it was held as under: "The main thrust in such a situation is whether the commission made to overseas agents, who are non-resident entities, and who render services only at such particular place, is assessable to tax. Sec. 195 very clearly speaks that unless the income is liable to be taxed in India, there is no obligation to deduct tax. Now, in order to determine whether the income could be deemed to be accrued or arisen In India, s. 9 is the basis. This section does not provide scope for taxing such payment because the basic criteria provided in the section is about genesis or accruing or arising in India, by virtue of connection with the property in India, control and management vested in India, which are not satisfied in the present cases. Under these circumstances, withdrawal of earlier circulars issued by the CBDT has no assistance to the Department, in any way, in disallowing such expenditure. It appears that an overseas agent of an Indian exporter operates in his own country and no part o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....utside India. It is also not disputed that none of the commission agents have any permanent establishment or permanent business place in India. AO has also not disputed the fact that commission amounts were remitted to nonresidents directly outside India. However, AO has held that assessee is liable to deduct tax u/s 195(1) on the reasoning that as per the decisions of the AAR, referred to by him, income is deemed to accrue or arise in India when right to receive it comes into existence. Ld. CIT(A) has conf irmed the view expressed by AO without assigning any reason of his own. It is to be noted that incase of Rajeev Malhotra(supra), AAR has come to its conclusion by referring to the provisions contained u/s 6 and 9 of the IT Act. However, a careful reading of section 9 of the Act would make it clear that under Explanation 1(a) to section 9(1), it has been provided that in case of a business of which all the operations are not carried out in India, the income of such business only relating to such part of the income as is reasonably attributable to the operations carried out in India shall be deemed to accrue or arise in India. In the present case, AO has not brought any material o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of section 40(a)(ia) of the Act are not applicable. The case law relied on by the learned Departmental Representative in the case of Transmission Corporation of A.P. Limited reported in 239 ITR 587 (SC) and the decision of this Tribunal in the case of Cheminor Drugs vs. ITO is not applicable to the facts of the case under consideration, as in this case, the assessee made the payment directly to the non-resident agents for rendering services abroad. In view of the above, we do not see any infirmity in the order of the CIT(A) on this issue and the same is upheld." 7.2. The ratio laid down by the Co-ordinate Benches squarely applies to the facts of the present case and respectfully following the principles laid down in the judicial proceedings referred to herein above, we therefore hold that the provisions of Section 195 would not be applicable to the commission payments made by assessee to non-resident agent who has not done any service in India and as such income is not chargeable to tax under the provisions of the Act as there is no requirement to do any TDS u/s. 195, the disallowance made u/s. 40(a)(i) of the Act is also not survive. 7.3. We are surprised to note that Ld.CIT....