TaxTMI 
TaxTMI 
2019 (8) TMI 441
X X X X Extracts X X X X
X X X X Extracts X X X X
....press this ground. Therefore, the Ground No. 1.1 is dismissed as not pressed. 4. Ground No.1.2 is related to the disallowance of expenditure u/s 40a(ia) of the Act for the non deduction of tax at source u/s 195 of the Act. In this case, original assessment was completed for the u/s. 2007-08 u/s Subsequently, the 143(3) on total income of Rs. 5,81,72,880/- Commissioner of Income Tax (CIT), Rajahmundry has taken up the case for revision u/s 263 in respect of various issues. One of the issue is the contractual payment of compensation of Rs. 29,44,568/- paid to M/S Hoe Seng Chan company of Malaysia and a sum of Rs. 1,11,988/- to M/S ITOCHU Europe PLC, UK, since, the assessee failed to deduct tax at source u/s 195 of the Act and the payment was made to foreign company. The Ld. ClT held that the assessment was erroneous and prejudicial to the interest of the revenue and directed the AO to examine the disallowance u/s 40(a)(ia) of the Act for non deduction of tax at source. The AO proposed the addition in the draft assessment order dated 19.02.2014 relating to the payment of Rs. 28,32,572/- to M/S Hoe Seng Chan, Malasia on 24.10.2006 and the sum of Rs. 1,11,988/- paid to M/S ITOCHU Eur....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... required to be deducted at source. Any other chargeable sum refers to income of the foreign company which is required to be charged in India. The Ld.AR submitted that in the instant case nonresident company has no permanent establishment in India and all the business profits are taxable in the contracting state i.e. Malaysia. Therefore, argued that the payment made to Malaysian company is covered by DTAA between India and Malaysia, hence there is no requirement to deduct tax at source and consequently no addition is warranted u/s 40(a)(i) of the Act. The Ld. AR also relied on the decision of Goldcrest Exports, I TAT, Mumbai vide ITA No.442/Mum/2009 dated 07.09.2010 and argued that the assessee's case is squarely covered by the decision of ITAT, Mumbai cited supra. 6. On the other hand, the Ld. DR supported the orders of the lower authorities and argued that the assessee required to deduct tax at source u/s 195 of the Act. Since the assessee failed to deduct the tax at source, the AO rightly made the addition u/s and distinguished the case laws relied upon by the Ld.AR. Ld. DR argued that in the case law relied upon by the AR was related to the compensation paid through arbitrat....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, tax may be imposed in that other Contracting State on the income of profit of the enterprise but only on so much of that income or profit as is attributable to that permanent establishment 2. Where an enterprise of one of the Contracting States carries on business in the other Contracting State through a permanent establishment situated therein, there shall be in each Contracting State be attributed to that permanent establishment the income or profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment. 3. In the determination of the income or profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the permanent establishment including executive and genera' administrative expenses so incurred, whether in the State in which the permanent establishments situated or elsewhere....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arties. The Learned Counsel argues that compensation paid by the assessee was in respect of its trading contract with M/S. Swissgen NV London, UK. It is argued that the arbitration award was passed in financial year 2004-05 more particularly on 13th August 2004 and the same was communicated to the assessee. The assessee challenged the said award in the Hon 'ble High Court without success. The Learned Counsel also referred to the copy of the Arbitration award which is placed at page no. 19 to 28 of the paper book. It is argued that, at the first instance, provisions of section 195(1) are not applicable or deducting the tax at source as the arbitration award was passed in UK nd it cannot be said that the income has accrued to the foreign buyer to J,Whom the payment was made. The Learned Counsel further argued that as p;'per the provisions of DTAA between the India & UK, the compensation payable otherwise is also not taxable for the reason that the foreign company has no Permanent Establishment (in short PE) in India. He further submitted that as per Article 7.1 of the DTAA between India & UK, the compensation in the nature of the business profit and M/S. Swissgen NV London, UK which ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....py of the Arbitration Award filed on record, it is seen that the M/S. Swissgen NV London, 11K is shown as foreign company in the arbitration award dated 13.82004. The arbitration award has not disputed by both the parties. As per the arguments of the Learned Counsel, M/S. Swissgen NV London, UK is a non-resident and has no PE in India. In this case, one broker namely M/S. Radhasosns International was involved in the deal and it was an independent broker. The only reference of the DTAA in the assessment year is on the two point (i) assessee has not brought anything on record to demonstrate that the amount of the compensation would be the business profit within the meaning ofarticle 7 of the DTAA between India & UK; and (ii) nothing is brought on record to suggest or prove that the foreign party is a Resident of UK and apart from that there is no discussion in the assessment order. The Learned CIT (A) was of the opinion that the status of the buyer namely M/S. Radhasons international whether it was a resident or non-resident had not been clarified. In our opinion, both the parties have not understood the issue in a proper prospective. So far as character of the compensation is concer....