TaxTMI 
TaxTMI 
2019 (4) TMI 1888
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....7/09/2012 admitting total loss of Rs. 168,14,97,811/- under the normal provisions of the Act. The book loss under section 115JB was admitted at Rs. 115,41,39,731/-. Subsequently, case of the assessee was selected for scrutiny and after following due process, assessment was completed under section 143(3) of the Act, dated 23/03/2015. In the assessment order, the Assessing Officer on going through the profit & loss account, it is noticed that the assessee has not deducted TDS on commission paid to foreign agents of Rs. 1,60,62,998/-. The Assessing Officer asked the assessee-company to furnish the details and note on its allowability. The AR of the assessee has submitted vide its letter dated 18/03/2015 that the company paid commission of Rs. 1,60,62,998/- to the foreign agents and no tax was deducted at source. By considering the reply, the Assessing Officer has disallowed an amount of Rs. 1,60,62,998/- under section 40(a)(ia) of the Act. 3. On appeal, ld. CIT(A) deleted the addition made by the Assessing Officer by observing as under:- "During the course of appellate proceedings, the appellant was asked to submit the details of agreement entered, if any, by the appellant with the....
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....i) is not sustainable. Hence, there is no reason to interfere with the finding of the CIT(A) on this issue. The grounds raised by the revenue are rejected." The Hon'ble ITAT, Hyderabad in the case of Avon Organics Ltd. (28 taxmann.com 170) held that where assessee pays commission to foreign agents for their services (rendered outside India) as facilitators of exports, income to such foreign agents cannot be deemed to have been arisen in India merely on fact that such payments were made to bank accounts of agents by telegraphic transfer through banks in India. The relevant part of the order is reproduced hereunder, wherein it was held that income does not accrue or arise in India unless there is permanent establishment in India for the non-resident and no disallowance can be made u/s. 40(a)(i) of the Act. "6. We have heard rival submissions and perused the material on record. As revealed from the assessment order, the AO has come to the conclusion that the commission payments were deemed to have been received in India only because the telegraphic transfer of the remittances towards commission was made from a bank in India. Apart from these things, the AO has got no other mat....
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.... the basis of the circulars of the Board, but also on the basis of the decision of the Tribunal in its own case, the assessee firmly believed that no part of the income paid to the foreign agent was taxable in India. Therefore, there was no question of deducting any tax at source on any proportion of the payment made to the non-residents. Thus, the judgment in the case of Transmission Corporation (supra) does not advance the case of the department in the present appeal. Finally, it may be pertinent to note that Circular No. 786 doted 7-2-2000 i.e., the some has been issued after the judgment was rendered in the case of Transmission Corporation (supra) i.e., on 17-8-1999. The facts in the assessee's case remain governed by the Board Circular and hence, in the final analysis, respectfully following the earlier order of the Tribunal in the assessee's own case, we uphold the order of the CIT (A) deleting the disallowance." 7. In case of Divis Laboratories Ltd. (supra), the ITAT, Hyderabad Bench while interpreting the provisions contained under s. 195 held that unless the income is liable to tax in India, there is no obligation to deduct tax. In order to determine whether the ....
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....he bonafide belief that such payments were not income of the non-residents, exigible for tax in India. Once assessee held a bonafide belief that the payments made to non-residents, were not taxable in India, then it could not be fastened with a liability to deduct tax under Section 195 of the Act. In any case, Assessing Officer has not given any finding that the non-residents had rendered any services which were in the nature of technical services. There is nothing on record to show that any technical knowledge was made available to the assessee through the services rendered by the non-residents, which assessee could make use of in future. In any case, sub-clause (b) of clause (vii) of Section 9(1) of the Act clearly mentions that fees paid in respect of services utilized in a business or profession carried on by such person outside India or for the purpose of making or earning income from any source outside India, would not come within the purview of income by way of fees for technical services. Addition of Explanation to sub-section (2) to Section 9 through Finance Act, 2010 with retrospective effect from 1.6.1976 will therefore have no effect on taxability of income earned by no....
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.... of claim of deduction for sales commission paid to foreign party, assessee brought on record commission bills which clearly substantiated services rendered by foreign party, claim in question could not be rejected. Respectfully following the above decisions and having regard to the material facts on the issue, it is felt that provisions of sec. 195 of the Act are not applicable to the commission payment made to the non-residents for the services rendered such as getting export orders, expediting the bill payments, liaisoning with parties, etc. outside India and who do not have any permanent establishment in India. Consequent to the same disallowance u/s. 40(a)(i) of the Act is also incorrect. The above decisions extensively discussed the provisions of law on the subject, hence, the addition made by the AO is hereby deleted and the ground raised is allowed." 4. Ld. Departmental Representative has submitted that the assessee has not filed any details in respect of commission paid to the foreign agents and therefore the Assessing Officer has rightly disallowed by invoking section 40(a)(ia) of the Act. Even before the ld. CIT(A), the assessee has not filed any agreement and the ld.....