TaxTMI 
TaxTMI 
2021 (2) TMI 726
X X X X Extracts X X X X
X X X X Extracts X X X X
.... obtained from AAR. The said finding is incorrect as no such clarification was sought for during the course of appellate proceedings. 2. That the learned CIT(Appeals) has erred in holding that argument of the appellant that since non-resident persons to whom payments were made did not have any place of business or business connection in India and therefore, the appellant was not required to deduct tax at source is not correct. The said finding is illegal and unjustified. 3. That the learned CIT(Appeals) has erred in holding that there is no evidence on record to show that the sum received by the non-residents in the form of sales commission of Rs. 99,84,435/- was not chargeable to tax under the Income-tax Act. The said finding is illegal and unjustified. 4. That the learned CIT(Appeals) has erred in confirming disallowance of Rs. 99,84,435/- on account of non-deduction of tax at source while making payment of sale commission to non-residents. The disallowance confirmed is illegal and unjustified." 3. During the course of hearing, the ld. AR submitted that first ground of appeal has been taken against the action of the ld CIT(Appeals) in holding that A/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e amount paid by the assessee not being chargeable to tax in India in respect of payee, no tax was required to be deducted at source and reliance was placed on the decision of Supreme Court in the case of G.E.(India) Technology Centre (P) Limited vs. CIT reported in 327 ITR 456 as well as another decision of Supreme Court in the case of Vijay Ship Breaking Corporation vs. CIT 314 ITR 309. The assessee had also relied on number of cases of various High Courts in which it was held that no tax was required to be deducted at source in respect of payment of commission to non- resident agents. The assessee had also filed complete details of commission paid as well as certificate from the payees that commission received by them was in the nature of their business income and they were not having any permanent establishment in India. The ld CIT(Appeals) has discussed this matter in para 6 of his order and his finding has been given in para 6.3 on page 13 wherein he has held that argument of the assessee that since the non- resident persons to whom payments were made do not have a place of business or business connection in India and therefore, he was not required to deduct tax at source is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the non-resident. It is for this reason that the CBDT has clarified in Circular No.728 dated October, 31, 1995, that the tax deductor can take into consideration the effect of the DTAA in respect of payments of royalties and technical fees while deducting TDS. 8. It was submitted that the expression "chargeable under the provisions of the Act" 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. If tax is not so assessable, there is no question of tax at source being deducted. The Hon'ble Supreme Court has also referred to its another decision in the case of Vijay Ship Breaking Corporation vs. CIT reported in 314 ITR 309. It was held by the Supreme Court that if the contention of the Department that the moment there is a remittance the obligation to deduct TDS 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 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 TDS only if tax is assessable in India.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....11. It has been held by the Assessing Officer that the payment of commission by the assessee to non-resident agents is fee for technical services and hence the assessee was required to deduct tax at source. In this connection, it is submitted that it has been held in number of cases that payment of commission to foreign agents is not fee for technical services. Foreign commission agents have neither any control over the export activity of the assessee nor they are final authority in respect of the same. They only perform subsidiary function outsourced to them for saving the cost and convenience. The assessee had duly filed certificates from the recipients of commission that the commission received by them was their business income and they were not having any permanent establishment in India. Thus, it is very clear that the commission which is being paid by the assessee to non- residents and received by the non-residents is not chargeable to tax under the provisions of Income-tax Act and hence, no tax is required to be deducted at source under the provisions of section 195. In support, reliance was placed on following decisions: * Pr.CIT vs. Motif India Infotech 409 ITR 17....
X X X X Extracts X X X X
X X X X Extracts X X X X
....derived which is received or deemed to be received in India accrues or arises or is deemed to accrue or arise to him in India during such year.... Therefore, the commission paid to non-resident outside India for the services rendered outside India will not fall in the category of the income received or deemed to be received in India as well as accrues or arises or is deemed to accrue or arise in India. Thus, the said amount paid to non- resident does not fall in the scope of total income of non-resident and, consequently, it is not chargeable to tax in India under the provisions of the Act. Even otherwise the said income in the hands of non-resident has to be considered in the light of the provisions of DTAA between India and the Country of the resident. In the absence of PE of the non-resident in India such business income is not chargeable to tax in India. Accordingly, in the facts and circumstances of the case when the amount paid by the assessee is not chargeable to tax in India then the assessee is not liable to deduct TDS and consequently, the provisions of section 40(a)(i) cannot be invoked for making the disallowance. In the facts and circumstances of the case the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is nothing but a fee which has been paid by the resident assessee to the non-resident for the technical services rendered by him. This being the stated position and the factum of the case, the payment made by the assessee to a non-resident is squarely covered by the provisions of Section 195 of the Income Tax Act, 1961 which call for deduction of tax at appropriate rate at the time of payment to a non-resident. In view of these provisions which find place in the Statute, the provisions of Section 40(a)(ia) are also attracted wherever TDS on payment of commission to a non-resident has not been made at appropriate rates. These provisions bar deduction of any payment on account of commission [fee for technical services] made to a non-resident, without TDS. In these circumstances, there is absolutely no basis to conclude that income, which is commission in the present case, is not taxable under Income Tax Act, 1961. The assessee in these circumstances is liable to deduct tax at the time of credit of such income to the account of payee or at the time of payment whichever is earlier. Alternatively, the assessee has to obtain certificate for no deduction or lower deduction of tax on the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... outside India. We therefore find that the Assessing Officer has not disputed the nature of the payments so made by the assessee to the non-resident entities and also the fact that the services have been rendered outside of India and the payment have been made outside of India. The only reason why the Assessing officer has disallowed these expenses is in view of the Explanation 2 to Section 195 which reads as under:- "Explanation 2 - For the removal of doubts, it is hereby clarified that the obligation to comply with sub section (1) and to make deduction there under applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non- resident person has (i) a residence or place of business or business connection in India; or (ii) any other presence in any manner whatsoever in India." 24. Further, the Assessing officer has placed reliance was placed on the decision of the Co-ordinate Bench decision in case of M/s Sesa Resources Ltd. (ITA No. 267-PNJ-2015 dated 20.08.2015). The ld. CIT(A) has also not disputed the nature of commission payment which have been made ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....non-resident, if the payment represents income of the payee non-resident, chargeable to tax in India. There are no other conditions specified in the Act and if the income of the payee non-resident is chargeable to tax, then tax has to be deducted at source, whether the payment is made by a resident or a non-resident." 27. Further, regarding the decision of the Co-ordinate Bench in case of M/s Sesa Resources Ltd (supra) relied upon by the Assessing Officer, we find that the same has been set aside by the Hon'ble Bombay High Court (Tax Appeal No. 11 of 2016 dated 07th March, 2016) wherein it was held as under:- "8. With regard to substantial question of law referred to above, we find that in the judgment of the learned Division Bench in the case of Gujarat Reclaim & Rubber Products Ltd (supra) it has been, inter alia, held that before effecting deduction at source one of the aspects to be examined is whether such income is taxable in terms of the Income Tax Act. This aspect has not been considered by learned Tribunal while concluding that the Appellant has committed a default in not deducting the tax at source. As the said learned Division Bench Judgment was not ava....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Explanation 2.-For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued^15 or arisen^15 or is deemed to have accrued^15 or arisen^15 to him shall not again be so included on the basis that it is received or deemed to be received by him in India. Therefore, commission paid to non-resident outside India for the services rendered outside India will not fall in the category of the income received for deemed or received in India as well as accrues or arises or is deemed to accrue or arise in India. Thus, the said amount paid to non-resident does not fall in the scope of total income of non-resident and consequently it is not chargeable to tax in India under the provisions of the Act. Even otherwise the said income in the hands of non-resident has to be considered in the light of the provisions of DTAA between India and the Country of the non-resident. In the absence of P.E. of the non-resident in India such business income is not chargeable to tax in India. Accordingly, in the facts and circumstances of the case when the amount paid by the assessee is not chargeable to tax in ....