TaxTMI 
TaxTMI 
2019 (10) TMI 1430
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....pients. Reference in this regard is made to the decision of Hon'ble Supreme Court in the case of Premier Breweries Ltd. vs. CIT Cochin, 2015 56 Taxmann.com 361 (SC). 1.1 Without prejudice to the above, the Ld. CIT(A) has erred in law on facts in deleting the disallowance u/s. 40(a)(1) of the IT. Act on export commission payments made to the Non-resident Agents solely relying on the decision of the Hon'ble Supreme Court in the case of CIT vs. Toshuku Ltd., (1980) 125 ITR 525 (SC) which is no more applicable in view of the subsequent amendments brought in the IT. Act. 1.2 The Ld. CIT(A) has failed to appreciate that such payments are chargeable to tax in India under the provisions of Section 9(1)(vii) of the IT. Act and, therefore, the assessee was required to deduct TDS on such remittances." 3. When the matter was called for hearing, the learned DR for the Revenue relied upon the order of the AO. 4. The learned AR for the assessee, on the other hand, submitted that the issue is covered by assessee's own case in AY 2014-15. 5. The disallowance of commission to foreign agents amounting to Rs. 4,63,62,693/- paid by the assessee in question. The CIT(A) has dea....
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....aimed that the goods were exported through agent who basically was from UAE. The appellant also made sales to other countries like Tanzania and Mozambique. It is further claimed these overseas agent was providing export orders by searching/inquiring export - import from countries spread over world-wide along with other services. 2.6. He also provided the relevant details to the AO during assessment proceedings through its letter dated 18/11/2016 as under:- (i) Statement of all transactions entered into with M/s. Stone Hill Electromechanical Contracting, Fab House Technologies LLC & Vibgyour International FZ LLC, which includes the details of export party and order size and commission paid for each job. (ii) Ledger account of M/s. Stone Hill Electromechanical Contracting, Fab House Technologies LLC & Vibgyour International FZ LLC. (iii) Copies of all bills along with copies of 15CA and 15CB. (iv) Copy of bank statement and bank payment advice of all the payments made [Annexure-4). (v) Copy of tax residency certificate issued by UAE. TRC clearly mentioned that M/s. Stone Hill Electromechanical Contracting, Fab House Technologies LLC & Vibgyour International FZ LLC w....
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....icate for export realization, copy of Form No. 15CA 8, 15CB and commission payment etc. as discussed above. 2.10. Having considered the facts and submissions, the issues which are to be examined and decided are as under:- 1. Whether the commission paid to foreign agents is taxable in India by virtue of the provisions of section 5 (2)(b) read with section 9(1)(i) of Income Tax Act. 2. Whether the provisions of section 195(2) were applicable on the appellant and he should have deducted tax and in case of no deduction he should have obtained a no deduction certificate from the AO. And 3. Whether the commission paid was genuine and the services have been rendered. 2.11. Regarding the first issue it is noted from the evidences given by the appellant as well as noted by the AO in his order that the services have been rendered by the foreign agents outside India. The sales were booked by them in other countries or for the country for which they have been appointed as commission agents. None of the activities soliciting the clients and procuring the orders has taken place in India. The goods were being delivered by the appellant company in the other country. The activities o....
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....aphs that none of the services have been rendered in India and source of income cannot be said to be in India as the source of income is the services rendered and not the sales. There is no business connection in India from which the income has been earned, there is no property through or from which the income has been earned. Therefore, the provisions of section 9(1)(i) also cannot be applied. 2.14. Reliance is placed on the judgment of honourable Supreme Court in the case of GE India Technology Centre Private Limited, 327 ITR 456 and the judgment of honourable ITAT Mumbai in the case of our Ardesi B Cursetjee & Sons Ltd. 115 TTJ 916. 2.15. Therefore, in view of the preceding discussion the AO was not justified to hold that the commission payable to the overseas agent was doomed to accrue or arise in India and is taxable under the Act in view of the specific provisions of sections 5(?)(h) read with section 9(1)(i) of Income Tax Act. 2.16. Regarding the issue of obtaining no deduction certificate under section 196 (ii) is seen that for the applicability of the provisions of this section, the sum must be chargeable under the provisions of the Income Tax Act. Section 195 pro....
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....ther the decision of honourable Supreme Court of India in the case of CIT vs. Toshoku Limited, 125 ITR 525, still prevails as on date and is the law of the land as regards applicability of TDS provisions to commission paid to overseas/non-resident agents by Indian Exporters. 2.19. Further, reliance is placed on the following decisions/judgments:- * ACIT Vs. Modern Insulators Ltd. [56 DTR 362 (Jaipur Trib.)[ * Ishikawajama - Harima Heavy Industries Ltd. Vs. Director of Income Tax [20/CTR 361] * Dy. Commissioner of Income Tax Vs. Divi's Laboratories Ltd., 1 (2011) 60 DTR (Hyd) (Trib) 210] * ITO, International Taxation, Chennai Vs. Prasad Productoin Ltd. [(2010) 125 ITD 263 Chennai) (SB) * ACIT, Circle - 16(3)(Hyderabad-Trib) vs. Priyadarshini Spinning Mills (P.) Ltd., (2012) ITA No. 1776 (2011) * ACIT (International Taxation) vs. Star Cruise India Travel Services Pvt. Ltd. [14 ITR (T) 282 (Mum.) 2.20. In view of the preceding discussions, the submissions of I he appellant, including the judgments/decisions of various courts and considering the fact that identical issue has been decided by CIT(A)-2, Ahmedabad in preceding year i.e. A.Y. 2012-13 in favour of....
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....eness of transaction. 10. In reply to the said show-cause the assessee submitted his written arguments dated 17.10.2016 inter alia as follows: "With regard to asking the complete names, addresses & services rendered of the parties to whom commission on export sales have been paid during the year under consideration to foreign/overseas commission agents. In this connection, we have already submitted the required details in our earlier submissions in response to details asked vide your notice. Out of total foreign sales commission on exports, of Rs. 29356350/-. We have paid an amount Rs. 8970500/- to Stone Hill Electromechanical Contracting, an overseas agent having their office situated at Stone Hill Electromechanical Contracting LLC. P.O. Box 96255, Dubai, U.A.E., on export sales and an amount of Rs. 20385850/- is paid to Vibgyor International F.Z. LLC, an overseas agent, having their office situated at P.O. Box : 34632, Rak Investment Authority. U.A.E. Statement showing the complete such details of all transactions of export sales and commission part thereon to Stone Hill Mechanical Contracting and Vibgyor International F.Z. LLC, is enclosed as per Annexure. It is submitted ....
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....5 is squarely applicable to the case of the assessee and the obligation to deduct tax at source under the said provision has been failed to be complied with by the assessee as held by the Learned Assessing Officer and the expenditure claimed under the head commission expenses paid to non residents has been disallowed and added back to the income of the assessee under section 40(a)(1) of the Act. 11. In appeal, Learned CIT(A) considered the details submissions made by the assessee. The Learned CIT(A) also considered the submissions made by the assessee that no disallowance in this regard was made in the scrutiny assessment completed for A.Y. 2011-12. Further that the plea as the assessee has complied with the provisions of the Income Tax Act, 1961 and the DTAA and accordingly was not under an obligation to make any withholding tax in terms of the beneficial provisions of Section 90(2) of the Act. The First Appellate Authority particularly observed that all the evidences including bank payment details, bank certificate for export realization, company payment advances, form No. 15CA, 15CB, credit notes to overseas agent, invoices for export by the company with commission amount wer....
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....ties soliciting the client and procuring the orders has taken place in India. The goods were being delivered by the appellant company in the other country. The activities of procuring the payment on behalf of the appellant company were also done abroad. The AO was therefore, incorrect to hold that source of income lies in India as the sales have been made from India the provisions of Income Tax act clearly provide that the tax would be deducted on the income which is taxable in India. The activity of earning the income is not the sale but soliciting the sales by commission agent. Though this activity is linked to the sales of the company but it cannot be said that the income has been derived from sales which has been made from India. The income has been derived from the activity of soliciting the sales on behalf of the appellant company. The agent has carried out all the activity on the foreign soil and none of its activity is in India therefore, it cannot be said that the income has accrued or arisen in India and the source of income was in India. There is no fact brought out by the AO in the order das well as observed by me during the course of appellant proceedings to indicate t....
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....no deduction certificate under section 195 it is seen that for the applicability of the provisions of this section, the sum must be chargeable under the provisions of the income tax Act. Section 195 provides for deduction of tax by the person responsible for paying to a nonresident any interest or any other sum chargeable under the Provisions of the Act. It is clear that the payment was not the interest. It has to be seen whether the payment is covered under the term "any other sum chargeable under the provision of this act". It has been observed in the proceeding discussion that income was not chargeable to tax as it has not been received in India nor it has accrued or arisen in India directly or indirectly. Therefore, once the income is not taxable there is no liability to deduct tax and therefore, it was not obligatory for the appellant to deduct tax in view of this, there was no violation of the provisions of section 195 and the appellant was also not required to pay no deduction certificate from the AO. 2.17. The last issue which is to be adjudicated is that whether the commission payments were genuine and the services were rendered. The AO has briefly dealt with the issue ....
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....nt, including the judgments/decisions of various courts and considering the fact that identical issue has been decided by CIT(A)-2, Ahmedabad in A.Y. 2012-13 and by this office in preceding year i.e. A.Y. 2013-14 in favour of the appellant, it is clear that the appellant was not liable to deduct tax on the commission paid to foreign agent. Therefore, the disallowance of Rs. 2,93,56,350/- under section 40(a)(ia) made by the AO is directed to lie deleted." 12. We find that the same issue was considered by the Co-ordinate Bench in respect of A.Y. 2012-13 in assessee's own case in revenues appeal which was ultimately decided in favour of the assessee by dismissing the said appeal. In the said appeal following submissions mad as under: 13. We have considered the judgment cited by the Learned counsel appearing for the assessee passed by the Coordinate Bench in ITA No. 2503/Ahd/2016 for assessment year 2013-14 on the identical issue rejecting the appeal preferred by the revenue the relevant portion whereof is as follows: "10. We have heard the rival contentions of both the parties and perused the material available on record. In the instant case, assessee has made payment to ....
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....er note that the income was received by the foreign agents on account of services rendered by them in their respective countries. Therefore, we conclude that such income has not accrued or arisen in India and consequential not chargeable to tax in India. Now coming to the fact that whether such commission income by the foreign agents were deemed to accrue or arise in India in terms of provision of Section 9 of the Act, which reads as under:- "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, 70[* * *] 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 72 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 72 carried out in....
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....uthority for Advance Ruling, which support taxability of commission paid to non-residents under section 9(1)(i), but, neither these rulings are binding precedents for us nor are we persuaded by the line of reasoning adopted in these rulings. As for the AAR ruling in the case of SKF Boilers & Driers (P.) Ltd. In re [2012] 343 ITR 385/206 Taxman 19/18 taxmann.com 325 (AAR - New Delhi), we find that this decision merely follows the earlier ruling in the case of Rajiv Malhotra, In re [2006] 284 ITR 564/155 Taxman 101 (AAR - New Delhi) which, in our considered view, does not take into account the impact of Explanation 1 to Section 9(1)(i) properly. That was a case in which the non-resident commission agent worked for procuring participation by other non-resident entities in a food and wine show in India, and the claim of the assessee was that since the agent has not carried out any business operations in India, the commission agent was not chargeable to tax in India, and, accordingly, the assessee had no obligation to deduct tax at source from such commission payments to the non-resident agent. On these facts, the Authority for Advance Ruling, inter alia, opined that "no doubt the agent....
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....gs rendered by the Hon'ble Authority for Advance Ruling. With greatest respect, but without slightest hesitation, we humbly come to the conclusion that we are not persuaded by these rulings." Similarly we also find support & guidance from the judgment of Hon'ble Gujarat High Court in the case of PR CIT Vs. MGM Exports in R/Tax Appeal No. 309 of 2018 vide order dated April 11, 2018. The relevant extract of the order is reproduced below: "7. In the recent order in Tax Appeal No. 290 of 2018, we had dealt with similar situation making following observations: "It can thus be seen that while confirming the order of CIT [A], the Tribunal relied on judgment of the Supreme Court in the case of G.E. India Technology Centre P. Limited vs. Commissioner of Income-Tax & Anr., reported in [2010] 327 ITR 456 (SC) : 2010-TII-07-SC-INTL In such Judgment, It was held and observed that the most important expression in Section 195[1] of the Act consists of the words, "chargeable under the provisions of the Act". It was observed that, "..A person paying interest or any other sum to a non-resident is not liable to deduct tax if such sum is not chargeable to tax under the Act, Counsel....