TaxTMI 
TaxTMI 
2022 (5) TMI 98
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....account of commission, exhibition expenses and testing expenses without deduction of tax at source as required u/s 195 of the Act. 4. The facts as culled out from the orders of the lower authorities are reproduced hereunder so as to deal with contentions raised in this appeal by the Department. ''The assessee company filed its E-ITR for A.Y. 2016-17 on 28-09-2016 thereby declaring total income of Rs.5,50,08,880/- which was further revised on 29-09-2016 thereby declaring Rs.5,49,71,640/-. The case was selected for complete scrutiny under CASS. Therefore, notice u/s 143(2) of the I.T. Act was issued on 9- 09-2017 by fixing the case for hearing on 26-09-2017. Further to complete the assessment proceedings, notice u/s 142(1) alongwith questionnaire was issued through ITBA Portal on 05-07-2018 and in response thereto the assessee submitted required details/ documents and on perusal of the same, the following points are emerged. 2. Disallowance u/s 40(a)(ia) of the I.T. Act 2.1 On perusal of audited final accounts of the assessee, it has been observed that the assessee has made payment of Rs.2,11,07,351/- towards Selling Commission, Rs.15,70,429/- towards Ex....
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....nce these facts and submission are required to be swayed and is extracted as under:- The relevant extract of the assessment order is as under "2.1 On perusal of audited final accounts of the assessee, it has been observed that the asses has made payment of Rs. 2,11,07,351/- towards selling commission, Rs. 15,70,429/- towards Exhibition expenses and Rs. 2,09,191/- towards Testing Expenses without making TDS, in view of insertion of explanation to section 195 by Finance Act, 2012 with retrospective effect from 01-04-1962. Therefore, a show cause notice was issued to the assessee on 26.11.2018, mentioning therein as to why the above expense shall not be disallowed u/s 40(a)(ia) of the I.T Act, and added the same to the total taxable income for the year under consideration. 2.2 In response to this show cause notice the assessee submitted its reply on 28.11.2018 stating therein that: "In this ..............................................................Tax Act." 3. This office considered the above reply and the case laws cited therein by the AR of the assessee, but not found tenable on merits as the assessee has not deducted TDS on selling c....
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....law for the larger interest of effected parties. It is always clarificatory and, therefore, it is of retrospective character. When some circular is withdrawn with immediate effect it could simply mean that provisions of law should be interpreted as if such circular had never been issued on the subject. Provisions of the Act will have to be interpreted without taking any help from the circular. 3.5.2 Further, in the Circular No. 7 of 2009 dated 22nd October, 2009 itself it has been mentioned that: "Even when ......................................................................... the circular." 3.6 In light of above and after holding that the circular is declaratory i.e. it is applicable in all cases where amendments etc. are pending irrespective of A.YS., the central issue, so far as determination of total income of the assessee is concerned, is disallowance U/s 40(a)(i) of payments made to non resident where tax has not been deducted at source as required U/s 195 of the Act and whether any payments have been made to a person which is not in accordance with the provisions of Section 9 of the Income Tax Act, 1961. Relevant provisions u/s 195 are as under:....
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....ed payments have been made to nonresidents without deduction of tax as required u/s 195 of the act. Consequently, the expenditure on export commission and other related charges payable to a non resident for services rendered outside India is not allowable expenditure and they deserve to be disallowed u/s 40(a)(ia) of the act. Therefore, an amount of Rs. 2,11,07,351/- towards selling commission, an amount of Rs. 15,70,429/- towards Exhibition expenses and an amount of Rs.2,09,191/- towards Testing Expenses, totaling to Rs. 2,28,86,971/ (2,11,07,351 + 15,70,429 + 2,09,191) is disallowed and added to the total income of the assessee." 2.2 The relevant extract of the submission of the appellant is as under: "1. Covered matter: 1.1 It is pertinent to note that the assessee-made similar payments and even almost to the same very parties i.e. the foreign payees in the past and the AO made disallowances u/s 40(a)(ia) in A.Y. 2013 14 & 2014-15, which was confirmed by the Id. CIT(A). However, in the second appeal the Hon'ble ITAT deleted the disallowance in JLC Electromet (P) Ltd. vs. ACIT (2019) 201 TTJ 811 (JP) (PB 552- 578) holding as under: "23. We have.........
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....tail duly supported with all the evidences that all the subjected expenses viz. Selling Exp., Exhibition Exp, Testing Exp. were incurred outside India and in all the three cases the respective services were also rendered by the respective payees, only outside India. All the requisite details were submitted vide letter dated 17.11.2016 & 18.11.2015. The jurisdictional facts thus, are not denied and duly admitted therefore, it cannot be said that any income accrued or arose in respect of all the three subjected payments u/s 4, 5 or 9 of the Act in India. 4.2.1 Commission Expenses: The subjected payments included commission expenses of Rs.1.63 crore which was paid to the foreign selling agents who rendered their services to the appellant outside India. The payments in this respect were also made outside India only. Kindly refer ledger accounts of Selling commission (Export) providing the complete detail as regard the name of the payee, reference to the export invoice of the appellant, the rate / amount of commission etc. and when the same was credited to the account of the payee or paid to him, is enclosed. (PB 9-16) along with Copies of Agency agreement, Certificate of the p....
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....ia as enumerated in Explanation 2 to Section 9(1) and consequently there is no business connection between the assessee and the Non-Resident Payees. Moreover, all the countries of the respective payees and India have already entered into DTAAS providing the taxing of the income, if any, in the hands of the concerned payee. Thus, it is fully established that the subjected amounts so received by the respective payees, were not the income chargeable to tax in India in any manner whatsoever, hence s. 195 of the Act was not applicable in this case. 4.6 Moreover, no Certificate is required u/s 195/197, when S.195 is not at all applicable to the appellant. 5. Even Explanation is not applicable: 5.1 Firstly, the ld. AO has completely misread and misapplied Explanation 2 in as much as Sec.195 requires "Any person responsible for paying...." Any person includes all the persons be a resident or non-resident as defined u/s 2(31) of the Act. Therefore, even a non-resident person responsible for paying to a non-resident was liable to deduct TDS u/s 195 however, certain judicial pronouncements had created doubts about the scope and purpose of S.195. It is only therefore....
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....ditions mentioned therein were not at all satisfied by the AO. It has never been the case of the AO that the payee non-resident was having a residence/place of business/ business connection in India or was present in any manner whatsoever in India so as to apply Explanation 2 r.w.s.195 and nor was the case of the appellant depended upon the same because it never contended that the payees did not have their residence/place of business/no business connection or did not have their presence in any manner in India. Thus, the simply admitted facts were that all the payees rendered services outside India and payments were also made to them outside India therefore, by no stretch of imagination it could be said that income accrued or have arisen or deemed to have accrued or have arisen in India by virtue of Sec.5 or Sec.9. Consequently neither Sec. 195 nor Explanation 2 could be made applicable. 5.4 Explanation cannot override the main provision: Yet another settled rule of interpretation is that an Explanation though can explain the main provision but can never override or violate the terms of the main provision. Kindly refer Prithvi Information Infra. 6.1 Suppor....
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....nder: Agency agreement, Certificate of the payee, Foreign bills transaction advice, Letter by the assessee to the concerned bank with enclosure to make payment outside India. The above sets of papers are available with reference to all the parties to whom the subjected amount of commission has been paid. 9.2 Further with regard to the exhibition expenses also we are submitting herewith Copies of Ledger, Bills, Bank advice, correspondence and Form A2 of FEMA in respect of every expenses. 9.3 Also with regard to the testing expenses we submitting herewith Copies of Ledger, laboratory expenses and transaction receipt (Details) in respect of every expense relating to Testing expenses. (PB 528-551) 10. From a perusal thereof it is evidently clear that The payee actually rendered the services outside India only, The payments were made to him outside India only, The payee did not have any office or other fixed place of business in India The payee did not have any dependent employee/ correspondent performing any business activity in India. They did not have permanent establi....
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....ngly considered such commission payment as FTS. 12.2 Supporting case laws: Commission is not FTS 12.2.1 Fully covered issue: -1.1 It is pertinent to note that the AO in A.Y. 2014 15, also held that the payment in question is fee for technical services (FTS) because the nonresidents have rendered the service of managerial nature which falls in the ambit of definition of Fee for Technical Services under s. 9(i)(vii) of the Act. However, the Honb'le ITAT considering the contention of the assessee that the provisions of s. 40(a)(ia) can be applied only in respect of sum payable or paid to a non-resident towards interest, royalty or fee for technical services (FTS) or other sum chargeable under this Act which is payable to non-resident, deleted the disallowance in assessee's own case in JLC Electromet (P) Ltd. vs. ACIT (2019) 201 TTJ 811 (JP). Thus, this issue is fully covered in favour of the assessee. 12.2.2 Director of income tax (International Taxation) vs. Credit Lyonnais (2016) 95 CCH 0141 (Mum HC). In this case, the services of the non-resident sub-arrangers of attracting deposit to IMDS Scheme were carried out entirely outside India, which were....
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....qually applies in the instant case and such commission payment cannot be held chargeable to tax in India. Similarly the exhibition expenses have been paid in respect of participation in various exhibitions held outside of India and even the testing charges have been paid for testing services outside of India. Therefore, these payments will not fall in the category of income which has accrued or arisen or deemed to accrued or arise in India. Further, payments have been made outside of India. dia. Accordingly, we are of the considered view that there was no liability to deduct tax at source under section 195(1) as these payments are not chargeable to tax and the provisions of section 40(a)(ia) cannot be invoked in the instant case. 31. In light of above discussions and considering the entirety of facts and circumstances of the case, the disallowance made by the Assessing Officer is directed to be deleted. 32. Now, coming to ITA No. 23/JP/19 for AY 2014-15 undisputedly, the facts and circumstances of the case are exactly identical to facts and circumstances of the case in ITA No. 1494/JP/2018, out findings and directions contained therein shall apply mutatis mutandis....
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....d on record the Ld. CIT(A) has hold that the disallowance for the year under consideration is uncalled for and has deleted the same and the said order is disputed by the department in this appeal. 8. On the contrary the Ld. DR has not controverted any of the fact that the assessee is contending in connection with the contention for alleged non-deduction of tax at source. The Ld. AR contended that there is no requirement to withhold the tax on this paymentbased on the evidences placed on record by the assessee running into 635 pages. Against the written submission filed the Ld. AR, the Ld. DR has not challenged any contentions on the written arguments supported by evidence placed on record. The submission were filed in two part one is on28.07.2021 and another on 23.10.2020. Even the fact submitted by the Ld. AR is not challenged and the decision relied upon where also not differentiated by the Ld. DR. He has only contended that payment made to non resident without deduction of tax and based on the finding of the assessing officer he prayed that the addition should sustained. He has heavily relied upon the finding of the Ld. AO and has not pointed any legal arguments or decision s....
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.... whom the payments were made. 11. During the course of hearing the Ld. AR appearing on behalf of the assessee has argued in detailed. He has placed reliance on his written submission and the same is extracted here in below to have all that aspect of it is raised; 1. Covered matter: 1.1 It is pertinent to note that the assessee made similar payments and even almost to the same very parties i.e. the foreign payees in the past and the AO made disallowances u/s 40(a)(ia) in A.Y. 2013-14 & 2014-15, which was confirmed by the ld. CIT(A). However, in the second appeal the Hon'ble ITAT deleted the disallowance in JLC Electromet (P) Ltd. vs. ACIT (2019) 201 TTJ 811 (JP) (PB 552-578) holding as under: "23. We have heard the rival contentions and perused the material available on record. During the course of assessment proceedings, the Assessing Officer found that the assessee has made payment of selling commission, exhibition expenses and testing expenses to various non-resident entities, without deducting tax at source and a show cause was issued as to why this payment should not be disallowed u/s 40(a)(ia) in view of insertion of Explanation 2 to section 1....
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.... Provided further that no such deduction shall be made in respect of any dividends referred to in section 115-0. Explanation 1.-For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. 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. 2.2 S. 40(a)(ia) of the Act, as stood at the relevant point of time, (relevant extract only) is as under: S. 40. Notwithstanding a....
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....uired to be deducted in respect of any sum paid to non-resident which is chargeable to tax in India under the provisions of the Income Tax Act. It means that if any payment made to non-resident is chargeable to tax in India under the provisions of the Income tax Act then person responsible for paying to a non resident is required to deduct income tax thereon at the rates in force. The provisions of section 195 of the Income Tax Act are applicable only in those cases where the payment made to non-resident is chargeable to tax in India under the provisions of the Income Tax Act. If any payment made to non-resident is not chargeable under the provisions of the Income Tax Act then the provisions of section 195 of the Income tax act are not applicable. a. The assessee company is not required to deduct any tax at source as per provisions of section 195(1) of the Income Tax Act on Rs.2,11,07,351.00 towards Selling Commission, Rs. 15,70,429.00 towards Exhibition Expenses and Rs.2,09,191.00 towards Testing Expenses made to non-residents since these payments made to non resident are not chargeable to tax in India as the no income accrues or arises in India in respect of these paymen....
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.... and, therefore, provisions of section 195 would not apply. (b) Obligation to deduct tax at source under section 195(1) arises, only if payment is chargeable to tax in hands of non-resident recipient. Prithvi Information Solutions Ltd. V. Income Tax Officer reported in 47 taxmann.com 214 (2014). We give below the headlines of the decision of Prithvi Information Solutions Ltd. V. Income Tax Officer: Section 195 of the Income-tax Act, 1961- Deduction of tax at source Payment to non resident (Explanation to section 195)-Assessment year 2007-08- Whether where amounts are paid outside India to persons outside Indian territory, who does not have any tax liability as far as Income-tax Act, is concerned, said sum cannot be considered as 'sums chargeable under provisions of Act - Held, yes - Whether even though Explanation 2 to section 195 clarifles position payments made to non-resident is subject to TDS irrespective of whether or not a nonresident person has a residence or place of business or business connection in India, Explanation cannot override main provision of section 195 about 'sum chargeable' under provisions of Act - Held, yes [Para 20] [I....
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....r, ITA No. 1122/JP/2016 decided on 26 Dec, 2017. The facts of the appellant assessee are similar and identical to acts of the case Subhash Chand Gupta vs. ACIT, Alwar and it was decided in favour of the assessee. The copy of the appellate order dated 26-12-2017 of Hon'ble Jaipur Bench of Income Tax Appellate Tribunal is enclosed herewith for your ready reference. It is submitted that the Hon'ble Jaipur Bench of Income Tax Appellate Tribunal in this case allowed theappeal of assesse considering the decision of the Hon'ble Madras High Court andalso the factual aspect of the case as mentioned before Para no.8 on Page no. 15 of the appellate order dated 26th Dec., 2017. The issue of explanation to section 195 by the finance act, 2012 with retrospective effect from 01- 04-1962 has been properly dealt with in the decision of Hon'ble Madras High Court and considered by the Hon'ble Jaipur Bench of Income TaxAppellate Tribunal in the case of Subhash Chand Gupta Vs. ACIT, Alwar. In thisconnection Page No.14 and 15 of the appellate order dated 26th Dec, 2017 may beperused. We also rely on the following judgment of Hon'ble Jaipur Bench of Income TaxAppellate Tr....
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....ssee and allow the issue in dispute in favour of the assessee which in my considered opinion, does not need any interference on my part, hence, I uphold the order of the Ld. CIT(A) on the issue in dispute and reject the grounds raised by the raised by the Revenue." 3. Similarly the Testing Charges were paid to non- resident for getting the samples/goods tested outside India and as such no income accrues or arises in India to non-resident in respect of payment of Testing Charges paid to non resident for getting the samples/goods tested outside India. The details and other evidences in respect Testing Charges were produced before you on the last date of hearing. We enclose herewith the details of Testing Charges. No tax at source u/s section 195 of the Income Tax Act is required to be deducted in respect of Testing Charges paid to non- resident for getting the samples/goods tested outside India made to non-resident by the assessee company. In this connection place reliance on the decision of Apex court in the case of GE India Technology Cen. P Ltd v. CIT (2010) 327 ITR 456(SC) wherein it was held as under : Section 195 of the Income tax Act, 1961- deduction of tax a....
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....ich have either accrued or arisen in India. The AO wrongly considered such payment as FTS u/s 9(1)(vii). This aspect is also covered by the ITAT order (supra). (PB 552-578). 4.2.2 Exhibition expenses: Similarly the exhibition expenses were incurred inmaking payment to various non-residents outside India on account of the stallbooking in different conferences exhibitions held outside India. Thus, the serviceswere rendered outside India and respective payments were also made outside India. Kindly refer the detailed ledger account (PB 458-459) along with Copies of Invoice, Foreign bills transaction advice, Letter by the assessee to the concerned bank with enclosure to make payment outside India (PB 460-527), containing the relevant details. 4.2.3 Testing Expenses: Lastly, the testing expenses were also paid to the nonresident outside India for getting the Samples / Goods which were tested by the nonresident outside India. Payments to these persons were also made outside India. Copyof the detailed ledger of Testing Expenses along with Invoices (PB 528-551), containsthe relevant details (PB 1) is enclosed herewith. 4.3. From a perusal of the above submissions ....
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.... part capital F. Rationalization of International Taxation Provisions in the memorandum explaining the provisions of the Finance Bill, 2012 "Section 195 of the Income-tax Act requires any person to deduct tax at source before making payments to a non-resident if the income of such non-resident ischargeable to tax in India. "Person", here, will take its meaning from section 2 and would include all persons, whether resident or non-resident. Therefore, a non resident person is also required to deduct tax at source before making payments to another 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 nonresident is chargeable to tax, then tax has to be deducted at source, whether the payment is made by a resident or a non resident. Certain judicial pronouncements have created doubts about the scope and purposeof sections 9 and 195. Further, there are certain issues in respect of incomedeemed to accrue or arise where there are conflicting decisions of various judicialauthorities. Therefore, there is a need to provide clarificatory retrospec....
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....f assessee]" 5.1.3 Also kindly refer Gujarat Reclaim & Rubber Products Ltd. (2015) 94 CCH 0148 (Mum) (DPB 1-7), CIT, Coimbatore Vs. Kikani Exports(p) Ltd. (2014) 49 66taxmann.com601(Madras) (DPB- 108-113) and CIT, Chennai Vs. Farida Leather Company (2016) 238 Taxman 473/66taxmann.com321 (Madras) (DPB- 114-121). Also refer a direct decision in the case of ITO vs Kulbeer Singh in ITA No.5204/Del/2014 vide order dated 03.10.2018 (DPB 133-169) 5.2 Further the AO has misinterpreted the said Explanation 2. What all is provided in the Explanation 2 is that S.195 applies to all the persons who is responsible to pay (payer), is liable to make TDS whether he is a resident or non-resident person and irrespective the fact that such person has (a) a residence (b) place of business (c) or business connection in India or (d) any other presence in any manner whatsoever in India. Thus, Explanation speaks of the payer only and not of the payee. 5.3 Alternatively and without prejudice, even assuming for a moment that Explanation 2 applies, the way the ld. AO interpreted yet however, on the factual matrix the conditions mentioned therein were not at all satisfied by the AO. ....
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.... he is required to make an application to ITO(TDS) for determining the amount-It is only when these conditions are satisfied that the question of making an order under s. 195(2) arises-If the contention of the Department that the moment there is remittance the obligation to deduct tax arises is to be accepted, then thewords "chargeable under the provisions of the Act" in s. 195(1) would stand obliterated If the contention of the Department is accepted then the department would be entitled to appropriate the moneys deposited by the payer even if it is not chargeable to tax because there is no provision in the Act whereby a payer can obtain refund-Sec. 237 r/w s. 199 implies that only the recipient of the sum can seek a refund- Thus, the interpretation of the Department leads to an absurd consequence-Entire basis of the Department's contention is based on administrative convenience in support of its interpretation-There are adequate safeguards in the Act which would prevent revenue leakage" 6.1.2 The issue in hand is directly covered by the decision of Hon'ble Rajasthan HighCourt in the case of CIT vs. M/s Modern Insulators Ltd. (2014) 110 DTR 0297 (Raj)in which it h....
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....urt at Goa, in Tax Appeal No. 11/2016 vide order dated 07.03.2016, restored the issue back to the file of the Tribunal for re-adjudicating the same afresh. Notably in second round the Hon'ble ITAT Panaji Bench, Panaji in ITA No./ 267/PAN/2015 dated 27.04.2016 has now decided the issue in favour of the assessee and against the department. The Hon'ble ITAT Panaji has relied upon a decision of Hon'ble Mumbai High Court CIT vs. Gujarat Reclaim & Rubber Products Ltd. (2015) 94 CCH 0148 (Mum) which is a very detailed decision and has been reproduced by the Hon'ble ITAT in its order. Thus, the only basis of the AO remains no more. 8. Other Supporting Case Laws: TDS u/s 195 w.r.t. Commission Paid to Agents outside India: 8.1 ACIT vs. IIC Systems (P) Ltd. (2010) 33 DTR 0422 (Hyd trib) 8.2 DCIT vs. Ardeshi b. Cursetjee & Sons Ltd. (2008) 7 DTR 0051 (MumTrib) 8.3 Armayesh Global vs. ACIT (2012) 32 CCH 0159 (Mum Trib) 8.4 CIT vs. Eon Technology (P) Ltd. (2012) 343 ITR 0366 (Del) 8.5 CIT vs. Toshoku Ltd (1980) 125 ITR 0525 (SC) held as under: "The commission amounts which were earned by the non-resi....
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....me accruing or arising to non-resident in India- Services of non-resident sub-arrangers of attracting deposit to IMDS Scheme was carried out entirely outside India- As held by Apex Court in case of CIT, A.P. v/s Toshoku Ltd no income could be said to accrue or arise in India where payment was made for service by non-resident outside India- As no income had accrued or arisen to non-resident sub-arrangers in India, question of deduction of tax U/S 195 would not arise-Assessee would not fall within category of managerial, technical or consultancy services in terms of Explanation (2) to section 9(1) (vil) so as to deemed to accrue or arise in India Revenue's Appeal dismissed." 8.7 NEC HCL System Technologies Ltd. vs. ACIT (2016) 46 CCH 0396 DelTrib "TDS-Non-deduction-Disallowance u/s 40a(i)-Assessee was established for purposeof providing offshore centric software engineering services and solutions to NEC Group and its subsidiaries-No tax was withheld on payment made by Assessee to HCL Japan being non resident company, as Assessee believed that payment was covered by exception carved out u/s. 9(1)(vii)(b) being fees paid in respect of its business carried on by Japan BO ou....
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....tax at source, it was hit by provisions of section 40(a)(i) and tax should have been deducted at source by assessee firm u/s 195-AO held that those payments to non-resident by assessee firm was income deemed to accrue or arise in India and chargeable to tax u/s 9(1)(vii) and as per explanation to section 9(2), fees for technical services means any consideration for rendering of managerial, technical or consultancy services-AO held that services offered by agents were covered under managerial services that were included in fee for technical services and since assessee firm had not obtained certificate u/s 195(2), payment made to foreign agent of Rs.34,18,126/- was disallowed by AO u/s 40(a)((i)- CIT(A) held that commission agents were not having permanent establishment in India, amount in question did not accrue or arise in India and, thus, there was no need for deducting tax at source u/s. 195- CIT(A) deleted disallowance u/s 40a(ia) of Rs.34,18,126/- holding that assessee was using services of overseas commission agent for procuring export orders and not for providing managerial/technical services attracting TDS- Held, assessee firm paid export commission of Rs. 34,18,126/- to for....
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..... procurement of order and did not constitute managerial services-Assessee firm was entitled for deduction of export commission of Rs.34,18,126/- paid to foreign agents for sourcing of export orders in favour of assessee firm without deduction of tax at source u/s 195 as these export commission payments to foreign brokers in not sum chargeable to tax in hands of foreign brokers as contemplated u/s 195 and was neither fee for technical/managerial services as defined in explanation 2 to Section 9(1)(vii) to bring it to tax under fiction created by deeming provisions of Section 9- Revenue's Appeal dismissed. 8.9 ACIT vs. Gupta H.C. Overseas (I) Pvt. Ltd. (2016) 46 CCH 0576 (AgraTrib) "Business Expenditure-Expenses or payments not deductible in certain circumstances Disallowance of design charges-Deletion of disallowance-Assessee was exporter of leather footwear and footwear uppers-AO held that Assessee was under obligation to deduct tax at source from disputed payments and as Assessee failed to do so, payments were rendered ineligible for business deduction in view of provisions of S.40(a)(i)-AO made disallowance of design charges-CIT(A) held that since no servic....
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....isions- Alternatively u/sec.9(1)(vii) fees for technical services, lab analysis fees would not fall into category of technical fees also there was no permanent establishment in India to charge such income to tax-It found that services were rendered in India and report was obtained in India- Therefore, ITAT remitted issue to AO for limited purpose to verify working system of Audited and consultancy work or inspection was carried by Auditors on lab analysis and ITAT set aside order of CIT(A) and directed AO to consider issue and pass order after providing adequate opportunity of hearing before passing order on merit 8.11 Latest supporting case laws: A.B. Hotel Ltd. (Radisson Hotel) Vs. DCIT [2008] SOT 368 (Delhi), 9.1 Accordingly, with regard to commission expenses accordingly, we are submitting herewith a chart along with all the relevant papers (PB 9-551), as under: Agency agreement, Certificate of the payee, Foreign bills transaction advice, Letter by the assessee to the concerned bank with enclosure to make outside India. payment The above sets of papers are available with reference to all the parties to whom the subj....
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....neither any control over the export activity of the assessee nor they are the final authority in respect of the same. They only perform a subsidiary function outsourced to them for saving the cost and convenience. Hence, the activity of the foreign commission agents does not amount to managerial services and does not fall within the definition of "Fees for Technical Services". Even the agreements do not require any such qualities from the agents. Exhibition & testing are routine exp. & not FTS. Interestingly, similar payments were made in the other years also when firstly, no disallowance at all was made u/s 40(a)(ia) in those years and also even in 2013 14 when the disallowance was made u/s 195, the AO did not term such commission payment as fees for technical services. Thus, there being no special reason and without bringing any change in facts & circumstances, the AO wrongly considered such commission payment as FTS. 12.2 Supporting case laws: Commission is not FTS: 12.2.1 Fully covered issue:- 1.1 It is pertinent to note that the AO in A.Y. 2014-15, also held that the payment in question is fee for technical services (FTS) because the non-residents ha....
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....that provisions of section 40(a)(1) were not applicable as assessee was not obliged to withhold taxes u/s 195 Held: section 195 obliges person responsible for paying to non-resident any sum chargeable to tax under the Act, to deduct tax at time of payment or at time of credit to such non resident-In terms of section 5 nonresident was chargeable to tax received or deemed to be received in India or accrued or arising in India-Services were admittedly rendered by non-resident sub-arrangers outside India-In such case, there was no occasion for any income accruing or arising to non-resident in India-Services of nonresident sub-arrangers of attracting deposit to IMDS Scheme was carried out entirely outside India- As held by Apex Court in case of CIT, A.P. v/s Toshoku Ltd no income could be said to accrue or arise in India where payment was made for service by non-resident outside India- As no income had accrued or arisen to non-resident sub-arrangers in India, question of deduction of tax U/S 195 would not arise-Assessee would not fall within category of managerial, technical or consultancy services in terms of Explanation (2) to section 9(1) (vii) so as to deemed to accrue or a....
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.... "fees for technical services" as explained in the context of Section 9(1)(vii) of the Act." 2.2.5. Subhash Chand Gupta vs. ACIT in ITA No. 1122/JP/2016 for A.Y. 2013-14Dated 26/12/2017 (Pr. 5 Page 61)(I DPB 69 & 70) 12.2.6. ACIT vs. Pahilajrai Jaikishin (2016) 157 ITR (trib) 1187 (Mum. Trib.). Held: Assessee firm has paid the export commission of Rs. 34,18,126/- to the foreign agents for rendering services abroad in relation to sourcing of export orders and for collecting payments on behalf of the assessee firm, on which no tax was deducted at source by the assessee firm u/s 195 of the Act. The AO has disallowed the expenses of Rs. 34,18,126/- on account of export commission paid by the assessee firm u/s 40(1)(a) of the Act read with Section 195 of the Act by holding the said services to be managerial / technical services as defined under explanation 2 to Section 9(1)(vil) of the Act. The facts as emerging from records reveals that these foreign agents do not have any permanent establishment or any place of establishment in India .These foreign agents are operating in their respective countries and rendering services to the assessee firm from abroad and ....
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.... for generation of export orders in the hand of taxpayer and has held that these services cannot be held to be managerial, technical or consultancy services to fall within the definition as contemplated under explanation 2 to Section 9(1)(vii) of the Act and held that commission paid to foreign agent is for performing sales related activity i.e. procurement of order and does not constitute managerial services. Based on ITAT above detailed discussions and reasoning, ITAT hold that keeping in view the facts and circumstances of the instant appeal, the assessee firm is entitled for deduction of export commission of Rs.34,18,126/- paid to foreign agents for sourcing of export orders in favour of the assessee firm without deduction of tax at source u/s 195 of the Act, as these export commission payments to the foreign brokers in not a sum chargeable to tax in the hands of the foreign brokers as contemplated u/s 195 of the Act and is neither a fee for technical/managerial services as defined in explanation 2 to Section 9(1)(vii) of the Act to bring it to tax under fiction created by the deeming provisions of Section 9 of the Act. ITAT order accordingly. (Para19) 12.2.7. CIT vs. ....
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.... Ld. AO has nowhere stated that the facts & circumstances of the current year and in particular relating to these parties is something different than the earlier years. Moreover, the Ld. CIT(A) has already recorded categorical finding of fact that she has perused and verified the record and found the facts & circumstances of the current year as similar to those in the earlier years and therefore, held the subjected year as covered by the ITAT order in AY 2012-13 & AY 2013-14. 16. No disallowance in AY 2018-19: Another notable development is that even in AY 2018-19, the assessment was completed under scrutiny wherein the AO raised pointed query vide para no.17 of the notice u/s142(i) regarding payment of commission "17. Please furnish details of payment of commission amounting to Rs. 1,90,19,744/-in the following format." furnish copies of sales invoice for which commission was paid. Please justify receipt of services and again vide Para no. 11 raised the following queries: Details of the sales made by you, kindly provide details as under:"----TDS deducted.?? This was duly replied by the assesse vide its letter dt. 25.01.2021 submitting all the details which, ultimately res....
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....x [6]. "We are aware of the fact that strictly speaking res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a sub.sequent year." 18.2 DCIT v/s Gujarat Narmada Valley Fertilizers Co. Ltd. (2013) 84 CCH 271 Guj HC: (2013) 215 TAXMAN 72 (Gujarat) Preliminary expenses-Amortization of certain preliminary expenses-Assessee claimed deduction u/s. 35D-AO restricted deduction on ground that only eligible expenses were allowed to be spread over u/s. 35D and therefore, expenses only to extent that had nexus to eligible projects were admissible However, Tribunal, noted that in last seven years, no such disallowances were made and directed such benefit to be granted-Held, since last several years, AO had granted such claim on same consideration-Following rule of consistency, Tribu....
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....o not have permanent establishment and, therefore, the impugned disallowance of the sum is also not chargeable to tax therefore, the provisions of section 9(1)(vii) cannot be invoked in the present facts.It has been pointed out that the said services are rendered and utilized outside India and payment has also been received by the foreign entities outside India, the case of the assessee is squarely covered in the exemption provided in section 9(1)(vii)(b) of the Act which is reproduced as under "a person who is a resident, except where fees are payable in respect of services utilized in a business or profession earned on by such person outside India or for the purpose of making or earning any income from any source outside India" Therefore, in case where fees for technical services has been rendered outside India and has been utilized for the purpose of making or earning any income from any sources outside India, such payments would fall outside the purview of provision section 9(1)(vii) and will not be deemed to accrue or arise in India. 17. We have carefully considered the rival contentions and perused the orders of the lower authorities. The ld AR Shri Shri Mahend....
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....ccepted and why the orders of the Tribunal for the earlier Assessment Years were not acceptable to the Assessing Officer, particularly, in the absence of any new fact or change of circumstances. Neither any basis has been disclosed establishing a reasonable nexus between the expenditure disallowed and the dividend income received. That any part of the borrowings of the assessee had been diverted to earn tax free income despite the availability of surplus or interest free funds available (Rs. 270.51 crores as on 1.4.2001 and Rs. 280.64 crores as on 31.3.2002) remains unproved by any material whatsoever. While it is true that the principle of res judicata would not apply to assessment proceedings under the Act, the need for consistency and certainty and existence of strong and compelling reasons for a departure from a settled position has to be spelt out which conspicuously is absent in the present case. In this regard we may remind ourselves of what has been observed by this Court in Radhasoami Satsang vs. Commissioner of Income-Tax [6]. "We are aware of the fact that strictly speaking res judicata does not apply to income tax proceedings. Again, each assessment ye....
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....e ITAT was not accepted on merits as ITAT has totally ignored the various defects pointed out by the AO and the same was also confirmed by the CIT(A) in toto. However, the tax effect was below the prescribed limit for filing further appeal as per CBDT circular No. 17/2019 dated 08.08.2019. Hence no further appeal was filed on this issue. 21. On this issue the ld. AR of the assessee has argued before us that the parties to whom payments have been made for AY 2013-14 and 2014-15 are similar in the year under consideration i.e. 2016-17 and he has given detailed chart mentioning therein name of each entities to whom payment has been made in the year under consideration and the ld. AR of the assessee has also filed the names and addresses of the parties. Here the Ld. DR has not challenged any of the facts and his silence on the issue suggests that there are merits in the arguments and submissions made by the Ld AR of the assessee. Therefore, considering the overall facts, judicial precedents relied upon before us, we hold that all the payments involved in these years are similar to earlier years, wherein the ITAT has in detailed dealt with the issue and it is in assessee's own case. ....