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2018 (10) TMI 1961
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....gents without deduction of TDS u/s.195. The addition has been made u/s 40a(i). There is no dispute about the nature of payment being commission paid to foreign agents except for small amount of Rs.36,30,643/- -, which is claimed by the appellant to have been paid to Indian agents after deduction of tax at source. The AO has proceeded by assuming that all the amounts are commission paid to foreign agents and that no TDS was effected u/s.195 of the I.T. Act, 1961. 1 2. A part of the AR's submission dated 14-03-2015 has been reproduced on page 2 of the AO's order, which claims that the commission was paid to overseas brokers for obtaining order outside India in respect of exports of raw cotton as well as other items. There is further plea from the appellant's AR that the income of those brokers did not accrue in India or was not deemed to accrue in India and thus the amounts were not liable to TDS as no business connection or establishment is claimed to be in existence in India. 1.3. The AO has not recorded any finding on the nature or details this commission claimed to have been paid to foreign agents. But, he has dealt at length with the provisions of S....
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....s and on such payment of commission tax was duly deducted by assessee company and paid to the credit central government before the due date of furnishing the return of income of income. thus the disallowance of the aforesaid amount of Rs.36,30,643 which sum included in the sum of Rs.2,57,60,898 has wrongly been made by the Assessing Officer on assumption of facts contrary to records. 1.1 The Appellant Company submits that it had claimed an aggregate sum of Rs.2,57,60,898 towards commission paid to its agents for procuring business which sum included the sum of Rs.2,21,30,255 to its foreign agents having no place of business, (commonly referred to as PE, in India and a sum of Rs.36,30,643 to its Indian agents. 1.2 It is most respectfully submitted that the Appellant Company was not statutorily required to deduct tax at source on commission paid to its overseas agents since they did not have any place of business in India. The commission of Rs.2,21,30,255 was paid to them for their services rendered outside India mainly for procurement of orders. It is settled law that no TDS is required to be deducted by an assessee on any amount paid to non-resident, having no PE ....
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....ce of business or business connection in India has been dispensed with. And according to him, now the assessee is required to deduct TDS in all cases of payment to non- residents irrespective of the fact as to whether such non- residents are having any place of business in India or not. Thus the AO was of the opinion that payment made to foreign agents for commission in respect of service rendered by them outside the territory of India is now liable for TDS in India and failure to deduct TDS would attract provision of section 40(a)(i) of the Act. 1.4 The Appellant, in response to the aforesaid grounds raised by the Assessing Officer, in the impugned assessment order submits that the Ld. Assessing Officer has not understood the meaning of Explanation below section 9(2) of the Act and also misunderstood the content of CBDT Circular No. 7/2009. The Appellant most respectfully submits as under: (i) The provisions of section 9 and/or substitution of Explanation to section 9(2) of the Act does not change the existing law relating to nondeduction of TDS on payment of commission to overseas commission agents having no place of business or PE in India. This issue has been ....
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....rt in the case of G E India Technology (P) Ltd. vs. CIT (2010) 327 ITR 456 (SC) hold the field and is squarely applicable to the facts of the cases and the assessee cannot be said to be guilty of nondeduction of TDS on commission payments to its overseas agents having no PE in India. 1.6 The Appellant mist humbly and respectfully submits that the Assessing Officer was not justified in law in disallowing the amounts of commissions paid by the assessee company to its overseas agents. 1.7 With regard to payment of commissions of Rs.36,30,643 to the Indiana agents of the Appellant, tax at source was duly deducted and therefore the Assessing Officer was not justified in disallowing the same. Details of Commission paid, tax at source deducted and TDS certificates issued to the Indian agents are enclosed in the Paper book in support of the aforesaid submissions made by the assessee. 1. 6. It would be apposite to refer to relevant sections 9(1((i), 9( 1 )(vii) and 9(2) of the Act, which read as under: (1) all income accruing or arising, whether directly or indirectly through or from any business connection in India, or through or from any property in Ind....
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....hereby declared that from the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the non-resident, whether or not, - (i) the non-resident has a residence or place of business or business connection in India; or (ii) the non-resident has rendered services in India." 1 7. On similar facts the decision of the Apex Court in case of CIT vs. Toshoku Ltd. [1980] 125 ITR 525 (SC) is reproduced as under: "8. The second aspect of the same question is whether the commission amounts credited in the books of the statutory agent can be treated as incomes accrued, arisen, or deemed to have accrued or arisen in India to the non-resident assesses during the relevant year. This takes us to s.9 of the Act. It is urged that the commission amounts should be treated as incomes deemed to have accrued or arisen in India as they, according to the department, had either accrued or arisen through and from the business connection in India that existed between the nonresident: assesses and the statutory agent. This conten....
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....services rendered by the non-resident agent can at best be called as a service for completion of the export commitment and would not fall within the definition of ''fees for technical services", we are the firm view that Section 9 of the Act is not applicable to the case on hand and consequently, Section 195 of the Act does not come into play. In view of the above finding, the decision of the Supreme Court in Transmission Corpn. of A.P. Ltd.'s. case (supra), relied upon by the learned Standing Counsel for the Revenue is not applicable to the facts of the present case. We find no infirmity in the order of the Tribunal in confirming the order of the Commissioner of Income Tax (Appeals)." 1.9. What was required on the part of the AO in the present case was to demonstrate that the income accrued or arose in India or is deemed to accrue or arise in India. There is no finding in the assessment order on this requirement of law whether income accrued or is deemed to have accrued in India in cases of payments of commissions to foreign agents. Similarly, it has not been shown by the AO that these foreign agents were residents in India. On the contrary, the AO has presume....
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....4 & 5 - Section 14A: As per page 23 and 27 of the Paper Book the investment picked up by the AO and the borrowing are summed up as under:- Non-current investment 192.81 190.27 (31.03.2012) (31.03.2011) Note: 6: Short Term Borrowings: Loan from Bank-Secured Export 3,697.62 3,481.07 Packing credit (31.03.2012) (31.03.2011) The above figures are balance sheet items of the respective dates. A copy of CIT(A)'s order for Assessment Year 2010-11 in the appellant's case has been appended on page 71 to 78 of the Paper Book. It is seen that the CIT(A) in the said appellate order has decided the issue. The relevant portion of the said decision is reproduced as under:- After careful consideration of the facts of the case, it is observed that the AO has merely applied the formula provided in the Rule 8D in a mechanical manner by taking the average of total investment whereas appellant company has in its disallowance taken the average of those investment exempted within the relevant previous year. Hence, there is force in the appellant's contention has to determine and bifurcate the expenses between those relatable to taxable income....
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..... was made available to the appellant. Details of payments made to transporters showing PAN Numbers is claimed to have been enclosed to the AR's submission dated 14-03-2015. In other words the appellant's plea is that once transporters furnished PAN Numbers Section 194C(6) did not allow the appellant to deduct TDS. It is seen that the appellant did not file or fill instances of Nil deduction from payments to transporters in Form 26Q originally filed by the appellant. The AO's case is that since the appellant did not comply with the provisions of Section 194C(7) read with Rule 31A within the prescribed time the liability ix] s.194C(6) would come back or resurrect itself. In other words the AO's case is that in cases Section 194C(7) are violated the waiver of tax deductions provided u/s. 194C(6) gets withdrawn. The AO has on this logic held the appellant liable to deduct TDS and since it failed to deduct the AO applied Section 40a(ia) to make additions of all the above sum of transportation and freight charges. 2.1 The appellant's plea as contained in its AR's submission dated 18-04-2016 is reproduced as under: GROUND NO. 6 & 7: 3.T....
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....y that the disallowance for payment to contractors (which includes freight payment) would be made if the assessee (i) did not deducted the tax which is deductible under Chapter XVIIB; or (ii) fails to pay the amount of tax deducted at source within the stipulated time. The law does not say that the sums so deducted or not deducted by the assessee in accordance with law could be disallowed for failure to furnish the statutory returns of TDS or any other returns relating to the provisions contained in Chapter XVIIB. 3.4 In support of the aforesaid submissions, the assessee company refers to and relies on the following judgments of High Court as well as the judgment of jurisdictional High Court which is binding on all the authorities below: (i) CIT Vs. Valibhai Khanbhai Mankad. (2012) 28 taxmann.com 119 (Guj) - In this Honble High Court held that on disallowance could be made under section 40(a)(ia) of the Act for failure to submit Form No. 15J as was required to submitted under Rule 29D. (ii) CIT vs. Sri Marikamba Trenspor: Co. (2015) 57 txmann.com 273 (Karnataka) - In this case also aforesaid view was taken and it was held that n....