TaxTMI 
TaxTMI 
2019 (8) TMI 1929
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.... ld. A.O. has erred by disallowing the commission of Rs. 5,49,296/- paid to nonresident u/s 40(a)(i) of the Income Tax Act, 1961 and CIT (A) has erred by sustaining the same. The disallowance made and confirmed is unjustified, illegal or excessive. 4. That the appellant craves your indulgence to add, amend or alter all or any grounds of appeal before or at the time of hearing. Ground No. 2 is general in nature and does not require any specific adjudication. Ground No. 1 & 3 are regarding disallowance of commission paid to nonresident by invoking the provisions of section 40(a)(i) of the IT Act for want of TDS. 2. We have heard the ld. A/R as well as the ld. D/R and considered the relevant material on record. The AO has disallowed the commission paid by the assessee to the German based non-resident on the ground that the assessee has not deducted tax at source. The assessee challenged the said action of the AO before the ld. CIT (A) and contended that the payment of commission to the non-resident is not chargeable to tax in India as per provisions of IT Act as well as DTAA between India and Germany. The ld. CIT (A) did not accept this contention of the assessee and....
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....is Act which is payable to non-resident. For ready reference we quote the provisions of Section 40(a)(i) of the act as under:- "chargeable under the head "Profits and gains of business or profession",- (a) in the case of any assessee- [(i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable,- (A) outside India; or (B) in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid 45 [on or before the due date specified in sub-section (1) of section 139] : [Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.] Explanation.-For the purposes of this sub-clause,- ....
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....cipients of the above referred expenses was not "sum chargeable under the provisions of income Tax Act, 1961 therefore the provisions of Section 195(1) are not applicable to these payments" the A/R of the appellant was specifically requested to clarify whether any ruling was obtained from the Authority for Advance Ruling u/s 245(2), regarding non taxability of the income of the recipient in India under the Income Tax Act. The A/R submitted that no such ruling was obtained from AAR by the recipients of the above referred expenses. There is no other evidence on record to show that the sum received by the nonresidents in the form of selling commission (Rs. 38,92,787/-) was not chargeable to tax under the Income Tax Act. There is no order or finding by any Income Tax Authority that the above referred sum of Rs. 38,92,787/- was not chargeable to tax under I. T. Act, 1961. Therefore, I am of the considered view that the appellant was required to deduct tax at source while making payment of selling commission ( Rs. 38,92,787/-) to non-resident, whether or not the non-resident had a residence or place of business or business connection in India. The decision relied upon by the appellant ar....
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....uch 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) of the Act cannot be invoked for making the disallowance. In the facts and circumstances of the case the disallowance made by the AO U/s 40(a)(i) of the Act is deleted." We further note that the finding of the ld. CIT (A) as decided this issue in para 4.3 in the impugned order are as under :- " 4.3. I have gone through the assessment order, statement of facts, grounds of appeal and written submission carefully. It is seen that the AO after discussing the provisions of Section 195, including the Explanation 2, has concluded that the appellant was required to deduct the tax at source while making the payment of above referred expenses even, to the non-resident persons, whether or not the nonresident person had a residence or place of business or business connection in India or any other presence in any manner whatsoever in India. The Explanation 2 has been inserted by the Finance Act of 2012 with ....