TaxTMI 
TaxTMI 
TaxTMI 
2025 (8) TMI 1791
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...., therefore, prayed that the order of the C.I.T.(A) may be set aside and that of the A.O. be restored to the above extent. 4. Any other grounds that the Revenue may raise before the Hon'ble ITAT during the hearing proceedings." 2. Additional grounds of appeal raised by the Revenue are as follows: "(i) The Learned CIT(A) has erred both on facts and in law by admitting the additional evidence submitted by the assessee, which was not part of the assessment record. (ii) The Learned CIT(A) erred in accepting the additional evidences without calling for a remand report from the assessing officer to examine the additional evidences/grounds, thereby violating the provisions of Rule 46A of the Income Tax Rules, 1962. (ii) The Learned CIT(A) has erred in ignoring the provisions of Rule 46A of the Income Tax Rules, 1962, which mandates that the CIT(A) shall not admit any additional evidence unless the assessing officer has been allowed a reasonable opportunity to examine the evidence or to produce any evidence in rebuttal of such additional evidence. (iv) In view of the above, the Hon'ble Tribunal may set aside the impugned order and res....
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....ncial year (FY) 2011-12, are even more than Rs. 12,13,74,525/- and are compiled as below: Sr No Name of the agent Country of the agent Nature of payments Amount TDS deducte 1. Jaya Inc. Korea Commission Rs.12,13,74,525 No 2. Yuyao Shenghao Intl Co Ltd. China Commission Rs. 80,21,825 No 3. Baruffi Andrea Switzerland Commission Rs. 10,35,000 No 4. C & D Logistics Group Co Ltd China Commission Rs. 5,98,740 No 5. Climus Maxus Ltd Hong-Kong Commission Rs. 6,26,182 No 6. Hebel Huaxia Enterprise Co Ltd China Commission Rs. 9,58,862 No 7. Digital Peripherals Solutions Ltd Hong-Kong Commission Rs. 49,19,000 No 8. Zhehang Galaxy Import and Export Co Ltd China Commission Rs. 8,49,745 No 9. Kim Sun Gang Korea Commission Rs. 18,894 No 10. Lacs Co Ltd China Commission Rs. 12,30,250 No Total Commission Rs. 13,96,33,023 No 5. During the assessment proceedings, the assessee was asked to furnish the copies of agreement with the foreign commission agents mentioning the co....
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...., through or from any business connection in India, or through or from any property in Indla, or through or from any asset or source of income in India, or through the transfer of capital asset situate in India shall be deemed to accrue or arise in India. Therefore, in the assessee's case the export commission is payable to the agents for operating in their own countries, no service has been rendered by them in India and hence no income arose in India. Moreover, the agent did not have any business connection or Permanent Establishment in India. Hence, assessee submitted before the assessing officer that the foreign commission paid by the assessee to the non-resident does not fall within the ambit of section 9 of the I.T. Act, as income deemed to accrue or arise in India and hence will not be chargeable to tax in India failing which the provisions of section 195 will not be applicable to the assessee. Further reliance was placed by the assessee on the following decisions: (i) GE India Technology Centre (P) Ltd. vs. CIT (SC) 327 ITR 456 (ii) CIT vs. EON Technology (P) (Ltd) 343 ITR 366 (Delhi HC) (iii) DCIT VS. Divi's Laboratories Ltd. (2011)131 ITD....
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....tion (1) - Held, yes - Whether liability cast upon a person to deduct tax at source under section 195 is a strict liability and liability cast under section 195(1) can be discharged other than by way of deducting tax only by taking recourse to sub- section (2) or sub-section (3) of that section Held, yes" 8. Therefore, assessing officer observed that in the assessee's case, since the assessee has not deducted tax at source, nor he has taken any approval from the assessing officer, therefore, the payments to non-resident of Rs. 13,96,33,023/-, is not eligible as an allowable expense, in computing the total income of the assessee, for assessment year (AY) 2012-13, on account of non- deduction of TDS u/s 195 of the Act, as per Section 40(a)(i) of the Act and therefore it should be disallowed in computing the total income of the assessee for AY-2012-13. Accordingly, the entire foreign commission payments of Rs. 13,96,33,023/- was disallowed and added back to the total income of the assessee for AY 2012-13. Findings of the learned CIT(A) 9. Aggrieved by the order of the assessing officer, the assessee, carried the matter in appeal before the Ld. CIT(A), who has allowed the ....
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....rporation Limited TA No. 249/Ahd/15 and 48/Rjt/15 Assessment year: 2010-11 as under: "41. We are in considered agreement with the views so expressed by the coordinate bench. In view of these discussions, as also bearing in mind entirety of the case, we uphold well reasoning findings of the learned CIT(A) that the commission payments made to the non-resident agents did not have any taxability in India, even under the provisions of the domestic law i.e. Section 9. Once we come to the conclusion that the income embedded in these payments did not have any tax implications in India, no fault can be found in not deducting tax at source from these payments or, for that purpose, even not approaching the Assessing Officer for order under section 195. In our considered view, the assessee, for the detailed reasons set our above, did not have tax withholding liability from these payments. As held by Hon'ble Supreme Court in the case of GE India Technology Centre Pvt. Ltd Vs CIT ((2010) 327 ITR 456 (SC)), payer is bound to withhold tax from the foreign remittance only if the sum paid is assessable to tax in India. The assessee cannot, therefore, be faulted for not approaching the A....
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....refore, the findings of the assessing officer stated that the assessing officer has passed detailed order, therefore, order of the assessing officer should be upheld. 12. The Ld. DR also submitted that during the appellate proceedings, before the Ld. CIT(A), the assessee has submitted certain additional evidences, and these additional evidences were submitted, first time before the Ld. CIT(A), which were not sent back to the file of the assessing officer for remand report. Therefore, Ld. DR for the revenue contended that the matter should be set aside to the file of the ld. CIT(A), with the direction to the ld CIT (A) to call report from assessing officer and adjudicate the issue afresh, in accordance with law. Arguments of learned Counsel for the assessee. 13. On the other hand, the Ld. Counsel for the assessee, argued on merit that since a remittance is made to a non -resident, the obligation to deduct tax u/s 195 does not arise, it arises only when such remittance is a sum chargeable under Act, that is, chargeable under sections 4, 5 and 9 of the Act. The provisions of section 195 of the Act, gets attracted only, when there is an element of 'Income' chargeable t....
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....ne through the submission put forth on behalf of the assessee, along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that an important objection of the Ld. DR for the revenue is that during the appellate proceedings, the assessee has submitted additional evidences, therefore, the matter may be remitted back to the file of the assessing officer for fresh adjudication. However, we note that assessee has submitted before ld CIT(A), merely supportive additional new argument to the main evidences. The main evidence and documents were already submitted before the assessing officer by the assessee, therefore to examine the same documents and evidences, second inning should not be given to the assessing officer. The main evidences and documents which were submitted before the assessing officer should not be treated as additional evidences. We note that the assessee has duly complied with the provision of the law and duly complied with the rules specified under the Act to file the evidences. The additional grounds of appeal filed by the department do not specif....
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....(i) of the Act, such income is not deemed to accrue or arise in India. Accordingly, it is not taxable in India. For that reliance is placed on the following judgements of the Hon'ble Supreme Court. (i) CIT v. Toshoku Ltd. (1980) 125 ITR 525 (SC): Commission earned by non-resident agents for services rendered outside India is not taxable in India. (ii) GE India Technology Centre (P) Ltd. v. CIT (2010) 327 ITR 456 (SC): TDS under section 195 arises only if the payment is chargeable to tax in India. About the consequence under section 40(a)(ia) of the Act, we note that section 40(a)(ia) of the Act, disallows certain expenditure (like interest, commission, brokerage, professional fees, etc.) if TDS is not deducted but this applies only where TDS is deductible. If the commission paid to a foreign agent is not chargeable to tax in India, then no TDS under section 195 of the Act, is required and therefore, disallowance under section 40(a)(ia) of the Act, also does not apply. Hence, commission paid to a foreign agent for services rendered outside India is not taxable in India, and therefore, not liable to TDS u/s 195 of the Act and no disallowance u/s 40(a)(ia) of ....
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.... CA/CB in respect of such parties are on record. It is also very natural to envisage payment of foreign sales commission (paid to foreign parties) in respect of export sales to the foreign customers. The evidences submitted in respect of these foreign commission agents are real and they could not be rebutted by the assessing officer. The assessing officer has simply raised doubts in respect of certain fact like deficiencies in the agreement (in respect of inadequate safe guard of the interest of the foreign commission party and presumed high rate of commission vis- a -vis the exports and unusual/unlikely name of one of the foreign agent. Doubts and surmises cannot substitute evidences. And in present case the doubts itself are on very weak footings when we notice the fact that payment of Rs. 21.6 crores to M/s. Jaya INC Korea, has been stopped by the assessee and has been reported to the department and to the assessing officer, and doubts and surmises even if strong are no substitute to the real hard evidences. Therefore, ld. CIT(A) did not find any force in the assessing officer's action of treating the said export commission to foreign export commission, as bogus. 19. Abou....
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....the Act, all income accruing or arising, whether directly or indirectly, through or from any business connection in India or through or any capital asset situate, in India or though the transfer of capital asset situate in India. The provision of section 9(1)(i) has been duly considered by the Hon'ble Supreme court in the case of CIT vs. TOSHOKU Ltd. 125 ITR 0525 (SC), the apex court has held that " clause (a) of the explanation to Cl.(1) of sub-s. (1) of s. 9 provides that in the case of a business of which all the operations are not carried out in India, the Income of the business deemed under that clause to accrue or arise in India shall be only such part of the Income as is reasonably attributable to the operations carried out in India. If no operations of business are carried out in the taxable territories, it follows that the income accruing or arising abroad through or from any business connection in India cannot be deemed to accrue or arise in India. The apex court has further held that the non-resident assessee did not carry on any business operations in the taxable territories; they acted as selling agents outside India. The receipt in India of the sale proceeds of to....
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....an overseas agent of Indian exporter operated in his own country and no part of his income arises in India and his commission is usually remitted directly to him by way of posting of cheques /demand drafts in India and, therefore, the same is not received by him or on his behalf in India and such an overseas agent is not liable to Income-tax in India on those commission payments." Therefore, respectfully following the decisions of Hon'ble Supreme Court and other high courts, I am of the considered view that the provisions of section 9(1)(1) is not applicable to the commission payment outside India in the present case and such income is not liable to tax in India. The Ld. assessing officer has also relied on the decisions of Advance Ruling in the case of SKF Boilers And Driers Pvt. Ltd., 343 ITR 0385 and Rajiv Malhotra, In re (2006) 203 CTR (AAR) 607, both these decisions are authored by Advance Ruling Authority. The decisions of AAR do not have any binding precedents and it can be applicable to the concerned party and respective department officer as held in the case of Cyril Eugene Perelra, IN RE (239 ITR 0650). So far as merit of the decisions are concerned, the Advance Rulin....
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....r has not gone into the issues of nature of the income arisen to the foreign agent and whether that income is covered by section 9 of the Act, to be taxed in India in the hands of the agent. According to the assessing officer, all payments to non- resident, are covered u/s 195 of the Act and assessing officer had ruled that the facts that services are being rendered outside India and payment is being remitted out of India are wholly irrelevant because sources of income to the non-residents agent is situated in India. This approach of assessing officer is very simplistic and it has forgotten that section 195 of the Act, is concerned with interest and any other sum chargeable under the Income Tax Act. The provisions of section 195 stipulates the liability to deduct TDS arises only when the payment is chargeable to tax in India. The assessee has made payment in respect of its foreign agents, services in respect of its foreign sales to the foreign customers, the commission has been paid to the agent for procuring export orders; the question is whether the services rendered by the agent situated outside India can be considered as services rendered in India or services utilized for the b....
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.... of the Act (c) That, without prejudice to the above since the agents does not have any business connection in India the same are not taxable in India in light of the section of the Act (d) That without prejudice to the above the same is not FTS in light of the section 9(1)(vi) of the Act as the same neither qualifies as Managerial, technical or consultancy services (e) that further the same does not accrue or arise in India as the same are incurred for earning from a source outside India as per section (v) of the Act (f) That without prejudice to the above the same are even considered as FTS as per the Act the same cannot be treated as FTS in light of India-UAE DTAA and India Thailand DTAA, and (g) that in any case the remittance neither accrues nor arises in India and the same cannot be deemed to accrue or arise in India, the same cannot be taxed in India and accordingly tax was not withheld in the light of section 195 of the Act. 13. The Assessing Officer was of the view that to understand the character of income one has to look at the agreement and appreciate the nature of work done in consideration of which the income is received. He was of the view that the related a....
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....e tax treaties do not come to the rescue of the recipients, and, therefore, the taxability in these cases is to be decided on the basis of the provisions in the domestic law. 31 The scheme of taxability in India, so far as the non- residents, are concerned, is like this. Section 5(2), which deals with the taxability of income in the hands of a non- resident, provides that "the total income of any previous year of a person who is a non- resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year". There is no dispute that since no part of the operations of the recipient non-residents is carried out in India, no income accrues to these non-residents in India. The case of the revenue hinges on income which is "deemed to accrue or arise in India". Coming to the deeming provisions, which are set out in Section 9, we find that the following statutory provisions are relevant in this context: Section 9- Incomes deemed to accrue or arise in India (1) The following incomes will be dee....
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....r are we persuaded by the line of reasoning adopted in these rulings. As for the AAR ruling in the case of SKF Boilers & Driers Pvt. Ltd [(2012) 343 ITR 385 (AAR)], we find that this decision merely follows the earlier ruling in the case of Rajiv Malhotra ((2006) 284 ITR 564] which, in our considered view, does not take into account the impact of Explanation 1 to Section 9(1)(1) 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 renders services abroad and pursues and solicits exhibitors there in the territory allotted to him, but the right to receive the commission arises in India only when exhibitor participates in the India International Food & Wine Show (to be held in India), and....
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....which is foundational basis for the action of the Assessing Officer, inter alia, provides that the income by way of technical services payable by a person resident in India, except in certain situations- which are not attracted in the present case anyway, are deemed to be income accruing or arising in India. Explanation 2 to Section 9(1)(vii) defines 'fees for technical services' as 'any consideration (including any lumpsum consideration) for the rendering of any managerial, technical or consultancy services (including the provisions of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head 'Salaries' (Relevant portion highlighted by underlining]". 35. In the light of the above legal position, what we need to decide at the outset is whether the amounts paid by the assessee to the non-resident agents could be termed as "consideration for the rendering of any managerial, technical and consultancy services". As we do so, it is useful to bear in mind the fact that even goin....
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....the agents have performed the so called technical services. 36. Let us sum up our discussions on this part of the scheme of Section 9, so far as tax implications on commission agency business carried out by non-residents for Indian principals are concerned. It does not need much of a cerebral exercise to find out whether the income from the business carried on by a non-resident assessee, as a commission agent and to the extent it can be said to directly or indirectly accruing through or from any business connection in India, is required to be taxed under section 9(1)(i) or under section 9(1) (vii) of the Income Tax Act, 1961. The answer is obvious. Deeming fiction under 9(1)(i) read with proviso thereto, as we have seen in the earlier discussions, holds the key, and lays down that only to the extent that which the operations of such a business is carried out in India, the income from such a business is taxable in India. When no operations of the business are carried on India, there is no taxability of the profits of such a business in India either. The question then arises whether in a situation in which, in the course of carrying on such business, the assessee has to nece....
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....s generated for the principal, the agent gets nothing. Quite clearly, what is done by the agent is not a rendition of service but pure entrepreneurial activity. The work actually undertaken by the agent is the work of acting as agent and so procuring business for the assessee but as the contemporary business models require the work of agent cannot simply and only be to obtain the orders for the product, as this obtaining of orders is invariably preceded by and followed by several preparatory and follow up activities. The description of agent's obligation sets out such common ancillary activities as well but that does not override, or relegate, the core agency work. The consideration paid to the agent is also based on the business procured and the agency agreements do not provide for any independent, standalone or specific consideration for these services. The services rendered under the agreement cannot, therefore, be considered to be technical services in nature or character. The services rendered in the course of rendering agency services are essentially business services and to obtain the business. We have also noted that, so far as rendition of technical services is concern....
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....ant distinction between a business activity, requiring understanding of related technology, and rendition of technical services simpliciter. In any case, what has been described as a technical service is the service being rendered to the buyer but the payment received by the commission agents is not for this service per se but for generating business orders for the assessee. Generating business or securing orders is an entrepreneurial activity and cannot, by any stretch of logic, be treated as a technical service per se. The same is the position with regard to assistance with respect of logistics, such as shipping and handling services, with respect to sale forecasting, with respect to gathering information on markets, business environment and on specific buyers and with respect to development of sales network. All these services are essentially integral part of, and are thus aimed at, developing business for the assessee and securing orders for the assessee from the right persons. Neither these services can be viewed on a standalone basis divorced from the economic activity of securing orders, nor any payment can be said to be for rendition of these services inasmuch as it is not ....
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.... and therefore provisions of section 9 (1) (i) of the Act, will not be applicable. It is also evident that the payments made to foreign agent is sales commission and cannot be deemed as fee for technical services and thus provisions of section 9 (1) (vii) of the Act, will also be not applicable. Now, if the payments to the foreign agent are not a receipt (in agent's hand) which is liable to tax in India, then there is no question of deduction of tax at source. Therefore the provision of section 195 of the Act will not be applicable and therefore the disallowance made by assessing officer u/s 40(A) (ia) of the Act, is bad in law, and hence cannot be upheld. The Assessing officer has also raised another issues that assessee can make payment to non- resident u/s 195 of the Act, without deduction of tax, only if it had obtained an order u/s 195(2) of the Act, from the assessing officer. The assessing officer had opined that no such approval from assessing officer was obtained in present case and therefore the amount payable was not eligible as an allowable deduction. The assessing officer had relied upon the decision of Poompuhar Shipping Corpn. Ltd. Vs. ITO (Int. Tax)-II, Chennai ....