TMI Blog2011 (4) TMI 1212X X X X Extracts X X X X X X X X Extracts X X X X ..... r deducting the tax at source. Similarly, the payments in respect of subscription and advertisement cannot be considered to be covered under fees for technical services and therefore, no TDS was required to be deducted. The learned CIT(A) held that the insulator testing is covered under the technical services and the assessee is not in appeal before us. Similarly, the learned CIT (A) has also held that tax was required to be deducted in respect of remittances for technical services on which tax has not been deducted, is to be covered for non-deduction of tax at source. The assessee is not in appeal before us. we hold that the learned CIT (A) was justified in holding that no TDS was to be deducted in respect of remittances related to sales commission. In the result, all the appeals of the Revenue are dismissed. - Order I. T. A. No. 281/JP/2010 : The Revenue has filed an appeal against the order of the learned Commissioner of Income-tax (Appeals)-II, Jaipur dated January 28, 2010 for the assessment year 2007-08. The ground of appeal raised by the Revenue is as under : On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Board of Direct Taxes are binding on the Department. It was further submitted that a beneficial circular is to be applied retrospectively while an oppressive circular is to be applied prospectively. For this proposition, reliance was placed on the decision of the hon _Tble apex court in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102 (SC). The learned Commissioner of Income-tax (Appeals) after considering the submissions of the assessee deleted the disallowance under section 40(a)(ia) of the Act after observing as under : 2.3 I have considered facts of the case and arguments taken by Sh.Garg quite carefully. It is a fact that the aforesaid Circular No. 7 of 2009, dated October 22, 2009 ([2009] 318 ITR (St.) 1) was not in existence till March 31, 2007, i.e., the time up to which the appellant-company has made payment of commission to the aforesaid three parties without making any TDS. It is also a fact that during the relevant time Circular No. 786, dated February 7, 2000 ([2000] 241 ITR (St.) 132) issued by the Central Board of Direct Taxes was in force and it was not withdrawn till March 31, 2007. As per the aforesaid Circular No.786, dated February 7, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aring before us, the learned Departmental representative placed reliance on the circular issued on October 22, 2009. It was stated that in case the assessee is making payments to non-residents then it has to deduct tax at source or alternatively the assessee should file the application under section 195(2) of the Act for not deducting the tax at source. The learned Departmental representative placed reliance on the decision of the hon ble Karnataka High Court in the case of CIT v. Samsung Electronics Co. Ltd. [2010] 320 ITR 209 (Karn). In the instant case, the assessee has not filed the application under section 195(2) to the concerned authority for remitting the payment without deduction of tax at source. The learned Departmental representative therefore, submitted that the Assessing Officer was justified in disallowing the commission payment under section 40(a) of the Act. Before us, the learned authorised representative has relied upon the decision of the learned Commissioner of Income-tax (Appeals) in which the learned Commissioner of Income-tax (Appeals) has held that circular dated October 22, 2009 cannot be applied retrospectively. The learned authorised representative dre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly be applicable because other sub-clauses will not be applicable as the payment is not in the nature of the payments referred to in other subclauses of section 9(1) of the Act. It will be useful to reproduce section 9(1)(i) of the Act. 9. Income deemed to accrue or arise in India.-(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, 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 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 carried out in India ; (b) in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export ; (c) in the case of a non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll not be deemed to be a broker, general commission agent or an agent of an independent status. The Central Board of Direct Taxes Circular No. 786, dated February 7, 2000 had an occasion to consider the objections raised by the Comptroller and Auditor General report in which it was stated that the tax is required to be deducted at source in respect of payment to non-resident when the payment is in nature of export commission and charges payable for services rendered outside India. The Board stated that the tax deduction at source under section 195 will arise if the payment of commission to non-resident agent is chargeable to tax in India. When the non-resident agent operates outside the country, no part of his income arises in India. The payment is remitted directly abroad and therefore, it cannot be stated that the payment by the non-resident is received in India. Such payments are therefore, not taxable in India. When the Comptroller and Auditor General was apprised of such factual information then the Comptroller and Auditor General has agreed to drop the objection. Thus the Central Board of Direct Taxes was of the view that the commission and the amounts paid for services ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the tax was required to be deducted at source in respect of payments made to non-resident companies in respect of services rendered outside India. It will be useful to reproduce the held portion from that decision: (i) That, in view of Circular No. 23, dated July 23, 1969 and Circular No. 786, dated February 7, 2000 ([2000] 241 ITR (St.) 132), which reiterated that circular, issued by the Central Board of Direct Taxes, the payments made to Zaikog towards commission for services rendered by it abroad were not liable to be taxed in India either under the Income-tax Act, 1961 or under the Double Taxation Avoidance Agreement between India and South Africa (DTAA). Consequently, the applicant was not liable to deduct tax at source under section 195 of the Act. Viewed from the angle of section 9(1) of the Act, Zaikog did not earn any income or account of business connection in India. Nor could Zaikog be subjected to tax in India in the absence of a permanent establishment in India. (ii) That Zaikog would not be rendering services of a managerial, technical or consultancy nature and therefore, liability to tax could not be fastened on it by invoking the provisions dealing with fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as necessary to establish that any part of the assessee s operations were carried out in India. No machinery or computer was installed by the assessee in India, through which the programmes reached India. The process of amplifying and relaying the programmes was performed in the satellite which was not situated in Indian airspace. Even the tracking, telemetry and control operations were performed outside India in Hong Kong. There was no contract or agreement between the assessee either with the cable operators or viewers for reception of signals in India. Thus section 9(1)(i) was not attracted. The Mumbai Bench in the case of Asstt. Director of Income tax (International Taxation) v. Wizcraft International Entertainment P. Ltd. [2011] 8 ITR (Trib) 334 (Mumbai) had an occasion to consider as to whether tax is to be deducted at source in respect of commission paid by the non-resident agents when such agents have not rendered any services in India and are not having any permanent establishment. The Mumbai Tribunal has held as under (headnote) : (ii) That the payment of commission to C was not covered by article 18 of the Double Taxation Avoidance Agreement between India and the U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 699. Thus the solitary ground of the Revenue is dismissed. I. T. A. Nos. 1144, 1145, 1146 and 1147/JP/2010 : The Revenue has filed appeals against the common order of the learned Commissioner of Income-tax (Appeals)-II, Jaipur dated July 13, 2010 for the assessment years 2007-08 to 2010-11. The grounds of appeal raised by the Revenue in respect of all the appeals indicated above are the same and these are reproduced as under : 8. On the facts and in the circumstances of the case and law, the learned Commissioner of Income-tax (Appeals) erred in holding that sales commission is not for rendering of services of a managerial technical or consultancy nature and thus covered under the expression fee for technical services and this has narrowed down the meaning of the terms used in Explanation 2 to section 9(1)(vii). 9. On the facts and in the circumstances of the case and law, the learned Commissioner of Income-tax (Appeals) erred in holding that Circulars No. 23 dated July 23, 1969 and 786 dated February 7, 2000 are applicable to the assessee. 10. On the facts and in the circumstances of the case and law, the learned Commissioner of Income-tax (Appeals) erred in contradict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ign currency on account of sales commission , subscription , insulator testing , technical consultancy , advertising , etc. without withholding tax under section 195 of the Income-tax Act. Before the Assessing Officer, Shri R. D. Agarwal, Senior Vice-President of the company stated on oath that the company was not deducting tax relying on Circular No. 786 dated February 7, 2000 of the Central Board of Direct Taxes. The Assessing Officer obtained the details of remittances for the four financial years and issued a show-cause notice under section 201/ 201(1A) vide which the assessee was required to show cause as to why non-deduction/short deduction of TDS under section 195 be not recovered. In response to the show-cause notice, the assessee filed the reply vide letter dated March 17, 2010. The contentions as mentioned in that letter are summarised as under : (1) The payments made by the company are covered under section 9(1)(i) instead of section 9(1)(vii) as mentioned in the show-cause notice. (2) In view of Circular No. 786 dated February 7, 2000, the assessee was not required to deduct tax at source in respect of selling commission paid to the non-resident. (3) After ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lauses in respect of the agreements made by the assessee-company with the following companies. (1) M/s. TNTP, Turkey. (2) M/s. Sinotruck-Ural Ltd., Ekaterinburg, Russia (SUL). In respect of the agreement with M/s. TNTP, Turkey, the Assessing Officer observed that the agent was not to market the insulator of any other manufacturer of I. R. of Iran. The agent was to ensure timely payment to the principal. M/s. Sinotruck-Ural Ltd., Russia agreed for mutual promotion of the product of the assessee-company in the Russian and CIS market. The responsibility of the agent was to promote goods of the assessee-company. The agent was to provide services for certification of the goods. The contention of the assessee before the Assessing Officer was that the non-resident companies were providing services outside India and such non-resident companies were not having a permanent establishment in India. The Assessing Officer was of the opinion that the decisions on which the assessee has relied are not applicable in the instant case. The assessee has relied upon the decision of the Authority for Advance Rulings reported at Ind Telesoft P. Ltd. In re [2004] 267 ITR 725 (AAR) and Spahi Projec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T v. Samsung Electronics Co. Ltd. (I. T. A. No. 2808 of 2005, dated September 24, 2009) [2010] 320 ITR 209 (Karn) ; 2009-TLOL629-HC-KAR-IT. Finally the Assessing Officer held that all the payments are covered in section 9(1)(vii)(b) of the Act and accordingly directed that the assessee has failed to deduct the tax at source and issued order for creating the demand for non-deduction of tax at source as well as interest for not deducting the tax at source in time Before the learned Commissioner of Income-tax (Appeals), the assessee has relied upon Circular No. 786 dated February 7, 2000. It was further stated that the payment of commission is in respect of services rendered outside India and the non-resident is having no business operations in India and hence the income was not taxable. In respect of insulator testing, the services were rendered outside India and therefore, tax was not required to be deducted. The learned Commissioner of Income-tax (Appeals) observed that income of the nature mentioned in clauses (v), (vi) and (vii) of subsection (1) of section 9 is deemed to accrue or arise in India even if the services have not been rendered in India. This is because of the Finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Income-tax Appellate Tribunal, Vishakhapatnam Bench in the case of Asst. CIT v. Essar Steel Ltd. [2011] 136 TTJ 470 in I. T. A. No. 228/Vizag/2008 for the assessment year 2004-05. In view of the amendment made by the Finance Act, 2010 with retrospective effect from the Central Board of Direct Taxes the circular will not be binding on the basis of which tax at source was not deducted. It will be useful to summarise the submissions given by the learned Departmental representative as contained in the written note. (i) By virtue of the Explanation below section 9, inserted with effect from June 1, 1976 by the Finance Act, 2010, income of the nonresident assessee under clauses (v), (vi) and (vii) of section 9(1) shall be deemed to accrue or arise in India irrespective of the fact whether services have been rendered outside India or the assessee is not having a residence, place of business or business connection in India. (ii) Therefore, the payment made to non-residents by the assessee are chargeable to tax in India. (iii) The chargeability of income to tax under section 4 of the Act is in accordance with the enactment of the Central Act (Indian Incometax Act) and at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. [2010] 3 ITR (Trib) 58 (Chennai) relied upon by the learned Commissioner of Income-tax (Appeals) is not applicable as the hon ble Special Bench was dealing with a case when no portion of the remittances was chargeable to tax which is not the present case. Therefore, the decision of the hon ble apex court in the case of Transmission Corporation of A. P. Ltd. v. CIT [1999] 239 ITR 587 (SC) applies . The learned authorised representative supported the order of the learned Commissioner of Income-tax (Appeals). The learned authorised representative has relied upon the submissions as given in I. T. A. No. 281/JP/2010. It was submitted that section 9(1)(vii) refers to fee payable on rendering of any managerial, technical or consultancy services. The Income-tax Act as well as Double Taxation Avoidance Agreement with foreign countries does not define the term managerial, technical and consultancy. The learned authorised representative therefore, referred to the meaning of these services as mentioned in various dictionaries . Managerial means relating to manager or management experience of skills. Technical services requires special knowledge or practical skill in the field of scienc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s commission. The foreign remittances in respect of the four financial years under different heads are as under : Financial year 2006-07 Financial year 2007-08 Financial year 2008-09 Financial year 2009-10 Sales commission 3,53,44,453 71,17,232 1,11,95,664 62,63,147 Description 20,470 1,47,445 24,577 2,49,690 Insulator testing 18,40,762 5,85,447 - 35,34,940 Advertising 1,78,871 Technical consultancy 3,61,921 Note : The technical consultancy paid in the financial year 2009-10 to the extent of Rs. 1,51,884 has been subjected to deduction of tax at source by the assessee itself. The technical consultancy paid to the extent of Rs. 2,90,037 in the financial year 2009-10 has been paid without deduction of tax at source and was claimed that tax was not required to be deducted because the payment was to an individual. The Special Bench Chennai in the case of ITO v. Prasad Production Ltd. [2010] 3 ITR (Trib) 58 (Chennai) had an occasion to consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties are promoting the products of the assessee-company in different countries. The agreements clearly show that the non-resident companies were to get commission for promoting the product of the assessee-company and also rendering incidental services on sales. Such companies were not required to provide any technical services. The non-resident companies were responsible for arranging timely payment from the customers. The non-resident companies were to co-ordinate for settlement of any complaints/ dispute between the principals and the parties. One of the non-residents is M/s. Alva Bond Ltd., London. The Double Taxation Avoidance Agreement between India and the U. K. is available at ([1994] 206 ITR (St.) 235. As per the agreement business profits can be taxed in the other Contracting State in case a person of the Contracting State has a permanent establishment in the other Contracting State. M/s. Alva Bond Ltd., U. K. is not having any permanent establishment in India. Fees for technical services have been defined in paragraph of article 13 of the Double Taxation Avoidance Agreement and the same has been reproduced in the order in the earlier paragraph. The definition of fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other Contracting State in case the enterprise of a Contracting State is having a permanent establishment in the other Contracting State. The agent is not having any permanent establishment. Hence, the sales commission which is business profit of the non-resident is not chargeable in India. The definition of fees for technical services in this Double Taxation Avoidance Agreement is similar to the definition as given in the Double Taxation Avoidance Agreement with Russia. The agency agreement with South African company is available at pages 10 and 11 of the paper book. In the agreement, it is mentioned that the agent will promote the sales of the product of the assesseecompany. Looking to the services being rendered, one cannot say that sales commission is fees for technical services. Similarly, in respect of the other agreements, it is seen that the agents are providing services for promoting sales. They are not providing any technical services. Technical specifications are either standardised or are provided by the customers. In I. T. A. No. 281/JP/2010, we have noticed that the hon ble apex court in the case of GE India Technology Centre P. Ltd. v. CIT [2010] 327 ITR 456 (SC) h ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
