TMI Blog2013 (12) TMI 477X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee are directed against the order dated 22-02-2013 passed by Ld CIT(A), Trivandrum and they relate to the assessment year 2009-10. 02. The revenue is assailing the decision of Ld CIT(A) in allowing deduction u/s 10A of the Act in the place of deduction claimed by it u/s 10B of the Act, which was found to be not allowable. 03. In the cross objection, the assessee is assailing the decision of Ld CIT(A) in upholding the disallowance made u/s 40(a)(i) of the Act for non-deduction of tax at source from the sales commission paid to Shri Balaji Bal, a non-resident director of the assessee company. 04. The facts relating to the issues under consideration are discussed in brief. The assessee is engaged in development and sale of software. During the course of assessment proceeding, the AO noticed that the assessee has paid a sum of Rs.55,51,605/- to one of its director named Shri Balaji Bal as Export commission and claimed the same as deduction. It was further noticed that Shri Balaji Bal is a resident of Switzerland. The AO noticed that the assessee did not deduct tax at source u/s 195 of the Act from the said payment. The assessee, by placing reliance on the Circular No.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Shri Balaji Bal have been utilized by the assessee. Accordingly the AO took the view that the payment made to Shri Balaji Bal should be treated as his income accruing or arising in India. In this regard, the AO placed reliance on the decision rendered by the Mumbai Bench of Tribunal in the case of Hindalco Industries Ltd (2004)(91 ITD 64)(Mum) and also on the provisions of sec. 9(1)(vii) of the Act. Since the assessee did not deduct tax at source, the AO disallowed the payment of Rs.55,51,605/- by invoking the provisions of sec. 40(a)(i) of the Act. The assessee had claimed deduction u/s 10B of the on its income. However, the AO took the view the above said disallowance is not connected with the export turnover and accordingly denied exemption u/s 10B of the Act on it. 06. In the appellate proceedings, the Ld CIT(A) agreed with the view taken by the assessing officer with regard to the nature of payment of Rs.55,51,605/- made to Shri Balaji Bal, i.e., the Ld CIT(A) also held that the nature of services rendered by Shri Balaji Bal to the assessee is in the nature of technical services as defined under Explanation 2 to section 9(i)(vii) of the Act. Before Ld CIT(A), the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that he has confirmed the disallowance made by the AO u/s 40(a)(i) of the Act. 09. The assessee contended before Ld CIT(A) that the disallowance made u/s 40(a)(i) of the Act goes to increase the total income of the assessee. Since the assessee had claimed 100% deduction u/s 10B of the Act, it was contended that the disallowance so made is also eligible for deduction u/s 10B of the Act. The Ld CIT(A) accepted the said contention of the assessee and accordingly held that the exemption u/s 10B, if allowable, shall be computed with reference to such enhanced income. 10. However, the Ld CIT(A) noticed that the assessee has been wrongly allowed deduction u/s 10B of the Act in respect of its business income, since it did not satisfy the conditions prescribed in sec. 10B, viz., it did not have 100% EOU approval given by the Board appointed by the Central Government in exercise of powers conferred u/s 14 of Industries (Development and Regulation) Act, 1951. Accordingly he held that the assessee is not eligible for claiming deduction u/s 10B of the Act. Hence the assessee raised an alternative claim before Ld CIT(A) to the effect that it is eligible for deduction u/s 10A of the Act. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments received by Shri Balaji Bal in India. If it is taxable in his hands in India, then the assessee has got a liability to deduct tax at source from it u/s 195 of the Act. Since the assessee did not so deduct tax from the said payment, then the same is liable to be disallowed u/s 40(a)(i) of the Act. On the other hand, if the said payment is not liable to be taxed in India in the hands of Shri Balaji Bal, then the assessee is not required to deduct tax at source from the said payment, as per the decision of Hon'ble Supreme Court in the case of GE India Technology Cen (P) Ltd Vs. CIT (2010)(193 Taxman 234). 12. According to the assessee the payment made by it is purely "Sales Commission" on export sales for the marketing services rendered by Shri Balaji Bal outside India. The assessee placed reliance on the decision of Hon'ble Delhi High Court in the case of Eon Technologies Pvt Ltd (203 Taxmann 255)(Delhi) and also on the decision of Hon'ble Supreme Court in the case of CIT Vs. Toshoku Ltd (125 ITR 525) in order to contend that the income received out side India by way of export commission by a non-resident agent operating outside India is not taxable in India. The assessee als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ixed base to Shri Balaji Bal. Further the assessee company has also certified that Shri Balaji Bal did not attend any of the Board meetings of the company held during the F.Y 2008-09. Accordingly, he submitted that the conclusion reached by ld CIT(A) was not correct. 16. On the contrary, the Ld D.R submitted that Shri Balaji Bal is a director of the company and is technically qualified and experienced in the mobile application software. The assessee has listed out his experience in the submissions made before the AO and the same has been incorporated in the assessment order. Shri Balaji Bal has promoted many software companies and is holding directorship in many companies. Because of his vast experience and technical knowledge only, he could secure orders for the company and could get the impugned payment from the assessee. Further, a careful reading of terms and conditions of the agreement would show that the services to be provided by Shri Balaji Bal are technical in nature and more than that expected from a normal commission agent. According to the agreement, he has to review the assessee's proposal for target prospects and shall also provide advice and assistance to help secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SION AGENT COMMISSISON AGENT's services, shall be principally concerned with "marketing", "pre-sales" and "sales" support of DEVICEDRIVEN (INDIA)'s businesses in the Territory which shall essentially comprise general counsel, assistance and support in areas including but not limited to the following: 2.1 Sizing up market situations and business opportunities in the region. 2.2 Assisting and supporting DEVICEDRIVEN (INDIA) in developing and bundling an appropriate mix and service offering for the Region. 2.3 Identifying specific target-prospects and making preliminary introductory contacts. 2.4 Securing meetings with target-prospects for DEVICEDRIVEN (INDIA) to make credential presentations and marketing pitches. 2.5 Review DEVICEDRIVEN (INDIA)'s proposals for target-prospects and provide advice and assistance where appropriate to help secure project. 2.6 Hold periodic meetings with DEVICEDRIVEN (INDIA) to track project progress and status. 2.7 COMMISSISON AGENT shall assist in all payment collection from the Client. COMMISSISON AGENT's furtherance of DEVICEDRIVEN (INDIA)'s business interests is on a non exclusive basis. DEVICEDRIVEN (INDIA) shall have right of fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assist the assessee company in all respects including identifying markets, making introductory contacts, arranging meeting with prospective clients, assisting in preparation of presentations for target clients. His duty does not end on securing the orders, but he has to monitor the status and progress of the project, meaning thereby the Commission agent is responsible for ensuring supply of the software and also for receiving the payments. All these activities, in our view, could be carried on only by a person who is having vast technical knowledge and experience. Hence, we agree with the tax authorities' view that the payment made to Shri Balaji Bal constitutes the payment made towards technical services. 20. It is submitted that Shri Balaji Bal is the resident of Switzerland and it appears that there is no dispute on this fact. We notice that the Government of India and the Government of Swiss Confederation have entered in to a Double Taxation Avoidance Agreement (DTAA). The Ld CIT(A) has taken the view that the provisions of DTAA shall apply to Shri Balaji Bal. The revenue is not disputing this aspect. Hence, as per sec. 90(2) of the Act, the provisions of Income tax Act shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee would be liable to deduct tax at source on the payments made to Shri Balaji Bal. Since the TDS was not deducted u/s 195 of the Act, the assessing officer was justified in making disallowance u/s 40(a)(i) of the Act. Accordingly, we uphold the order of Ld CIT(A) on this issue. 22. Now we shall take up the appeal filed by the revenue. As stated earlier, the deduction allowed to the assessee u/s 10B of the Act was found to be not correct by the Ld CIT(A). However, before Ld CIT(A), the assessee claimed deduction u/s 10A of the Act. Though the Ld CIT(A) sought comments from the AO with regard to the alternative claim of the assessee, yet the AO declined to accept the said claim on technical reasons. However, the deduction u/s 10A was allowed by Ld CIT(A). The revenue is aggrieved by the said decision of Ld CIT(A). 23. We heard the parties on this issue and perused the record. We notice that the Ld CIT(A) has examined the alternative claim of the assessee vis- -vis the technical objections raised by the AO. For the sake of convenience, we extract below the relevant observations made and decision taken by Ld CIT(A):- "8.9 During the course of appellate proceedings, the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of CWP Taylor has held as under: "We have hear rival submissions. No doubt, in the case of Goetze (India) Ltd. 284 ITR 323 the Apex Court held that an assessee could not make a claim for deduction before the Assessing Officer otherwise than by filing revised return. Hon'ble Apex Court distinguished its own decision in the case of National Thermal Power Corporation Vs. CIT (Supra) by mentioning that the question there was regarding the power of the Tribunal u/s. 254 of the Act to entertain, for the first time, a point of law, provided the facts on the basis of which the issue could be raised were there before the Tribunal. Their Lordships specifically held that its decision did not impinge the power of the Tribunal to entertain first time a point of law provide the facts on the basis of which the issue is raised is there on record. This decision of Hon'ble Apex Court is limited to the power of assessing authorities for considering a claim made by the assessee which was originally not there in the return" "In our opinion, though the assessing officer could not entertain the claim made by the assessee otherwise than through a revised return, nothing prevented the learned Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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