TMI Blog2014 (9) TMI 268X X X X Extracts X X X X X X X X Extracts X X X X ..... be taxed in India - sales commission paid by the assessees to non-residents are not chargeable to tax in India, therefore provisions of section 195 are not applicable - in all the cases assessees paid sales commission to its non-resident agents for the services rendered by them outside India and the sales commission is not chargeable to tax in India so as to deduct TDS on such payments under section 195 of the Act – the order of the CIT(A) is upheld – Decided against Revenue. Restriction of disallowance u/s 14A r.w. Rule 8D – Held that:- CIT(A) has elaborately considered the issue on analyzing balance sheets of the assessee for the year ending 31.03.2008, 31.03.2009 & 31.03.2010 and the investments made by the assessee for the past 11 years i.e. 31.03.2003 to 31.03.2013 held that total interest free own funds of the assessee ranged from 42.95 crores in the financial year 2002-03 to ₹ 50.20 crores in the financial year 2011-12 - Out of these amounts paid up share capital amount was ₹ 1.20 crores and the balance is reserves and surplus from accumulated profits from the years - These are all non-interest bearing own and free funds available with the assessee company and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o non-resident agents for the services rendered by them outside India in procuring export orders for the assessees. Authorized Representative submits that non-resident agents have no business connection in India nor they have any permanent establishments in India and therefore provisions of section 195 have no application for the commission payments made by assessees to non-residents for the services rendered by them outside India. He vehemently supports the orders of the Commissioner of Income Tax (Appeals) in deleting the disallowance. He places reliance on the decisions of the Hon'ble Supreme Court in the case of GE India Technology Centre (P.) Ltd. v. CIT 327 ITR 456, the decision of the Delhi Bench of this Tribunal in the case of Dy. CIT v. Eon Technology (P.) Ltd. 11 taxmann.com 53, the decision of this Tribunal in the case of Prakash Impex v. ACIT in ITA No.8/Mds/2012 dated 30.03.2012 and the decision of the co-ordinate Bench of this Tribunal in the case of Asstt. CIT v. Farida Shoes (P.) Ltd. 143 ITD 400, one of the assessee's in the present appeals before us. 5. Heard both sides. Perused orders of lower authorities and the case laws relied on. In all these appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase law cited. In this case the assessee has made certain payments to overseas agents as commission and no TDS deducted. According to the Assessing Officer the assessee's business is situated in India and the payments were also made from India and according to section 195, the assessee is under obligation to deduct TDS. Therefore, by invoking section 40(a)(i) he has disallowed an amount of ₹ 5,62,13,826/-. On appeal, the Commissioner of Income Tax (Appeals) deleted the disallowance on the ground that the commission was paid to non-resident agent and it cannot be said to have been accrued in India and section 195 have no application. The only issue for our consideration is as' to whether the assessee! is under obligation to deduct the TDS,-under section 195 or not. The CIT(Appeals), by considering the entire facts and circumstances of the case !passed a detailed order by observing that section 195 have no application to assessee's case. In the case of M/s. Prakash Impex v. ACIT (supra), the Coordinate Bench of !TAT Chennai has considered the very same issue and observed that the commission paid to non-resident agents for the services rendered outside India and such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), the Mumbai Bench of ITAT has observed that the commission payment was made to the overseas agent for procuring export orders. The agents have not been provided any managerial/technical services. The relationship between the assessee and the non-resident (agent) was only for rendering non- technical services. Moreover, there was no permanent establishment of the said non-resident in India. Therefore, the commission paid to the non- resident agent did not accrue or arise in India and thus, there was no need for deducting TDS under section 195 of the Act. 14. In the present case, the assessee paid certain amounts to overseas agents for procurement of export orders. The agents have not provided any managerial/ technical services. The payments received by the non-resident Indian are not taxable in India. Taking into consideration of entire: facts and circumstances and by following aforesaid decisions, we are of the opinion that the issue involved in this appeal is covered in favour of the assessee and section 195 have no application to assessee's case. Accordingly, the appeal of the Revenue is dismissed. I have considered the assessee's submissions as well as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT of Chennai, in one of the assessee's related concerns (M/s. Farida Shoes P Ltd, in ITA No.159/Mds/ 2013 dated 11.04.2013 for A.Y. 2008-09), has examined the issue of commission payments to non-residents for procuring export orders in detail concluded that the commission payments to the said non-resident agents are not assessable to tax in India and consequently the resident payee company (M/s. Farida Shoes P Ltd) was not under the obligation of deduction TDS on the commission payments u/s.195 of the Act. In the present appeals of the assessee (i.e. in the A.Ys. 2008-09, 2009-10 and 2010-11) also the facts and circumstances are exactly identical to those\ involved in the case of M/s. Farida Shoes P Ltd for A.Y. 2008-09. Therefore, since the' issue involved in the present appeals is the same and the facts are exactly identical, the above decision of the ITAT, (M/s. Farida Shoes P Ltd, in ITA No.159/Mds/2013 dated 11.04.013), is equally applicable to the facts of the present appeals of the instant assessee for A.Ys. 2008-09, 2009-10 and 2010-11 under consideration. Therefore respectfully following the decision of ITAT in the case of M/s. Farida Shoes P. Ltd. (in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ership firm are hardly ₹ 22,06,724/-, ₹ 21,56,449/- and ₹ 30,52,163/- and hence disallowance under section 14A, if any has to be considered out of these expenses alone. The Assessing Officer while completing the assessments, in view of the provisions of section 14A read with rule 8D, made disallowances in all these assessment years on the ground that assessee claimed share income from the firm as exempt and assessee company made investments with partnership firm and claimed the share income as exemption, ignoring the submissions of the assessee that it had not incurred any expenses in earning share income and investments were all made in the earlier assessment years and in fact there is reduction in investments during this year. On appeal, Commissioner of Income Tax (Appeals) restricted the disallowance to 10% of the income received by way of share of profit from the firm. 8. The Departmental Representative vehemently supported the order of the Assessing Officer in invoking provisions of section 14A read with rule 8D relying on the decision of Hon'ble Bombay Court in the case of Godrej Boyce Mfg. Co. Ltd. 328 ITR 81(Bom). He submits that provisions of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit' means the temporary loan given by the banks to meet the 'working capital' requirements. Normally the packing credit is given to the assessees engaged in the business of exports, against the export orders available on hand. Thus packing credit loans are specific purpose loans and cannot be used for any other purpose. When the packing credit is granted, the said amount is to be utilized towards the purchase of raw material in order to manufacture and/or export the goods. Out of the sale proceeds realized the packing credit loan will be repaid. The amount of packing credit loan availed and its utilization in the form of closing stock and cash balances, during F.Ys. 2007-08, 2008-09 and 2009-10 are: Particulars F.Y. ending on 31.03.2008 F.Y. ending on 31.03.2009 F.Y. ending on 31.03.2010 Packing credit 15,49,10,519 20,07,24,115 19,51,04,668 Its utilization: l. Stock-in-trade 19,31,10,472 27,74 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely, for the corresponding years. As against these incomes, the assessee debited various expenses like raw material, manufacturing expenses, administrative expenses, financial costs, depreciation etc. The details are as under: M/S. K.H. ARIND PRIVATE LIMITED Particulars Sch. Profit Loss Account for the Years Ended on 31.03.2010 31.03.2009 31.03.2008 INCOME Sales: Export 11 58,82,63,516 52,99,19,159 48,29,20,489 Local 11 3,26,92,202 34,08,971 51,42,417 Others (like duty drawback etc) 11 4,28,45,032 2,66,56,262 3,17,99,865 Other income 12 67,69,180 41,98,086 88,07,323 Total Income (A) 67,05,69,93 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 324 5,41,831 4,31,392 Travel- Foreign Tour 10,47,480 8,07,922 3,47,273 Vehicle Maintenance 41,66,264 41,30,528 35,08,683 Computer Maintenance 5,61,385 4,17,423 4,90,143 Rent 13,90,026 8,97,000 11,22,000 Directors Remuneration 27,00,000 18,65,000 18,65,000 Audit Fees: As Auditors 1,90,000 1,75,000 1,75,000 For Income Tax Matters 60,000 50,000 50,000 For Others 11,350 10,000 33,484 Professional Charges 7,16,353 2,98,83 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,40,662 4,93,577 5,78,972 Travelling - Local 5,96,324 5,41,831 4,31,392 Travel- Foreign Tour 10,47,480 8,07,922 3,47,273 Vehicle Maintenance 41,66,264 41,30,528 35,08,683 Computer Maintenance 5,61,385 4,17,423 4,90,143 Rent 13,90,026 8,97,000 11,22,000 Professional Charges 7,16,353 2,98,839 4,31,682 Membership, Subscription book 82,820 45,976 57,156 Exchange Fluctuation - 46,94,011 - Total 1,21,33,291 1,68,54,155 98,90,800 (b) Common Expenses: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess involved in the said investment in the partnership firm (M/s. M.A. Khazir Hussain Sons) is only regarding deployment and/ or withdrawal of funds in the firm. This is the decision making process involving the management (directors). Further, the entire amounts of investments in the partnership firm are coming from the earlier years, as under: P. Y. ending on A.Y. Investments in the Partnership firm 31.03.2007 2007-08 471,291,887.00 31.03.2008 2008-09 424,251,024.00 31.03.2009 2009-10 355,570,695.00 31.03.2010 2010-11 328,378,379.00 31.03.2011 2011-12 34,273,749.00 Under these circumstances, the involvement of man power and the infrastructural facilities of the assessee company in making the above investments in the partnership firm will be practically insignificant. Hence a blanket disallowance of expenses @ 0.5% of the average investments, as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the case of A.Y. 2010-11, since the assessee itself disallowed ₹ 6,12,969/- (being 10% of the share income from the firm), no separate disallowance u/s.14A is warranted. Hence the entire disallowance of ₹ 67,35,349/- made by the Assessing Officer is deleted. 11. As could be seen from the above, this issue has been elaborately considered by the Commissioner of Income Tax (Appeals) on analyzing balance sheets of the assessee for the year ending 31.03.2008, 31.03.2009 31.03.2010 and the investments made by the assessee for the past 11 years i.e. 31.03.2003 to 31.03.2013 held that total interest free own funds of the assessee ranged from 42.95 crores in the financial year 2002-03 to ₹ 50.20 crores in the financial year 2011-12 . Out of these amounts paid up share capital amount was ₹ 1.20 crores and the balance is reserves and surplus from accumulated profits from the years. These are all non-interest bearing own and free funds available with the assessee company and investments in the partnership firm in none of the years starting from financial year 2002-03 to 2012-13 exceeded the amounts of above free funds available with the assessee company. On goi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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