TMI Blog2014 (11) TMI 275X X X X Extracts X X X X X X X X Extracts X X X X ..... d to suggest that the income is chargeable to tax in India or the payment has been received by the non resident agents in India or by any other person on their behalf - the non-resident agents did not carry out any business operations in India and has acted as selling agents of the assessee outside India - the commission earned by them for services rendered by them outside India cannot be considered as income chargeable to tax in India. The AO has failed to bring any material on record on the basis of which it could be concluded that commission paid to foreign agents is chargeable to tax in India - Unless the income is chargeable to tax in India, then tax is not required to be deducted u/s 195(1) - no definite conclusion can be made that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declaring a net loss of ₹ 21,59,72,274/- and the assessment was completed on 29-12-2008 on a net loss of ₹ 11,92,34,369/-. Subsequently, the case was re-opened u/s. 147 by issue of notice u/s. 148 dated 16-03-2011. The Assessing officer completed the assessment vide order u/s. 143(3) r.w.s. 147 of the I.T. Act dated 22-12-2011. While completing the assessment the Assessing officer has made disallowance u/s. 40(a)(ia) on account of payments made without deducting TDS to the Liaison Officer, professional charges and sales commission to selling agents. 4. The Assessing officer made the disallowance as it was observed that the assessee had not deducted TDS on the payments made to M/s. Al Hassan Electricals Company, Oman. After go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany does not have any permanent establishment in India therefore, the Assessing officer s stand was not correct in making this disallowance. Against this, the Revenue is in appeal before us. 7. The Ld. DR submitted that the selling agent in this case though had rendered services abroad, and was entitled to receive the commission abroad for the services rendered to the assessee. However, he received the amount through or from business connection which he had in India or source of income is in India, being so, the income shall be deemed to accrue or arise in India. Since the source of income of the non-resident, who is the agent of the assessee, it earned commission from the business activity of the assessee and the assessee has not ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e person paying the commission to a non-resident is not liable to deduct tax if such services are not chargeable to tax under the Act. Sec. 195 contemplates not merely amounts, the whole of which are pure income payments; it also covers composite payments which have an element of income embedded or incorporated in them. The obligation to deduct tax at source, is however, limited to appropriate proportion of income chargeable under the Act forming part of the gross sum of money payable to the non-resident. He relied on the judgment of the Supreme Court in the case of GE India Technology Centre P. Ltd. vs. CIT (2010) (327 ITR 456) (SC). He also drew our attention to the agency agreement dated 24th February 2000 entered with M/s. Al Hassan Ele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties and perused the record. At the outset, certain provisions of the Act needs to be looked into section 40(a)(i) which reads as under:- 40 Not withstanding ............. (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 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 VIIB and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... virtue of which the payment of commission would have accrued or arose in India. The facts available on record clearly suggest that the non resident agents did not carry out any business operations in India and has acted as selling agents of the assessee outside India. Therefore, the commission earned by them for services rendered by them outside India cannot be considered as income chargeable to tax in India. That apart the submission of the learned AR that DTAA between India and concerned countries stipulates that the income of an enterprise of contracting state shall be taxable on in that state unless enterprise carries on business in the order contracting state through permanent establishments also requires consideration. The AO has not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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