TMI Blog2011 (4) TMI 1308X X X X Extracts X X X X X X X X Extracts X X X X ..... n on 30.10.2007 declaring an income of ₹ 80,16,170, which was processed under Section 143(1) of the I.T.Act. Later on, the case was selected for compulsory scrutiny. During the assessment proceedings, the AO observed that the assessee had paid a sum of ₹ 57,49,489 to the claimed overseas entities without deduction of Income-tax at source under Section 195 of the incometax Act, 1961(In short the Act ). The AO confronted the assessee with the provisions contained under Section 195 and Section 9 of the Act and called upon to show cause as to why the aforesaid sum be not disallowed under Section 40(a)(ia) of the Act. The assessee objected to the proposed disallowance and submitted that the expenses had been incurred in view of the business expediencies to further the business interest of the assessee overseas by the recipients having expertise in such matters, who were nonresidents within the meaning of the relevant provisions of the Act, as such, there was no statutory liability on the part of the assessee to deduct at source under Section 195 of the Act. The submissions of the assessee have been highlighted by the AO at page 25 of the assessment order dated 15.12.2009 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a (P) Ltd. vs. ACIT (2008) reported in 112 ITD 79(Delhi). The said decision had been overruled by the Hon'ble Delhi High Court of Delhi vide order dated 15.3.2010. It was also submitted that tax was not required to be deducted in view of the CBDT clarification vide circular No.23 dated 23.7.1969 and circular No.786 dated 7.2.2000 for non-deduction of tax at source u/s 195 with regard to payment of commission to foreign agent. It was contended that the aforesaid circular was clarificatory in nature, hence their withdrawal vide circular No.7of 2009 dated 22.10.2009 did not alter the legal position and that when the assessee made the commission payments to the foreign party, the aforesaid Board s circular was very much in existence and because of which no TDS was made. Therefore, the position existing at that time could not be altered by withdrawing that circular subsequently. Reliance was placed on the decision of the I.T.A.T., Mumbai Bench in the case of Dy.CIT vs. Siemens (2010 TIOL-102-ITATMUM). Accordingly, it was requested that the disallowance made by the AO under Section 40(a)(i) for non-deduction of tax at source under Section 195 of the Act be deleted. 5. The ld.CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... managerial skills, like running the household, being an Assessing Officer, running a shop etc. Will that tantamount to providing managerial services in the context of Section 9(1)(vii) ? The answer is clear NO. Thus, the aforesaid payments do not fall within the meaning of FTS as described in Section 9(1)(vii) of the Act. 5.3.4 The income of the non-resident was not chargeable to tax in India since the same was neither received in India nor had it accrued on deemed to accrue in India. Accordingly, the appellant was not required to deduct Tax at Source u/s 195 in respect of commission paid to the Foreign Agent. Disallowance u/s 40(a)(i) is, therefore, deleted. 6. Now, the Department is in appeal. 7. The ld.D.R. reiterated the observations made by the AO and strongly supported the assessment order passed on 15.12.2009. 8. In his rival submissions, the ld. Counsel for the assessee submitted that the issue is covered in favour of the assessee by the decision of this Bench of the Tribunal in ITA No.587(Luc.)/2010 for the assessment year 2007-08 in the case of Dy.CIT-II, Kanpur vs. Shri Sanjiv Gupta, Kanpur reported at (2011) 50 DTR (Lucknow)(Trib.) 225. 9. We have con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the view of C AG the expenditure should have been disallowed in accordance with the provisions of section 40(a)(i) of . the Income Tax Act, 1961. It has come to the notice of the Board that a similar view, on the same set of facts has been taken by some assessing officers in other charges. 2. The deduction of tax at source under section 195 would arise if the payment of commission to the non-resident agent is chargeable to tax in India. In this regard attention to CBDT Circular No. 23, dated 23-7-1969, is drawn, where the taxability of Foreign Agents of Indian Exporters was considered alongwith certain other specific situations. It had been clarified then that where the non-resident agent operates outside the country, no part of his income arises in India. Further, since the payment is usually remitted directly abroad it cannot be held to have been received by or on behalf of the agent in India. Such payments were, therefore held to be not taxable in India. The relevant sections, namely, section 5(2) and section 9 of the Income Tax Act, 1961, not having undergone any change in this regard, the clarification in Circular No. 23 still prevails. No tax is, therefore deductible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that the previous year involved in 2006-07 relevant to the assessment year under consideration. At the relevant time, in view of the C.B.D.T. circular No.23 dated 23.7.1969 and circular no.786 dated 7.2.2000, the assessee was not obliged to deduct the tax under Section 195 of the Act and the circular No.7 of 2009 dated 22.10.2009 withdrawing the circular No.23 of 1969 and circular No.786 of 2000 will be operative only from 22nd October, 2009 and not prior to that date. We may also mention that the decision relied upon by the AO in the case of Van Oord ACZ India (P.) Ltd. vs. Addl.CIT (supra) has been overruled by the Hon'ble Delhi High Court which is reported in (2010) 230 CTR (Del.) 365, wherein the Hon'ble High Court has concluded as under : Obligation to deduct tax at source under s. 195 is attracted only when the payment is chargeable to tax in India; IT authorities having accepted: that the nonresident recipient is not liable to pay any tax in India, the assessee- payer was not liable to deduct tax at source under s. 195(1) in respect of the mobilization and demobilization costs reimbursed by it to the said nonresident company. In view of the above discuss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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