TMI Blog2019 (4) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... D THAT:- In this case the source of income for the overseas agents is the services rendered abroad by them to the assessee by way of searching prospective foreign buyers/clients and the payment is received by them directly outside India in their country. Thus, the non-resident overseas agents have offered services to procure export sales order. All these services are rendered abroad, only the payment is made by the assessee from India. Insofar as the nonresident overseas agent is concerned, the source of income is the transaction whereby services are offered by them to the assessee by procuring export sales orders abroad. The overseas agents do not have any permanent establishment or any business connection in India nor is the source of income through, by means of, in consequence of or by reason of any source of income in India. The revenue is trying to confuse two aspects, namely, it is trying to equate the source of payment with the source of income. Insofar as the source of income, it is not the place from where the payment is made, but the place where the transaction which yields such income has taken place. As discussed earlier, the source of income is the services ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ively, and hence, the same were taken up for hearing together and are decided by this common order. 2. In Tax Appeal No.1397 of 2018, the appellant has proposed the following two questions, stated to be substantial questions of law: ( A) Whether the Appellate Tribunal has erred in law and on facts in upholding the order of the CIT(A) by admitting the additional evidences submitted by the assessee during the appellate proceedings, in violation of Rule 46(A)(1) of Rules? ( B) Whether the Appellate Tribunal has erred in law and on facts in upholding the order of the CIT(A) deleting the addition made on account of disallowance under section 40(a)(ia) of the Act for non-deduction of tax on commission payable to foreign agents of ₹ 1,73,17,755/-? 3. In Tax Appeal No.1398 of 2018, the appellant has proposed the following question, stated to be substantial question of law: ( A) Whether the Appellate Tribunal has erred in law and on facts in upholding the order of the CIT(A) deleting the addition made on account of disallowance under section 40(a)(ia) of the Act for non-deduction of tax on commission payable to foreign agents of ₹ 2,41,37,454/-? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Commissioner (Appeals) while allowing additional evidence to be adduced has not been validly exercised and that the Tribunal was, therefore, not justified in upholding the same. 8. On the other hand Mr. S. N. Divetia, learned advocate for the respondent-assessee, invited the attention of the court to the order of the Commissioner (Appeals), to submit that it was during the course of appellate proceedings that the respondent was called upon to prove the genuineness of the commission also and, therefore, it was at the instance of the Commissioner (Appeals) that the additional evidence was adduced. Reference was made to rule 46A of the rules, to point out that under subrule (4) thereof, the Deputy Commissioner (Appeals) or as the case may be, the Commissioner (Appeals), is duly empowered to direct production of any documents or examination of any witness to enable him to dispose of the appeal or for any substantial cause. It was submitted that in the present case, since the additional evidence had been produced at the instance of the Commissioner (Appeals), the case falls under this sub-rule, and hence, the requirements of sub-rule (4) of rule 46A of the rules are not required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition of penalty under section 271. 10. Thus, sub-rule (4) of rule 46A of the rules permits the Appellate Commissioner to direct production of any document, or examination of any witness to enable him to dispose of the appeal. In the facts of the present case, a perusal of the order of the Commissioner (Appeals) reveals that he has recorded therein that the Assessing Officer has not examined the aspect relating to genuineness of the commission expenses during the assessment proceedings and that the disallowance was on technical basis. The assessee has now given the evidence in the course of appellate proceedings as it was asked to prove the genuineness of the commission expenses also. Therefore, it is evident that it was at the instance of the Commissioner (Appeals) that the assessee had produced the additional evidence on record, which would fall within the ambit of subrule (4) of rule 46A of the rules, and hence, the question of violation of such rule on the ground urged on behalf of the appellant based on sub-rules (1) and (2) of rule 46A, does not arise. Moreover, the Assessing Officer has been given opportunity to deal with the additional evidence produced by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 of the Act and added the same to the total income of the assessee. Being aggrieved, the assessee went in appeal before the Commissioner (Appeals), who allowed the appeal. Revenue went in appeal before the Tribunal but did not succeed. 12. Mrs. Mauna Bhatt, learned senior standing counsel for the appellant, submitted that the assessee had committed default by not deducting tax at source on the foreign commission payment which was clearly in violation of the provisions of section 195 of the Act. It was submitted that in the present case, the non-resident foreign agents have rendered services abroad to procure the export sales order and were entitled to receive commission for the services rendered to foreign clients of the assessee. As per section 5(2)(b) of the Act which deals with the scope of total income, the income of a non-resident includes all income from whatever sources derived, which accrues or arises or is deemed to accrue or arising directly or indirectly, through or from source of income of India during such previous year. Under section 9(1)(i) of the Act, income accruing or arising directly or indirectly, through or from any business connection in India or source of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 195 of the Act since the income was not raised in India because the payee had no permanent establishment or business connection in India. It was urged that the Tribunal has rightly placed reliance upon the decision of the Supreme Court in the case of Commissioner of Income tax v. Toshuku (supra), for the proposition that commission earned by nonresident acting as a selling agent for the Indian exporter wherein such nonresident was rendering services from outside India does not accrue in India. It was pointed out that the decision in the case of Commissioner of Income tax v. Toshuku, (supra) was rendered prior to the insertion of Explanation 4 to section 9 of the Act. 14. In the above backdrop, reference may be made to subsection (1) of section 195 of the Act, which reads thus:- 195. Other sums.(1) Any person responsible for paying to a nonresident, not being a company, or to a foreign company, any interest (not being interest referred to in Section 194-LB or Section 194-LC) or Section 194-LD or any other sum chargeable under the provisions of this Act (not being income chargeable under the head Salaries shall, at the time of credit of such income to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication to ITO(TDS) for determining the amount. It is only when these conditions are satisfied and an application is made to ITO(TDS) that the question of making an order under Section 195(2) will arise. In fact, at one point of time, there was a provision in the IT Act to obtain a NOC from the Department that no tax was due. That certificate was required to be given to RBI for making remittance. It was held in Czechoslovak Ocean Shipping International Joint Stock Co. v. ITO [(1971)81 ITR 162 (Cal)] that an application for NOC cannot be said to be an application under Section 195(2) of the Act. 13. If the contention of the Department that the moment there is remittance the obligation to deduct TAS arises is to be accepted then we are obliterating the words chargeable under the provisions of the Act in Section 195(1). The said expression in Section 195(1) shows that the remittance has got to be of a trading receipt, the whole or part of which is liable to tax in India. The payer is bound to deduct TAS only if the tax is assessable in India. It tax is not so assessable, there is no question of TAS being deducted. (See Vijay Ship Breaking Corpn. v. CIT (2010) 10 SCC 39.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 17. Section 195 appears in Chapter XVII which deals with collection and recovery. As held in CIT v. Eli Lilly Co. (India) (P) Ltd. [(2009) 15 SCC 1] the provisions for deduction of TAS which is in Chapter XVII dealing with collection of taxes and the charging provisions of the IT Act form one single integral, inseparable code and, therefore, the provisions relating to TDS applies only to those sums which are chargeable to tax under the IT Act. It is true that the judgment in Eli Lilly [(2009) 15 SCC 1] was confined to Section 192 of the IT Act. However, there is some similarity between the two. If one looks at Section 192 one finds that it imposes statutory obligation on the payer to deduct TAS when he pays any income chargeable under the head Salaries . Similarly, Section 195 imposes a statutory obligation on any person responsible for paying to a non-resident any sum chargeable under the provisions of the Act , which expression, as stated above, does not find place in other sections of Chapter XVII. It is in this sense that we hold that the IT Act constitutes one single integral inseparable code. Hence, the provisions relating to TDS applies only to those sums wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India. 18. Prior to its amendment by Act 23 of 2012, section 9 of the Act read as under:- Income deemed to accrue or arise in India . 9. ( 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipal non-resident) or on behalf of such non-resident and other nonresidents which are controlled by the principal non-resident or have a controlling interest in the principal non-resident or are subject to the same common control as the principal nonresident, he shall not be deemed to be a broker, general commission agent or an agent of an independent status. Explanation 3.- Where a business is carried on in India through a person referred to in clause (a) or clause (b) or clause (c) of Explanation 2, only so much of income as is attributable to the operations carried out in India shall be deemed to accrue or arise in India . ( ii) income which falls under the head Salaries , if it is earned in India. 19. Explanation 4 which came to be inserted vide Finance Act, 2012 with effect from 1.4.1962, reads thus: For the removal of doubts, it is hereby clarified that the expression through shall mean and include and shall be deemed to have always meant and included by means of , in consequence of or by reason of . 20. Thus, after the insertion of Explanation 4, income arising through, by means of, in consequence of or by reason of any business co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that any income accrues of arises to the overseas agent India as contemplated in section 9 of the Act. 22. Under sub-section (2) of section 5 of the Act, insofar as a non-resident is concerned, the income should have been received or deemed to be received in India in such year; or should accrue or arise or deemed to accrue or arise to him in India during such year. In the facts of the present case, neither of the conditions is satisfied. Therefore, when the commission paid to the non-resident agents was neither received or deemed to be received in India nor accrued or was deemed to accrue in India, no income was chargeable to tax under the provisions of the Act. When the payment made by the assessee to the overseas agent for services rendered abroad is not income chargeable to tax in India, there was no obligation cast upon the respondent assessee to deduct tax at source under section 195 of the Act and consequently, the provisions of section 40(a)(ia) of the Act would not be attracted. The Tribunal, therefore, did not commit any error. No question of law can therefore, be said to arise. 23. Another contention advanced on behalf of the appellant is that if the assessee was no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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