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2007 (3) TMI 404 - AT - Income TaxDisallowance Of the Commission payment - non-resident towards agency commission for export of Forklift Trucks in pursuance of Agency Agreement between the appellant and ISSAM Bureau Group of Companies - Commission Income accrues or is deemed to accrue in India? - HELD THAT:- In the present case, there was no such restriction on supply of goods or materials to Iraq imposed by the Government of India. In any case, the records show that even these contingencies also did not arise in this case as neither the name of appellant company has been proved to have figured in the Volker Commission Report nor has the payment been proved to be of the nature of a kick-back nor even it has been shown that the necessary permission from UN was not taken. So far as the nature of the payment is concerned, it has clearly been established that the payment was made purely for the purpose of procuring export order of Forklift Trucks to Iraq and also certain after-sales services performed by the Agent in Iraq and was of the nature of commission payment. The payment was also received by them in Jordan. Absence of any Permanent Establishment or Business connection of the Agent in India also takes the case out of the purview of the deeming provisions regarding accrual of income in India as envisaged in section 5(2) of the Act. Hence, by taking into consideration all the aspects of the case, it is found that in this case, neither was the Commission payment received by the non-resident Agent in India nor did any income accrue or arise nor is deemed to accrue or arise to it in India. Hence, there was no liability on the part of the appellant company to deduct any tax from the amount of Commission payment made by it to the Iraqi Agent in terms of the provisions of section 195 of the Act. It has also got to be held that looking to the complexities of international transactions, the rate of Commission payment in this case cannot be considered to be too high, excessive or unreasonable. In any case, there is nothing on record to show that the full amount as claimed by the appellant company was not actually paid or that some part of it was routed back to the appellant company or its Directors in an indirect or underhand way. Therefore, there is no case for disallowing the Commission payment in this case from any angle whatsoever. Taking into consideration all these aspects, we hold the Commission payment under consideration is fully allowable. We therefore, reverse the orders of the lower authorities and delete the entire disallowance in this regard. Disallowance on account of various tender deposits totalling to written off - HELD THTA:- We are of the view that the said amount is allowable as a deduction u/s 37(1) of the Act by way of expenses/loss incidental to business on account of the fact that the said amounts had been paid as deposits to procure sales order and therefore had been incurred in the course of carrying on the business of the appellant. In that view, therefore, we are inclined to allow the claim of the appellant in this regard and thus, delete the disallowance. Expenditure incurred for drawing and designs and for various softwares on drawing and design like cad computer aided design for its equipments - HELD THAT:- The expenses were evidently incurred for the purpose of acquiring certain drawings and designs and also softwares for the purpose of carrying on the business of the appellant company in a more efficient manner. It is a common knowledge that now-a-days, these drawings, designs and softwares do not have any lasting values. Hence, the expenses under consideration is required to be allowed as revenue expenses. We direct accordingly and delete the disallowance. At the same time, we also direct that if any depreciation might have already been allowed on the expenses under consideration treated as capital expenses, then such depreciation is to be disallowed. In the result, the appeal of the assessee is partly allowed.
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