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2013 (7) TMI 615 - AT - Income TaxTDS u/s 195 - Business connection – Disallowance u/s 40(a)(i) of the Act - The export commission is paid to the non-resident who rendered the services outside India for the purpose of procuring the order and pursuing the payment from the foreign buyer. Since no services were rendered in India, the income of the foreign agent to whom the commission was paid did not accrue or arise in India, therefore, the assessee was not liable to deduct tax at source. Consequently, the disallowance under Section 40(a)(i) is not called for – Held that:- In the instant case, facts found by the Assessing Officer did not make out a case of business connection as stipulated in section 9(1)(i) – Relying upon the decision of Hon'ble Jurisdictional High Court in the case of AMD Metplast P.Ltd. Vs. DCIT - [2011 (12) TMI 320 - Delhi High Court ], wherein the observation made was,” A was the managing director and in terms of the board resolution was entitled to receive commission for services rendered to the company. It was a term of employment on the basis of which he had rendered service. Accordingly, he was entitled to the amount. Commission was treated as a part and parcel of salary and tax had been deducted at source. A was liable to pay tax on both the salary component and the commission. The payment of dividend was made in terms of the Companies Act, 1956. The dividend had to be paid to all shareholders equally. This position could not be disputed by the Revenue. Dividend was a return on investment and not salary or part thereof." Assessee has paid commission in addition to salary to two of its directors having shareholding of 2.56% - Payment of commission to above two directors is duly supported by the Board's resolution. Both the directors are working full time for the assessee company and the commission paid to them has been considered as salary in their hands and offered for taxation - The payment of commission in the earlier three years i.e. AY 2005-06, 2006-07 & 2007- 08 has been allowed by the Revenue. Moreover, in the subsequent years also, no disallowance out of commission has been made. That the payment of dividend has been made in terms of the Companies Act, 1956 to the shareholders as per their shareholding. On all these facts, the decision of Hon'ble Jurisdictional High Court in the case of AMD Metplast P.Ltd. (supra) would be squarely applicable – Decided in favor of Assessee
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