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2015 (8) TMI 1456 - AT - Income TaxTDS u/s 195 - non-deduction of tax on commission paid to non-resident outside India - addition u/s 40(a)(i) - income accrued in India - PE in India - Held that:- AO has accepted that the payment made by the assessee is on account of commission and compensation to the foreign agent and therefore it is not the case of the AO that the payment in question is either fee for technical service or royalty which could be taxed in India as per provisions of sec.9(1) of the Act. We further note that the AO has supported his finding by citing the reason that commission income arises in India because right to receive commission arises when the order is executed by the assessee in India. In our view, this logic and contention of the AO is absolutely erroneous and based on mis-interpretation of the term ‘accrue or arise in India’ as per the provisions of sec.9(1). The commission is paid to foreign agent for services rendered by the agent outside India and the agent has no business link or source of income in India. Therefore, in absence of any business connection or source of income and consequently any permanent establishment in India, the said income in the hands of the foreign agent is not taxable in India. - decided in favour of assessee. Disallowance of compensation paid of prior period export sales - selection of assessment year - Held that:- There is no dispute that the assessee is following mercantile system of accounting. Even otherwise, as per the accounting standard as well as per provisions of Companies Act, the assessee is bound to follow the mercantile system of accounting. The assessee has claimed sale rebate/damage on account of defective goods exported in the earlier year. It is pertinent to note that it is not the claim of the assessee that the liability of damage has been crystallized in this year and till the year under consideration assessee was disputing the claim of the purchaser. It is only payment in respect of same amount was adjusted against the purchases received in the year under consideration. Therefore, this amount of damage is undisputedly related to the export of goods made in the earlier assessment year. Accordingly, when the assessee has never disputed the claim of damages, then the claim which pertains to earlier year cannot be allowed in the year under consideration. - decided against assessee.
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