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2017 (9) TMI 1794 - AT - Income TaxTDS u/s 195 - withholding tax - non-deduction of tax on payments of commission to non-resident/foreign commission agents - commission paid to foreign commission agents is deemed to accrue or arise in India - PE in India - busniss connection of India - Applied section 9(1)(i) or 9(2) - AO's contention that the CBDT had withdrawn its Circulars Nos. 23 dt. 23.07.1969 was issued in the context of section 9 of the Act which deems certain incomes to accrue or arise in India for non-residents; and that in view of this, the assessee should have deducted tax at source u/s. 195 of the Act on payments of commission made to non-residents agents w.e.f. 22.10.2009 HELD THAT:- It is not disputed that that the withdrawal of the Circulars No. 23 and 786 has been made on 22.10.2009 vide CBDT Circular No. 7 of 2009 and mere withdrawal of the circular does not negate the principles of income deemed to accrue or arise in India or outside India. The CBDT has not stated that any part of the circulars is contrary to law or that the circulars were wrongly issued or that the law has undergone changes holding their withdrawal. Thus, in respect of cases, which directly follow with the situations covered by the circulars, the liability to tax should continue to be in accordance with section 9 of the Act and its intent. 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 even after the withdrawal. No tax is therefore deductible under section 195 and consequently, the expenditure on export commission payable to a non-resident for services rendered outside India is not liable for withholding tax. In the case of the assessee, the applied section is Section 9(1)(i) of the Act. Therefore, the above Explanation to section 9(2) is not applicable, since it does not talk of clause (i) of sub-section (1) of section 9 of the Act. Therefore, the decisions rendered in cases relevant to clauses other than clause (i) of Sub-section (1) of section 9 of the Act are not relevant to the present case. Otherwise too, as considered hereinabove, it has been held that the non-resident did not have any business connection in India and there was no liability to withhold tax u/s 195 of the Act. Moreover, AO has himself accepted that payments made prior to withdrawal of the Circular do not call for any disallowance u/s 40(a)(i). The order of the ld. CIT(A) is found to be well reasoned. The department has not been able to dislodge the detailed well reasoned findings recorded therein. - Decided in favour of assessee.
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