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2016 (5) TMI 73 - AT - Income TaxFailure to deduct the TDS on the payment made to overseas entities for logistic services - concept of permanent establishment (PE) - Held that:- liability to deduct TDS arises ‘only if the tax is assessable in India’. Since tax was not assessable in India, there was no question of TDS being deducted by the assessee. With regard to countries in respect of which India has no DTAA, we find that It is an undisputed fact and law that the taxability of business profits earned by overseas countries in India would wholly depend upon the fact whether such non-resident overseas entities rendered any services in India or not. Only if the services are rendered in India, the deeming provisions contained in Section 9(1) of the Act would apply so as to tax the income deemed to accrue or arise in India. Since the nonresident overseas entities did not carry any activity or business operation in India, and they did not render any service in India, no portion of their business profits earned by them exclusively for services rendered outside India can be brought to tax in India, either under Section 9(1) or otherwise or at all. Therefore, there is no question of treating the relationship between the Appellant Company and the overseas entities as a business connection within the meaning of Section 9(1)(i) of the Income Tax Act, 1961. Since there is no business connection within the meaning of section 9(1)(i) of the said Act between the Appellant Company and the overseas entities, the overseas entities are not chargeable to tax in India on their profits, which wholly accrued and arose outside India and through rendering of services by them wholly outside India. None of the non-resident Entities had any permanent establishments in India. The Appellant Company as well as each of the nonresident entities were acting on Principal to Principal basis; and that none of them were agents of each other. The mere fact that the Agreements executed in between the Appellant Company and each of the different non-resident entities used the nomenclature “Reciprocal Appointment as Agents”, both ways, for Air / Ocean import and export transportation between India and the respective establishments in the overseas countries, it cannot and does not make the Appellant Company as the agent of the non-resident entities in any manner whatsoever, as is by now well settled in Super Poly Fabriks Ltd. v. Commissioner of Central Excise (2008 (4) TMI 31 - Supreme court ) the nature of operations and activities carried out by the Appellant Company as well as each of the non-resident entities clearly show that none of them are agents of each other; and that each of them are operating in their respective countries on Principal to Principal basis. As such, the Appellant Company can by no stretch of imagination be treated as the Permanent Establishment of any of the non-resident entities. in the circumstances mentioned hereinabove, the Appellant Company was not required to deduct any tax at source either under section 195 and/or section 195A of the said Act. The payment made by the assessee to the overseas entities is not chargeable to tax in India therefore the question of TDS deduction does not arise. The assessee is neither acting as an agent of the overseas entities nor its place of business can be regarded as PE of the overseas entities. Accordingly we reverse the order of the authorities below. Hence this ground of appeal of the assessee is allowed.
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