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2017 (12) TMI 474 - HC - Income TaxTDS u/s 195 - Disallowing the payment under Section 40 (a)(i) for failure to deduct TDS - Held that:- Section 40 (a) (i) could not be invoked to disallow such payment as deduction on the ground that no TDS under Section 195 (1) was deducted from such payment. Further the CBDT Circular No. 23 dated 23rd July 1969 stated that “A foreign agent of an Indian exporter operates in his own country and no part of his income arises in India.” It acknowledges that such commission is remitted to the agent abroad and “not received by him or on his behalf in India. Such agent is not liable to income-tax in India on the commission.” This was reiterated by the subsequent Circular No 786 dated 7th February 2000. Both the circulars are binding on the Revenue. The contention of the Revenue that the above Circulars cannot override the Act, was negatived by this Court in CIT v. EON Technology (P.) Ltd. (2011 (11) TMI 20 - DELHI HIGH COURT) by holding that when a non-resident operates outside the country, no part of his income arises in India. Further it was held that merely because an entry is made in the books of accounts does not mean that the nonresident received any payment in India. Since no part of the income could be deemed to have accrued to the non-resident in India, there was no obligation to deduct TDS from the payment made to such non-resident. Consequently, the question of disallowing the payment under Section 40 (a) (i) of the Act for failure to deduct TDS did not arise. - Decided in favour of the Assessee and against the Revenue.
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