TMI Blog2007 (8) TMI 388X X X X Extracts X X X X X X X X Extracts X X X X ..... elling expenses paid to non-resident agents included an element of income which was chargeable to tax in India. As per the Board Circular No. 786 no income accrued or arose in India either u/s 5(2) or section 9 of the Income-tax Act, 1961 and no tax was, therefore, deductible u/s 195. Consequently expenditure on commission and related charges payable to non-resident agents could not be disallowed u/s 40(a)(i) of the Act on the ground that tax was not deducted. Thus, we do not find any infirmity in the order of the CIT(A) and dismiss Ground No. 11 of the revenue's appeal. The cross-objection filed by the assessee is in support of the findings of the CIT(A). As we have upheld the order of the CIT(A), grounds of cross-objection are n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the CIT(A) erred in law and in facts in directing to allow depreciation on facts acquired in the assessment year 1988-89 and 100 per cent depreciation on the Vibro Fluid Red Dryer. 7. For that the CIT(A) erred in law and in facts in directing to take the fencing expenses as revenue expenditure when the expenditure was incurred not for repairing or replacement of existing fencing but for new planting. 8. For that the CIT(A) erred in law and in facts in delete the addition under the head fencing when it is not eligible for depreciation at the rate of 100 per cent. 9. For that the CIT(A) erred in law and in facts in directing to compute the amount deductible under section 80HHC by applying the ratio of export turnover to total turno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed with reference to business income arrived at after application of Rule 8. The jurisdictional Gauhati High Court in its decision reported in Bazaloni Group Ltd. v. CIT [2005] 272 ITR 11 however, reversed the said finding and held that in case of business of growing and manufacture of tea deduction under section 80HHC should be allowed with reference to income before the application of Rule 8. Respectfully following the decision of the juri6dictional High Court in Bazaloni Group Ltd.'s case we uphold the order of the CIT(A) and dismiss Ground No. 9. 4. In Ground No. 11, the revenue has objected to deletion of the disallowance made under section 40(a)(i) in respect of brokerage, commission, warehousing charges, selling and other e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng charges and other selling expenses were paid. The RBI had permitted the foreign agents to deduct their commission, brokerage and other selling expenses from the proceeds realised and remit the net sales realization to India. These documents established that the expenditure was incurred by the assessee for services rendered by foreign agents in respect of sales effected outside India. These foreign agents rendered their services outside India from the establishments outside India. As per Article 7 of DTAA with UK, business income earned from services rendered outside India was not taxable in India. The assessee, therefore, had no liability to deduct tax at source under section 195 of the Act. The AR for the assessee then relied on the Cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 195 read as follows: "Any person responsible for paying to a non-resident, not being a company or to a foreign company, any interest or any other sum chargeable under the provisions of this Act shall, at the time of credit of sum income or at the time of payment thereof deduct income-tax at the rates in force." Section 195 of the Act casts obligation on an assessee to deduct tax from the payments made to non-residents which is chargeable to tax under the Act. It was, therefore, necessary for Assessing Officer to establish that commission, brokerage and other selling expenses paid to non-resident agents included an element of income which was chargeable to tax in India. 9. The issue relating to accrual of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e if the payment of commission to the non-resident agent is chargeable to tax in India. In this regard attention to CBDT Circular No. 23, dated 23-7-1969 is drawn, where the taxability of "Foreign Agents of Indian Exporters" was considered along with certain other specific situations. It had been clarified/then that where the non-resident agent operates outside the country, no part of his income arises in India. Further, since the payment is usually remitted directly abroad it cannot be held to have been received by or on behalf of the agent in India. Such payments were, therefore, held to be not taxable in India. The relevant sections, namely section 5(2) and section 9 of the Income-tax Act, 1961 not having undergone any change in this reg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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