TMI Blog2012 (12) TMI 838X X X X Extracts X X X X X X X X Extracts X X X X ..... hich were earned by the non resident for services rendered outside India could not be deemed to be income which had either accrued or arisen in India - Thus the assessee was held not to be liable for TDS under Chapter XVII-B of the Act - against revenue. Addition on account of retention money - Held that:- The facts are that the customer retains money in respect of a completed contract for satisfactory performance of the contract for which the due diligence is undertaken. On demonstration of satisfactory performance of the contract, the money as released finally to the assessee, otherwise it has to repair the fault or pay liquidated damages. Thus such money withheld by the customer does not accrue as income to the assessee on completion of the turn-key project, the reason being that right to receive the money does not accrue to the assessee. This money accrues as income when the stipulated condition is satisfied which may be in the nature of showing satisfactory performance of the project. Therefore, the amount is taxable on accrual basis in the year in which stipulated condition is satisfied. Thus following the Tribunal's order in the assessee's own case for AY 2007-08 the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al obligations during the execution of the contract; that it was stated that the Reserve Bank of India permitted payment of commission in all export dealings; that it was stated that the assessee had paid commission to its agents well within the limits prescribed by the Reserve Bank of India and all such remittances were made through permitted banking channels; that it was stated that the agents were providing services out of India and none of them had any office or place of profit or any other business connection in India that it was stated that the agents operated out of India and provided their services outside India, due to which no part of the income of the foreign agents arose in India and, consequently, no tax was to be deducted from the commission payments being made to the foreign agents of the assessee company; and that the assessee placed reliance on clause No. 4 of CBDT Circular No. 23 dated 23.071969, which deals with payment of foreign agents of Indian exporters. The Assessing Officer observed that Section 9(1)(vii) of the IT Act classifies and covers all incomes accruing and arising in India, which partake the character of payment on account of fee for technical serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cast pay Section 195(3) of the Act, for non-deduction of TDS, or lesser deduction of TDS; that as such, there is no provision in the Act for making the payment to non-residents without deduction of TDS, in the absence of any decision/no objection certificate from the assessing authority u/s 195(2) of the Act; that hence, the commission paid by the assessee company to the non-resident was income due to accrue or arise in India within the meaning of Section 9 of the Act; that the assessee was liable to deduct TDS on expenditure of export commission paid by it to the non-resident; that CBDT Circular No. 7 dated 22.10.2009 was clarificatory in nature and would operate retrospectively, being applicable for Assessment Year 2008-09; that further, the assessee had not furnished any explanation regarding the increase in turnover due to the payment of the commission in question; that the assessee had failed to produce any agreement entered into with the non-resident agents, to whom, the commission had been paid; and that for Assessment Year 2008-09, the decision of the CIT (A) in favour of the assessee had not been accepted by the department and the matter had been carried out in appeal bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technology (P.) Ltd. [2012] 343 ITR 366 (copy is placed on record) (ii) Dy. CIT v. Divi's Laboratories Ltd. [2011] 131 ITD 271 (copy is placed on record) 6. We have heard the parties on this issue and have perused the material on record with regard thereto. The Ld. CIT (A), while deciding this matter in favour of the assessee, has followed the first appellate order for Assessment Year 2008-09, wherein, it was held as follows:- 7. I have gone through the order of the Ld. AO and the submissions made by the Ld. AR of the assessee. There is no dispute that commission has been paid to agents outside India for sales outside the country. There is also no material on record which would suggest that the foreign agents had Permanent Establishment in India. It is also not in dispute that the assessee has not deducted tax at source. The Ld. AO felt that under the provisions of Section 9(1) (vii), the assessee should have deducted tax and in the absence of the same, he proceeded to make an addition u/s 40(a)(ia). The assessee has disputed this. 8. At this juncture, it may be gainful for me to go through the relevant provisions of Section 195 and 9(1)(vii) and the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he country and not in India. Very importantly this payment does not also fall within the ambit of Section 9(1)(vii) of the Act as the services under consideration is not for any technical service rendered. It is only for facilitation of the sales of the assessee outside India. In CIT v. Sara International Ltd. [2008J 8DTR (Del) 309, the Delhi High Court has interpreted the provisions of the said section in the context of Section 194J, wherein at Page No.311 it has been stated as follows: The expression fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head 'salaries'. 11. In the case in hand, the relationship between the assessee and the agents are principal to principal. The agents to not have any PE in India. For the service rendered, the agents are paid by the assessee. I am afraid that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is held that the addition to the tune of ₹ 34,41,02,001/- has no legs to stand. The same stands deleted. The assessee succeeds in Ground of Appeal No. 3 and its parts. On careful consideration of the matter, since the issue involved in the year under consideration is identical that of A.Y. 2008-09, respectfully following the order of my predecessor CIT(A) (supra), the said addition of ₹ 37,87,26,158/- is deleted. 7. The assessee company, during the year, was dealing in export of produce and commodities and was into construction activity. The Assessing Officer made the addition for the reason that the assessee had failed to deduct tax at source on the payment of export commission. While deleting the addition for Assessment Year 2008-09, it was taken into account that the relationship between the assessee and its agents was on a principal to principal basis; that the agents of the assessee did not have any PE in India and it was on account of services rendered by the agents that the payments were made by the assessee to them, which payment could not be considered as if for technical services, nor could be taken as a job which was managerial in nature. There wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. It was observed that the assessee was following the mercantile system of accounting, wherein, the money retained by the authority from the contract payments made to the assessee constituted income accrued to it and was taxable in the relevant year irrespective of the fact that the actual money may not have been received by him in that year; that so, it had to be income under the mercantile system; that if, however, sums were not given due contractual application, not being perfectly/fully made, the sums not given out of the retention money could, at best, be considered expenses. 13. The Ld. CIT (A) deleted the addition following the CIT (A)'s orders for Assessment Years 2007-08 and 2008-09. 14. In this regard, the Ld. DR has contended that the Ld. CIT (A) has erred in deleting the addition correctly made towards retention money; that while doing so, the Ld. CIT (A) has failed to appreciate the findings of the Assessing Officer to the effect that as per the mercantile system of accounting, which was the system of accounting followed by the assessee during the year, the money retained by the assessee company constituted income accrued to it, which was taxable in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
