9911796707
TMI Blog2013 (12) TMI 477X X X X Extracts X X X X X X X X Extracts X X X X ..... ation are discussed in brief. The assessee is engaged in development and sale of software. During the course of assessment proceeding, the AO noticed that the assessee has paid a sum of Rs.55,51,605/- to one of its director named Shri Balaji Bal as Export commission and claimed the same as deduction. It was further noticed that Shri Balaji Bal is a resident of Switzerland. The AO noticed that the assessee did not deduct tax at source u/s 195 of the Act from the said payment. The assessee, by placing reliance on the Circular No.23 of 1969 and Circular No.786 dated 7.2.2000 issued by the CBDT, contended that the tax is not required to be deducted at source from the sales commission paid to a foreign agent for services rendered outside India. It was further submitted that Shri Balaji Bal does not have a "Permanent Establishment" in India and hence no part of the commission is taxable in India. Accordingly, by placing reliance on the decision of Hon'ble Supreme Court in the case of GE India Technology Cen (P) Ltd Vs. CIT (2010)(193 Taxman 234), the assessee contended that it was not liable to deduct tax at source on that count also. 05. The AO asked the assessee to furnish full detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance is not connected with the export turnover and accordingly denied exemption u/s 10B of the Act on it. 06. In the appellate proceedings, the Ld CIT(A) agreed with the view taken by the assessing officer with regard to the nature of payment of Rs.55,51,605/- made to Shri Balaji Bal, i.e., the Ld CIT(A) also held that the nature of services rendered by Shri Balaji Bal to the assessee is in the nature of technical services as defined under Explanation 2 to section 9(i)(vii) of the Act. Before Ld CIT(A), the assessee contended that the provisions of Agreement for Avoidance of Double Taxation (DTAA) entered between the Government of India and Swiss Federal Counsel in exercise of powers conferred by sec. 90 of the IT Act, should be applied to the impugned payment. 07. The assessee submitted before Ld CIT(A) that as per Article 7 of DTAA, the business profits are taxable in India only if the recipient has got a "Permanent Establishment" in India. Accordingly, the assessee contended that, even if the payment made to Shri Balaji Bal is considered as business income in his hands, the same would not be taxable in India, since Shri Balaji Bal does not have a Permanent Establishment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in respect of its business income, since it did not satisfy the conditions prescribed in sec. 10B, viz., it did not have 100% EOU approval given by the Board appointed by the Central Government in exercise of powers conferred u/s 14 of Industries (Development and Regulation) Act, 1951. Accordingly he held that the assessee is not eligible for claiming deduction u/s 10B of the Act. Hence the assessee raised an alternative claim before Ld CIT(A) to the effect that it is eligible for deduction u/s 10A of the Act. In this regard, the assessee also filed audit report in No.56F for claiming deduction u/s 10A of the Act in the place of deduction u/s 10B. The Ld CIT(A) forwarded a copy of the documents filed by the assessee to the assessing officer seeking his comments and also for verification of information given in the Form. However, it seems that the AO has declined to examine the same with the plea that new claims could be made by the assessee only through a revised return. The observations made by Ld CIT(A) in this regard are extracted below:- "The AO has mentioned in his report dated 15.2.2013 that as per provisions of section 10A(5), deduction u/s 10A is allowable only if the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les Commission" on export sales for the marketing services rendered by Shri Balaji Bal outside India. The assessee placed reliance on the decision of Hon'ble Delhi High Court in the case of Eon Technologies Pvt Ltd (203 Taxmann 255)(Delhi) and also on the decision of Hon'ble Supreme Court in the case of CIT Vs. Toshoku Ltd (125 ITR 525) in order to contend that the income received out side India by way of export commission by a non-resident agent operating outside India is not taxable in India. The assessee also placed reliance on the Circulars No.23 dated 23.7.1969 and No.786 dated 07.2.2000 issued by CBDT. Though the said circulars have been withdrawn by the Board, vide Circular No. 7 dated 22.10.2009, the assessee contended that the said withdrawal shall operate only prospectively as held by the Hon'ble Mumbai High Court in the case of UTI Vs. ITO (249 ITR 612). 13. According to the assessee, the tax authorities are not correct in presuming that the impugned payment has been made for technical services. According to the assessee, Shri Balaji Bal has provided only marketing assistance/support and guidance for securing the orders from the overseas clients and nowhere in the agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use of his vast experience and technical knowledge only, he could secure orders for the company and could get the impugned payment from the assessee. Further, a careful reading of terms and conditions of the agreement would show that the services to be provided by Shri Balaji Bal are technical in nature and more than that expected from a normal commission agent. According to the agreement, he has to review the assessee's proposal for target prospects and shall also provide advice and assistance to help secure project. He shall also track project progress and its status. These activities can be done by a technical expert only and hence these facts clearly prove that Shri Balaji Bal is providing only technical services to the assessee company. Further he is the director of the assessee company and hence he is considered as having a fixed base in India in the form of office of the assessee company. Accordingly, the Ld D.R contended that the Ld CIT(A) was justified in holding that Shri Balaji Bal has provided independent personal service in terms of Article 14 of the DTAA and hence the impugned payment is taxable in India, in which case, the assessee is liable to deduct tax at source f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entations and marketing pitches. 2.5 Review DEVICEDRIVEN (INDIA)'s proposals for target-prospects and provide advice and assistance where appropriate to help secure project. 2.6 Hold periodic meetings with DEVICEDRIVEN (INDIA) to track project progress and status. 2.7 COMMISSISON AGENT shall assist in all payment collection from the Client. COMMISSISON AGENT's furtherance of DEVICEDRIVEN (INDIA)'s business interests is on a non exclusive basis. DEVICEDRIVEN (INDIA) shall have right of first refusal on all Projects falling within DEVICEDRIVEN (INDIA)'s domain of expertise, arising from COMMISSISON AGENT's Companies, their Clients an corporate and personal relationships. COMMISSISON AGENT shall also provide a dedicated telephone and fax number for the use of DEVICEDRIVEN (INDIA)'s clients, if required for direct client interaction purposes." 18. On perusal of the above said terms and conditions, the tax authorities have taken the view that the responsibilities and obligation placed upon the Commission Agent (Shri Balaji Bal) is more than what is normally placed upon agents working in normal business transactions. According to them, Shri Balaji Bal assumes technical role, since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services. 20. It is submitted that Shri Balaji Bal is the resident of Switzerland and it appears that there is no dispute on this fact. We notice that the Government of India and the Government of Swiss Confederation have entered in to a Double Taxation Avoidance Agreement (DTAA). The Ld CIT(A) has taken the view that the provisions of DTAA shall apply to Shri Balaji Bal. The revenue is not disputing this aspect. Hence, as per sec. 90(2) of the Act, the provisions of Income tax Act shall apply to Shri Balaji Bal to the extent they are more beneficial to Shri Balaji Bal. 21. We notice that the assessee company as well as Ld CIT(A) has taken the view that Article 14 of DTAA, which deals with "Independent Personal Services" shall apply to the payment made to Shri Balaji Bal. According to the assessee, the payment made to Shri Balaji Bal will not fall within the purview of Article 14 of DTAA. We notice that Article 14 deals with Professional Services or other activities of an independent character. The amended Article 14 is reported in 248 ITR (St.) 209 @ pg. 214. Original DTAA agreement is reported in 214 ITR (St.) 223). However, The Ld CIT(A) has held that the Article 14 shall appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . However, the deduction u/s 10A was allowed by Ld CIT(A). The revenue is aggrieved by the said decision of Ld CIT(A). 23. We heard the parties on this issue and perused the record. We notice that the Ld CIT(A) has examined the alternative claim of the assessee vis-à-vis the technical objections raised by the AO. For the sake of convenience, we extract below the relevant observations made and decision taken by Ld CIT(A):- "8.9 During the course of appellate proceedings, the appellant also filed an alternative claim of deduction u/s. 10A of the IT Act vide letter dt. 7.12.2013. Form No. 56F i.e. report u/s. 10A of the IT Act was also filed. A request was made that the claim if not allowable u/s. 10B may be allowed u/s. 10A. A copy of the letter dated 07.2.2013 of the appellant along with Form No. 56F was sent to the Assessing Officer for comments and also for verification of the information given in this Form and to point out whether the assessee meets the requirements of said section or not. The Assessing Officer has mentioned in his report dtd. 15.2.2013 that as per provisions of section 10A(5), deduction u/s. 10A is allowable only if the prescribed form i.e. Form No. 56F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal to entertain first time a point of law provide the facts on the basis of which the issue is raised is there on record. This decision of Hon'ble Apex Court is limited to the power of assessing authorities for considering a claim made by the assessee which was originally not there in the return" "In our opinion, though the assessing officer could not entertain the claim made by the assessee otherwise than through a revised return, nothing prevented the learned Commissioner of Income-tax(Appeals) from considering the claim of the assessee, which the assessee had specifically, raised in its ground of appeal in view of the decision of the Hon'ble Apex Court in NTPC's case referred supra." 8.10 Respectfully following the aforesaid judgments of Hon'ble ITATs, and High Courts, it is held that the first appellate authority has power to entertain a claim of deduction not made before the Assessing Officer. The Assessing Officer has not commented adversely on the allowability of deduction u/s. 10A of the appellant except for pointing out that the claim is not allowable as per decision of the Hon'ble Supreme Court in Goetze India Ltd. and failure on the part of the appellant to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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