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Commissioner of Income Tax Versus M/s. Orient Express

2015 (3) TMI 719 - MADRAS HIGH COURT

Non deduction of tds - payments made by the assessee to the non-residents - whether the relationship between the appellant and the agents is contractual and entire service is provided outside India and duly compensated by way of commission payment which is also paid outside India, thus no TDS is to be deducted? - Held that:- The facts of the present case are akin to the facts of the decision in Toshoku Ltd.'s case [1980 (8) TMI 2 - SUPREME Court] wherein held that the non-resident assessees .....

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fore, be deemed to be incomes which have either accrued or arisen in India.In the instant case the assessee engaged the services of non-resident agent to procure export orders and paid commission.

That apart, the Commissioner of Income-tax (Appeals) as well as the Tribunal have correctly applied the principle laid down in GE India Technology Centre (P.) Ltd.'s case, [2010 (9) TMI 7 - SUPREME COURT OF INDIA] to hold that the assessee is not liable to deduct tax at source when the .....

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ecided in favour of assessee. - T.C.A. NO. 92 OF 2015 - Dated:- 2-3-2015 - R.Sudhakar And S.Vimala JJ. For the Appellant : Mr. M.Swaminathan For the Respondent : None JUDGMENT (DELIVERED BY R.SUDHAKAR, J.) Aggrieved by the order passed by the Tribunal in dismissing the appeal filed by it, the appellant/Revenue is before this Court by filing the present appeal by raising the following questions of law :- 1) Whether on facts and in the circumstances of the case, the Income Tax appellate Tribunal h .....

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he Income Tax Appellate Tribunal was justified in placing reliance on the decision of the jurisdictional High Court in the case of Commissioner of Income Tax Vs Faizan Shoes Pvt. Ltd. (48 Taxman.com 48) even though the facts are distinguishable since the agent has rendered managerial, technical and consultancy services to the assessee and in the cited case, the agent was merely a commission agent? 2. The facts, in a nutshell, are as hereunder :- The assessee is engaged in the manufacturing and .....

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25,06,053/=. The assessee, in its return, claimed ₹ 1,09,03,259/= as expenditure for the purpose of payment of commission to foreign agents, which was disallowed by the Assessing Officer on the ground that the assessee has not deducted TDS under Section 195 of the Act. The Assessing Officer was of the opinion that the income is deemed to be accrued in India by virtue of Section 9 (1) (i) of the Income Tax Act and, therefore, the assessee is liable to deduct TDS and disallowed the claim of .....

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ed with non-deduction of tax at source on such payments. Keeping in view of the various judicial pronouncements mentioned supra and respectively following the ratios held in the above case laws as well as considering various submissions made by the AR of the appellant, the commission paid by the appellant does not constitute income in the hands of the non-resident agents and does not come within the purview of Sec. 195. The appellant neither received any services such as managerial, technical fr .....

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s not in any way rendered the commission paid taxable in the hands of the foreign agents in India. For the reason discussed above, the disallowance u/s 40 (1) (ia) of ₹ 1,09,03,259/- stands deleted. 4. Against the said order of the CIT (Appeals), the appellant/Revenue filed appeal before the Tribunal. The Tribunal, relying upon the decision of this Court in the case of Commissioner of Income Tax, Chennai Vs Faizen Shoes (P) Ltd. (2014 (48) Taxmann.com 48 (Mad)), held that the Revenue has .....

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aizen Shoes case (supra), had occasion to consider a similar issue and after exhaustive analysis of the different provisions of the Income Tax Act and also taking into consideration the law laid down by the Supreme Court with regard to the said provisions, held as follows :- 6. Before adverting the merits of the case, it would be apposite to refer to section 9(1)(i), section 9(1)(vii) and section 9(2) of the Act, which read as under : Section 9. Income deemed to accrue or arise in India.(1) The .....

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ay of fees for technical services payable in pursuance of an agreement made before the 1st day April, 1976, and approved by the Central Government. Explanation 1.For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date. Explanation 2.For the purposes of this clause, 'fees for technical services .....

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payable outside India to a person residing permanently outside India shall not be deemed to accrue or arise in India, if the pension is payable to a person referred to in article 314 of the Constitution or to a person who, having been appointed before the 15th day of August, 1947, to be a Judge of the Federal Court or of a High Court within the meaning of the Government of India Act, 1935, continues to serve on or after the commencement of the Constitution as a Judge in India. Explanation.For t .....

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, we are not inclined to accept the plea taken by the learned senior standing counsel appearing for the Revenue that commission paid by the assessee to the non-resident agent would come under the term "fees for technical services". In the case on hand, for procuring orders for leather business from overseas buyers wholesalers or retailers, as the case may be, the non-resident agent is paid 2.5 per cent. commission on FOB basis. That appears to be a commission simpliciter. What is the n .....

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he assessee in India. The services rendered by the non-resident agent can at best be called as a service for completion of the export commitment. We are, therefore, of the considered opinion that the commission paid to the non-resident agent will not fall within the definition of fees for technical services. 9. The Explanation to section 9(2) of the Act was substituted by the Finance Act, 2010, with retrospective effect from June 1, 1976. The above said explanation would come into play only if t .....

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rough non-resident assessees who were paid commission, held as under : "8. The second aspect of the same question is whether the commission amounts credited in the books of the statutory agent can be treated as incomes accrued, arisen, or deemed to have accrued or arisen in India to the non-resident assessees during the relevant year. This takes us to section 9 of the Act. It is urged that the commission amounts should be treated as incomes deemed to have accrued or arisen in India as they, .....

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e only such part of the income as is reasonably attributable to the operations carried out in India. If all such operations are carried out in India, the entire income accruing therefrom shall be deemed to have accrued in India. If, however, all the operations are not carried out in the taxable territories, the profits and gains of business deemed to accrue in India through and from business connection in India shall be only such profits and gains as are reasonably attributable to that part of t .....

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f the Act). 9. In the instant case, the non-resident assessees did not carry on any business operations in the taxable territories. They acted as selling agents outside India. The receipt in India of the sale proceeds of tobacco remitted or caused to be remitted by the purchasers from abroad does not amount to an operation carried out by the assessees in India as contemplated by clause (a) of the Explanation to section 9(1)(i) of the Act. The commission amounts which were earned by the non-resid .....

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