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2015 (4) TMI 191 - MADRAS HIGH COURT

2015 (4) TMI 191 - MADRAS HIGH COURT - TMI - Disallowance u/s 40(a)(ia)- Non deduction of TDS on export commission paid by the assessee to the non-resident - ITAT deleted the disallowance - 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 did not carry on any business operations in the taxable territories. They acted as selling agents outside India. In the insta .....

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ices rendered by the non-resident agent can at best be called as a service for completion of the export commitment and would not fall within the definition of fees for technical services, we are the firm view that section 9 of the Act is not applicable to the case on hand and, consequently, section 195 of the Act does not come into play. Also see Faizen Shoes case [2014 (8) TMI 170 - MADRAS HIGH COURT]- Decided in favour of assessee. - T.C.A. NO. 137 OF 2015 - Dated:- 24-3-2015 - R.Sudhakar And .....

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ssion paid by the assessee to the non-resident on which it had failed to deduct TDS? 2) Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in holding that the assessee has no liability to deduct tax at source under Section 195 on the payment made to non-resident towards export sales commission? 3) Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in holding that the non-resident has no business c .....

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assessee is doing business of strategic and consultancy services limited and filed its return of income for the assessment year 2009-10 declaring an income of ₹ 1,42,51,852/-. The return was processed under Section 143 (1) of the Act. Thereafter, the case was selected for scrutiny and notice under Section 143 (2) was issued and served on the assessee. The Assessing Officer, after calling for details from the assessee, completed the assessment under Section 143 (3) and assessed the total i .....

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come Tax (Appeals), is extracted hereunder, for better clarity :- In the present appeals of the assessee also the facts and circumstances are exactly identical to those involved in the case of M/s.Farida Shoes P. Ltd. for A.Y. 2008-09 (except the type of product exported). Therefore, since the issue involved in the present appeals is the same and the facts are exactly identical, the above decision of the ITAT, (M/s.Farida Shoes P. Ltd., in ITA No.159/Mds/2013 dated 11.04.2013), is equally applic .....

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sion payments u/s.195 of the Act. Therefore, the provisions of sec.40(a)(i) have no application in the present case. Accordingly, the additions made by the Assessing Officer in the assessment year under consideration, on account of disallowance of commission payments for non-deduction of TDS u/s.40(a)(i) r.w.s. 195 of the Act, are not justified and deleted." 4. Against the said order of the Commissioner of Income Tax (Appeals), the appellant/Revenue filed appeal before the Tribunal. The Tri .....

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tion on the part of the payer to deduct the tax in India." 5. Aggrieved against the said order, the present appeal has been filed by the appellant/Revenue. 6. Heard Mr.T.R.Senthil Kumar, learned standing counsel appearing for the appellant/Revenue and perused the materials found in the typed set of documents. 7. This Court, in the case of Commissioner of Income Tax Vs Faizan Shoes Pvt. Ltd. (48 Taxman.com 48), had an occasion to consider a similar issue and after exhaustive analysis of the .....

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r directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India ; . . . (vii) income by way of fees for technical services payable by Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day April, 19 .....

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, 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'. (2) Notwithstanding anything contained in sub-section (1), any pension payable outside India to a person residing permanently outside India shall not be deemed to accrue or a .....

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ent shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the non-resident, whether or not, (i) the non-resident has a residence or place of business or business connection in India ; or (ii) the non-resident has rendered services in India." 7. On a reading of section 9(1)(vii) of the Act, we are not inclined to accept the plea taken by the learned senior standing counsel appearing for the .....

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ot clear from the order of the Assessing Officer. The opening of letters of credit for the purpose of completing export obligation is an incident of export and, therefore, the non-resident agent is under an obligation to render such services to the assessee, for which commission is paid. The non-resident agent does not provide technical services for the purposes of running of the business of the assessee in India. The services rendered by the non-resident agent can at best be called as a service .....

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9(1)(v) of the Act ; or (ii) income by way of royalty as set out in section 9(1)(vi) of the Act ; or (iii) income by way of fees for technical services as set out in section 9(1)(vii) of the Act. 10. While dealing with section 9(1) of the Act, the Supreme Court in CIT v. Toshoku Ltd. [1980] 125 ITR 525(SC), on considering a transaction where tobacco was exported to Japan and France and sold through non-resident assessees who were paid commission, held as under : "8. The second aspect of the .....

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ndia that existed between the non-resident assessees and the statutory agent. This contention overlooks the effect of clause (a) of the Explanation to clause (i) of sub-section (1) of section 9 of the Act which provides that in the case of a business of which all the operations are not carried out in India, the income of the business deemed under that clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. If .....

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e taxable territories, it follows that the income accruing or arising abroad through or from any business connection in India cannot be deemed to accrue or arise in India (see CIT v. R. D. Aggarwal and Co. [1965] 56 ITR 20(SC) and Carborandum Co. v. CIT [1977] 108 ITR 335(SC) which are decided on the basis of section 42 of the Indian Income-tax Act, 1922, which corresponds to section 9(1)(i) of the Act). 9. In the instant case, the non-resident assessees did not carry on any business operations .....

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