TMI Blog2015 (5) TMI 709X X X X Extracts X X X X X X X X Extracts X X X X ..... r.w.s. 143(3) of the I.T. Act on the following grounds:- (1) In the facts and circumstances of the case and in law, the learned Assessing Officer erred in disallowing Export Commission of ₹ 92,14,509/-, u/s40a(i) r.w.s 195. (2) In the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (A) erred in confirming disallowance of Export Commission of ₹ 92,14,509/- u/s 40(a)(i) r.w.s 195 made by Assessing Officer. (3) In the facts and circumstances of the case and in law, the learned Assessing Officer erred in charging interest u/s 234A, B and C and also initiating penalty u/s. 271(1)(c). Relief prayed: (1) To delete the disallowance of export Commission of ₹ 92,14,509/-. (2) To delete the interest levied u/s 234A, B, C. (3) To delete the initiation of penalty u/s. 271(1)(c). 2. Rival contentions have been heard and record perused. Facts in brief are that the assessee is engaged in exporting cotton yarn and trading in various types of fabrics in domestic markets. During the year under consideration assessee has made foreign remittance of ₹ 92.14.509/- by way of commission payment to foreign agents witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n agents. 6. The foreign agent have established business connection with the assessee which very much falls within the meaning of business connection as pronounced by various courts in the context of section 9(1)(0) of the income- tax Act, 1961 7. Therefore, the income of commission accrues and arise in India and consequently liable for deduction of TDs in India in terms of section 195 read with section 9(1) of the Income tax Act. 3. By the impugned order. CIT(A) confirmed the action of the AO after observing as under:- The AO has based his reasoning onto the ruling given by AAR in the case of SKF Boilers Pvt Limited. This relates to the period after the withdrawal of that circular no 786 [i.e after 22.10.2009]. The ruling is based on the applicability of the provisions of sections 5(2)(b) and 9(1)(i). No reference to DTAA between India Pakistan was made there as the applicant in that case did not contend that it was availing of benefits under the provision of the DTAA with Pakistan. The ruling in the case of Rajiv Malhotra (supra) had come however in the year 2006 when the said Circular 786 was in force but, the issue in that case was not the commission paid on exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered as accrued or arisen or deemed to accrue or arise in India. It was further held that in the absence of permanent establishment(s) of such agents in India, incomes of said agents were not liable to be taxed in India and, as such, assessee was not obliged to effect any deduction of tax on commission payments made to agents who were positioned overseas. Reliance was also placed on the decision of Chennai Bench of the Tribunal in the case of Asstt. CIT v. Comex Exports (P.) Ltd., 63 SOT 130 wherein it was held that the payment of commission to foreign agents for rendering services abroad in view of the fact that those agents do not have permanent establishment in India and moreover services rendered were not in the nature of technical services, income could not be said to accrue or arise in India and thus, assessee was not liable to deduct tax at source while making payments to said agents. Similar view was taken by Chennai Bench of the Tribunal in the case of Dy. CIT v.Farida Prime Tannery (P.) Ltd. 64 SOT 145. 6. Learned AR also invited our attention to the decision of Hon'ble Supreme Court in the case of GE India Technology Cen. (P.) Ltd. v. CIT 327 ITR 456, wherein f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is for this reason that vide Circular No 728. dated 30-10-1995, the CBDT has clarified that the tax deductor can take into consideration the effect of the DTAA in respect of payment of royalties and technical fees while deducting TDS. It may also be noted that section 195 (1) is in identical terms with section 18{3B} of the 1922 Act. In CIT v. Cooper Engg Ltd. [1968] 68 ITR 457 (Bom.) = 2003-TII- 163-HC-MUM-INTL it was pointed out that if the payment made by the resident to the non-resident is an amount which is not chargeable to tax in India, then no tax is deductible at source even though the assessee may not have made an application under section 18(33) [now section 195(2)] The application of section 195(2) presupposes that the person responsible for making the payment to the non-resident is in no doubt that tax is payable in respect of some part of the amount to be remitted to a non-resident but is not sure as to what should be the portion so taxable or is not sure as to the amount of tax to be deducted. In such a situation., he is required to make an application to the ITO ('TDS) for determining the amount. It is only when these conditions are satisfied and an application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(2)(b) read with section 9(1)(i). Then the nonresident commission agent can invoke the provisions of DTAA if any. If there is no DTAA with the country of Commission Agent, then the payment of commission comes straightaway under the ambit of taxability, and as natural consequence TDS has to deducted on it u/s 195. Learned DR further contended that now in the absence of any written agreement with the agents which could clarify the extent of services rendered how could the assessee claim with certainty that the remittances did not include any amount which could be characterized as Commission Agent's income? There is no occasion for the assessee to step in the shoes of nonresidents and that too without access to basic information like Tax Residency Certificates. More so when half of the transactions are entered into with agents of countries with whom India has no DTAA in such a scenario the proper course of action was to approach the assessing officer for determining the taxable portion. If the assessee has failed to do so then naturally TDS should have been deducted on the whole amount remitted whether or not the payments could be considered as FTS. 9. We have considered riva ..... X X X X Extracts X X X X X X X X Extracts X X X X
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