TMI Blog2015 (8) TMI 1029X X X X Extracts X X X X X X X X Extracts X X X X ..... der the provisions of the Act and therefore bound to deduct tax at source on payment of rent to its partners who are individuals and distinct assessable entities as held by the Ld. Assessing Officer. It is pertinent to mention that the provisions of “TDS” represent an alternative and more efficient tax collection mechanism for the Government. Neither provisions of TDS is a separate charge nor levy in addition to income tax under the Act. Non-compliance of the provisions of TDS will result in disallowance u/s 40(a)(ia) of the Act, rising of demand U/s.201(1) of the Act, charging of interest U/s.201(1A) of the Act and levy of penalty U/s.271C of the Act. There is no provision under the Act to suggest that the relationship between the two assessable entities will determine the applicability of Section.194-I of the Act. Therefore, we hereby set aside the order of the Ld. CIT (A) and confirm the order of AO on this issue. - Decided in favour of revenue. - I.T.A.No.1031/Mds. /2012 - - - Dated:- 5-8-2015 - SHRI N.R.S.GANESAN AND SHRI A.MOHAN ALANKAMONY, JJ. For The Appellant : Mr.P.Radhakrishnan JCIT,D.R For The Respondent : Mr.V.D.Gopal,Advocate ORDER PER A.MOHAN A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance of the same invoking the provisions of section 40(a)(ia) of the Act will not arise. However, the Ld. Assessing Officer held that by virtue of Section.9(1)(vi) of the Act and Article-12 of Double Taxation Avoidance Agreement entered into between India USA, royalties and fees for services rendered will be taxable at the contracting state in which they arise and accordingly as per the law TDS has to be deducted. The relevant portion of the order of the Ld. Assessing Officer is extracted herein below for reference:- 2.1.Regarding the taxability of income earned by non-residents, it is pertinent to note that as per Section-5(2), the total income of the nonresident includes all income from whatever source derived which is received or is deemed to be received in India by or on behalf of such person and which accrues or arises or is deemed to accrue or arise to him in India during such year. Section 9(1) deals with income deemed to arise or accrue in India. It is to be seen as to whether the payment to the non-resident mentioned above falls under any of the categories mentioned in Section.9(1) of the Act. Hence, the assessee was asked to furnish the details of the above p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Apex Court in the case Toshoku Ltd., reported in 125 ITR 525(SC) and held that the assessee is not required to deduct tax at source for the payments made in foreign currency to Ms Joanne Collins towards services rendered outside India being product design charges. The relevant portion of the Order of the Ld.CIT(A) is extracted herein below for reference:- On verifying the submissions made by the Authorized Representative of the appellant, assessment order and also material on record the appellant firm engaged the services of one Ms.Joanne Collins as a design and fashion consultant on remuneration basis. She was rendering services outside India by suggesting design and fashion changes to cater to the requirements of customers in USA and European countries. The appellant being a exporter of handloom textiles to USA and European countries need the services of Ms.Joanne Collins and paid a total sum of `15,37,994/- as remuneration. The Assessing Officer was under the impression that above payment was made without deduction of tax. She being a non resident and here services were rendered outside India paid the remuneration also outside India in foreign currency, the Authorize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(Mad.) it has been held as follows:- 9. The Explanation to Section 9(2) of the Act was substituted by the Finance Act, 2010 with retrospective effect from 1.6.1976. The above said explanation would come into play only if the said amount paid would fall under the headings: (i) income by way of interest as set out in Section 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 Commissioner of Income Tax v. Toshoku Limited, (1980) 125 ITR 525, 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 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 s. 9 of the Act. It is urged that the commission amounts should be treated as incomes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged the services of non-resident agent to procure export orders and paid commission. That apart, the Commissioner of Income (Appeals) as well as the Tribunal have correctly applied the principle laid down in GE India Technology Cen. (P) Ltd. case, referred supra, to hold that the assessee is not liable to deduct tax at source when the non-resident agent provides services outside India on payment of commission. 12. In the light of the above said decisions and the finding rendered by us on the earlier issue that the services 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. In view of the above finding, the decision of the Supreme Court in Transmission Corporation of A.P. Ltd. case, referred supra, relied upon by the learned Standing Counsel for the Revenue is not applicable to the facts of the present case. We find no infirmity in the order of the Tribunal in confirming the order of the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Rules, 1922. In the case V.Sivakumar supra, also the facts are not identical. In that case, the issue was with respect to penalty proceedings U/s.271D of the Act against the loan taken by the assessee from the firm wherein the Hon ble jurisdictional High Court held that the assessee s action was bonafide and there was a reasonable cause within the meaning of Section-273B of the Act and therefore penalty could not be imposed. Further in the case CIT Vs. NSM Sankarapandian supra also, the facts are not identical because in that case the issue was with respect to salary paid by the partnership firm to its partner who is the Karta of the HUF representing the HUF in the firm and therefore standard deduction was denied on such salary by the Ld.A.O which was upheld by the Hon ble Jurisdictional High Court. In the case before us the issue is with respect to deduction of tax at source U/s.194-I of the Act. Section 194-I of the Act provides that tax has to be deducted at source on payment of rent by an assessee who is not an individual or a HUF at the specified rate. In this case, the assessee is a firm assessable under the provisions of the Act and therefore bound to deduct tax a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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