TMI Blog2011 (1) TMI 1332X X X X Extracts X X X X X X X X Extracts X X X X ..... and the circular No.7 of 2009 dated 22.10.2009 withdrawing the circular No.23 of 1969 and circular No.786 of 2000 will be operative only from 22nd October, 2009 and not prior to that date. Decision relied upon by the AO in the case of Van Oord ACZ India (P.) Ltd.[ 2007 (11) TMI 332 - ITAT DELHI-D] has been overruled by Hon'ble Delhi High Court [ 2010 (3) TMI 167 - DELHI HIGH COURT] as concluded that Obligation to deduct tax at source u/s 195 is attracted only when the payment is chargeable to tax in India; IT authorities having accepted: that the non-resident recipient is not liable to pay any tax in India, the assessee- payer was not liable to deduct tax at source under s. 195(1) in respect of the mobilization and demobilization costs reimbursed by it to the said non-resident company. Decided against revenue. - I.T.A.No.587(LKW.)/2010 - - - Dated:- 7-1-2011 - H.L.Karwa N.K.Saini , JJ. For The Appellant : Shri P.K.Bajaj For The Respondent : Shri Vikas Garg , Shri Swarn Singh JUDGMENT : This appeal filed by the Revenue is directed against the order of the Ld.CIT(A)-II, Kanpur dated 25.6.2010 relating to the assessment year 2007- 08. 2. In this ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disallowance was made in spite of the fact that payment of commission was made to nonresident. The explanation of the assessee before the AO was that no part of commission paid to non-resident agent either accrued or arose in India or deemed to accrue or arise in India under Section 9 of the act and thus, was not taxable in India. It was also one of the contention of the assessee before the AO that the non-resident agent did not have any connection in India, hence, liability to deduct tax at source on the assessee did not arise. The AO has passed a detailed order while making the disallowance. He has also relied on the decision of the I.T.A.T., Delhi Bench in the case of Van Oord ACZ India (P.) Ltd. vs. Addl.CIT (2009) (2008) 112 ITD 79 (Del.). The AO concluded that where deduction is required to be made under Section 195(1), the same cannot be avoided unless nil deduction or deduction at a lower rate is authorized by the AO under Section 195(3) or 197 of the Act in respect of payments outside India. The AO has also held that as per the provisions of Section 40(a)(i) of the Act, no deduction for such payments is allowed to the assessee in computation of income for such payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, observing as under : 3. Decision: I have carefully considered the views expressed by the A.O. (while making the disallowance u/s 40(a)(i) for non deduction of Tax at Source on payment of Commission to Foreign Agent) as well as submissions made by the appellant. In view of the categorical finding of the Hon. ITAT in this regard, I agree with the submissions of appellant that the issuance of Circular no 7 of 2009 dated 22-10-2009 withdrawing the circular no. 23 of 1969, 163 of 1975 and 786 of 2000 will be operative only from 22.10.2009 and not prior to that date. Thus, the withdrawal of earlier circulars with effect from 22.10.2009 has no bearing in the instant assessment year. Moreover, the reliance by the A.O. on the decision in the case of case Van Oord ACZ India (P) Ltd Vs. ACIT (2008) reported in 112 ITD 79 (Delhi} has no meaning since the same has been overruled by the Hon'ble Delhi High Court on 15th March, 2010. Accordingly, the appellant was not required to deduct Tax at Source u/s 195 in respect of commission paid to the Foreign Agent. Disallowance u/s 40(a)(i) is, therefore, deleted. 7. We have heard the rival submissions. Shri P.K.Bajaj, ld.D.R. he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attention to CBDT Circular No. 23, dated 23-7-1969, is drawn, where the taxability of Foreign Agents of Indian Exporters was considered alongwith certain other specific situations. It had been clarified then that where the non-resident agent operates outside the country, no part of his income arises in India. Further, since the payment is usually remitted directly abroad it cannot be held to have been received by or on behalf of the agent in India. Such payments were, therefore held to be not taxable in India. The relevant sections, namely, section 5(2) and section 9 of the Income Tax Act, 1961, not having undergone any change in this regard, the clarification in Circular No. 23 still prevails. No tax is, therefore deductible under section 195 and consequently, the expenditure on export commission and other related charges payable to a non-resident for services rendered outside India becomes allowable expenditure. On being appraised for this position, the Comptroller and Auditor General have agreed o drop the objection referred to above. 7.1 In the instant case, the assessment year involved is 2007-08 and the relevant previous year is 2006-07. Admittedly, return of income w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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