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EUROFLEX TRANSMISSIONS (INDIA) P. LTD. Versus ASSISTANT COMMISSIONER OF INCOME-TAX

2015 (11) TMI 575 - ITAT HYDERABAD

Non deduction of tax at source u/s 195 - Disallowance of commission payment to foreign agents by applying the provisions of section 40(a)(i) - Held that:- section 195(1) envisages that tax is to be deducted at source on income which is chargeable under the provisions of the Income-tax Act. The hon'ble Supreme Court while interpreting the expression "chargeable under the provisions of this Act" as employed under section 195(1) of the Act has held in the case of GE India Technology Centre P. Ltd. .....

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ation where, even though, the income will have no territorial nexus with India or is not chargeable in India, the Government would nonetheless collect taxes. In the present case, on a perusal of the assessment order or the order of the learned Commissioner of Income-tax (Appeals), we do not find any conclusive finding given by the authorities concerned that the payments made to non-residents are chargeable to tax under the Income-tax Act. Applying the principles laid down by the hon'ble Supreme .....

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d/ 2014 (assessment year 2010-11) - Dated:- 1-4-2015 - B. RAMAKOTAIAH (Accountant Member) and SAKTIJIT DEY (Judicial Member) A. V. Raghu Ram for the appellant. Rajat Mitra for the respondent. ORDER The order of the Bench was delivered by 1. Saktijit Dey (Judicial Member).-This appeal by the assessee is directed against the order dated September 8, 2014 of the learned Commissioner of Income-tax (Appeals)-III, Hyderabad for the assessment year 2010-11. 2. The solitary issue arising for considerati .....

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, the Assessing Officer while verifying the financial statements, noticed that the assessee has claimed expenditure towards commission payment to some foreign agents as under : (Rs.) (i) M/s. Coupling International Ltd., U.K. 68,50,599 (ii) M/s. Magneto Eletropneumaticos Ltd., Brazil 2,75,250 (iii) M/s. Thermo Dynamics Engineering Co. Ltd., Japan 7,20,640 Total 78,46,489 4. He further noticed that on such payments made the assessee has not deducted tax at source in terms with section 195 of the .....

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ia. It was submitted, that the commission payment is also towards services provided outside India. The assessee submitted that none of the commission agents have any permanent establishment or permanent business place in India. It was also submitted that the commission amount was remitted to the agents directly outside India. Thus, it was submitted, provisions of section 195 would not be applicable to such payments. The Assessing Officer, however, did not find merit in the submissions of the ass .....

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ssion "accrue" or "arise" occurring in section 5 of the Act would mean income is said to accrue or arise when the right to receive it comes into existence. Therefore, the commission paid to non-resident agents would be deemed to accrue or arise in India. Accordingly, the Assessing Officer applying the provisions of section 40(a)(i) disallowed the commission payment of ₹ 78,46,489. Being aggrieved, the assessee preferred an appeal before the learned Commissioner of Incom .....

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llant's contention. The assessment order has brought out the facts and the relevant case law, i.e., SKF Boilers and Driers Pvt. Ltd., In re (AAR Nos. 983-984 of 2010, February 22, 2012) [2012] 343 ITR 385 (AAR) and discussed the various facts of the case. I do not find any reason to interfere with the assessment order passed by the Assessing Officer and the addition made by the Assessing Officer is upheld." 6. The learned authorised representative submitted before us, neither the Assess .....

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epresentative submitted, reliance placed by the Departmental authorities on the decisions of the Authority for Advance Rulings is also not correct as those decisions cannot be said to be laying down the correct proposition of law. The learned authorised representative specifically referring to the decisions of the Authority for Advance Rulings in the case of Rajiv Malhotra, In re [2006] 284 ITR 564 (AAR) submitted before us, while coming to its conclusion the Authority for Advance Rulings has co .....

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of the Income-tax Appellate Tribunal, Delhi Bench were cited before the learned Commissioner of Income-tax (Appeals), but, he completely ignored/overlooked them. In support, he relied upon the following decisions : 1. CIT v. Model Exims [2013] 358 ITR 72 (All). 2. CIT v. Faizan Shoes P. Ltd. [2014] 367 ITR 155 (Mad). 3. Deputy CIT v. Hyderabad Industries Ltd. [2008] 24 SOT 98 (Hyd). 4. Indo Court Industries Ltd. v. DCIT, I. T. A. No. 123/Del/2011, dated July 8, 2011. 5. Aurobindo Pharma Ltd. v. .....

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very much evident that the Assessing Officer has not disputed the fact that commission payments were made to non-resident agents who not only were carrying on their business activities outside India, but, the commission payments were also related to services provided by those agents outside India. It is also not disputed that none of the commission agents have any permanent establishment or permanent business place in India. The Assessing Officer has also not disputed the fact that commission am .....

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of his own. It is to be noted that in the case of Rajiv Malhotra, In re [2006] 284 ITR 564 (AAR), the Authority for Advance Rulings has come to its conclusion by referring to the provisions contained under sections 6 and 9 of the Income-tax Act. However, a careful reading of section9 of the Act would make it clear that under Explanation 1(a) to section 9(1), it has been provided that in case of a business of which all the operations are not carried out in India, the income of such business only .....

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e Court while interpreting the expression "chargeable under the provisions of this Act" as employed under section 195(1) of the Act has held in the case of GE India Technology Centre P. Ltd. v. CIT [2010] 327 ITR 456 (SC) that the said expression would mean that the remittance has got to be of a trading receipt, the whole or part of which is liable to tax in India. However, if the payments made to non-residents are not chargeable to tax under the provisions of the Income-tax Act, then, .....

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inding given by the authorities concerned that the payments made to non-residents are chargeable to tax under the Income-tax Act. Applying the principles laid down by the hon'ble Supreme Court as aforesaid, it is to be held that the provisions of section 195 would not be applicable to payments made by assessee to non-resident agents. This view is also supported by the following decisions : 1. CIT v. Model Exims [2013] 358 ITR 72 (All). 2. CIT v. Faizan Shoes P. Ltd. [2014] 367 ITR 155 (Mad). .....

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