TMI Blog2015 (11) TMI 1205X X X X Extracts X X X X X X X X Extracts X X X X ..... d in all tests laid down in decision of Spark Hotels (P) Ltd (2012 (6) TMI 689 - ITAT DELHI ) with regard to remuneration paid to Mr. Preetpal Singh. In view of the facts and circumstances of the case and we are of the opinion that allowance of salary/ remuneration to Mr. Preetpal Singh restricted by the Assessing officer to 50% of the amount paid is justified and therefore, the order that of passed by the learned Commissioner of Income-tax (Appeals) on this issue is reversed. Accordingly, the first ground of the Revenue is allowed. Addition under section 40(a)(ia) - commission paid of foreign agents - absence of deduction of tax at source - Held that:- AR has successfully demonstrated that the selling agents were located outside India and service of procuring orders and following payment from buyers etc was performed by them outside India. Once it is established that services are performed outside India, the provision of section 9 are not applicable in the case of foreign residents. The learned Commissioner of Income-tax (Appeals) has discussed the applicability of the circular of the CBDT and we are in agreement with the conclusion of the learned Commissioner of Income-tax (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the services rendered by the non-resident selling agents falls under the category of Fee for Technical Services (FTS) and according to the circular No.7 dated 22-10-2009, the assessee was liable for deducting tax at source in terms of section 195 of the Act. Therefore, the learned Assessing Officer disallowed the commission amount paid in terms of section 40(a)(ia) of the Act in the assessment order passed u/s 143(3) of the Act on 19.10.2011. 3. Aggrieved, the assessee filed an appeal before the learned Commissioner of Income-tax (Appeals). Before the learned Commissioner of Income-tax (Appeals), the assessee made detailed submission in respect of educational qualification and experience of Mr. Preetpal Singh. The assessee also forwarded legal arguments that the learned Assessing Officer had not obtained any information as to what would be the fair market salary/remuneration payable in similar position to any other person and therefore the section 40A(2)(b) of the Act was applied arbitrarily. The assessee also relied on the various case laws in support of its contention. In respect of disallowance made u/s 40(a)(ia) of the Act, the assessee submitted that section 9 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nquiry by the learned Assessing Officer, in respect of the work performed by Mr. Preetpal Singh, the reply submitted by the assessee shows that he was solely responsible for all the activities of the assessee, which was not possible for any human being. The ld. Sr. DR also submitted that the assessee has failed to explain that was hiring of Mr. Preetpal Singh a need of the business of the assessee and was any benefit accrued to the business of the assessee by inducting Mr. Preetpal Singh in the assessee company. Whereas, on the other hand, the learned Authorised Representative ( In short AR ) submitted that Mr. Preetpal Singh was graduate in engineering and master in business management from reputed institutions from USA, and has provided a direction to the company and the company has been benefited in subsequent years. He further argued that the learned Assessing Officer has not made any proper comparison in respect of the salary paid to Mr. Preetpal Singh. The ld. AR then reiterated his submission made before of the learned Commissioner of Income-tax (appeals) and the relied on judgements cited before him. The ld AR also submitted recent decision of ITAT Delhi G Bench in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to in clause (b), are allowable which are found to be not excessive and unreasonable and the excessive or unreasonable portion has to be disallowed. It is well settled that the provisions of section 40A(2)(a) of the Act cannot have any application unless it is first concluded that the expenditure was excessive or unreasonable, as held in the case of Upper India Publishing House (P) Ltd. Vs. CIT (1979) 117 ITR 569/1 Taxman 365 (SC). In the instant case, there is nothing to suggest that the AO found the payment of remuneration to director excessive having regard to either (a) fair market value of the service or facilities; or (b) the legitimate needs of the business of the assessee; or (c) the benefits derived by or accruing to the assessee on receipt of such services or facilties. .. 6.2. While delivering the decision in above case, the Tribunal has considered almost all the decisions cited by the assessee in his submission. Therefore, we need to examine, whether the assessee qualify the tests in respect of remuneration paid to Mr. Preetpal Singh, as laid down in the decision of Tribunal In Spark Hotels (p) Ltd ( supra). 6.3. In the instant case, Mr. Preetpal Sing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of Spark Hotels (P) Ltd (Supra) with regard to remuneration paid to Mr. Preetpal Singh. In view of the facts and circumstances of the case and we are of the opinion that allowance of salary/ remuneration to Mr. Preetpal Singh restricted by the Assessing officer to 50% of the amount paid is justified and therefore, the order that of passed by the learned Commissioner of Income-tax (Appeals) on this issue is reversed. Accordingly, the first ground of the Revenue is allowed. 7. As regards to ground No.2 the ld Sr. DR relied on the order of the learned Assessing Officer and submitted that the assessee has not complied with the provisions of section 195 of the Act and made remittance without deduction of tax at source. Further, he submitted that the CBDT Circular No.786 of 2000 was not applicable in the case of the assessee and therefore, the learned Assessing Officer has rightly disallowed the commission payment in absence of deduction of tax at source by the assessee. On the other hand, the ld AR of the assessee referred to copy of agreements with the foreign selling agents and submitted that those agents were located in foreign countries and they performed services outside ..... X X X X Extracts X X X X X X X X Extracts X X X X
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