TMI Blog2011 (2) TMI 1450X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the Assessing Officer, the assessee stated that it had executed export sales in Australia, UK, USA, Italy and France. For procuring the export orders, the assessee is using the services of overseas commission agent namely Indijack Ltd. The latter either provides confirmed export orders or provides information regarding prospective customers. However, the agent is entitled to commission only on actual export sales executed for customers routed through Indijack Ltd. Reliance was placed on a CBDT Circular No. 23 dated 23-7-1969, which clarifies that no tax is deductible under section 195 for expenditure towards export commission payable to a nonresident for services rendered outside of India. 4. However, the Assessing Officer observed that M/s. Indijack Ltd. is doing the following activities on behalf of the assessee. 1.Procuring export orders 2.Providing confirm export orders 3.Providing information regarding respective customers 4.Getting the export sales executed 5. The Assessing Officer opined that there are two issues under consideration : ( i )Nature of services for which payment is being made to Indijack Ltd. whether it is simply commission, or it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the jurisdictional ITAT vide order dated 10-12-2000 a in the case of Asstt. CIT v. Anchor Health Beauty Care (P.) Ltd. Income-tax Appeal No. 7164 (Mum.) of 2008 dated 10-12-2000] in which it has been held that in the light of Hon ble Karnataka decision and observed that in the absence of any contrary decision on this issue, the assessee cannot escape from taxation by virtue of provisions of section 40( a )( i ) of the Act, in the event of nonpayment of tax at source under section 195 of the Act without obtaining clearance under section 195(2) of the Act. 7. The Assessing Officer also stated that Circular No. 23 relied upon by the assessee has been withdrawn by the CBDT vide circular No. 7 of 2009 date 22-10-2009. Since the assessee had not deducted tax at source on the commission paid, the Assessing Officer made disallowance under section 40( a )( i ) of the Income-tax Act. 8. Aggrieved by the order of the Assessing Officer, assessee preferred an appeal before the ld. CIT(A). Before the ld. CIT(A) the assessee submitted as follows : It was submitted that decision of the Karnataka, High Court and Supreme Court cited by the Assessing Officer are totally di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act, there was no need for section 194H which specifically deals with income by way of commission or brokerage. Subsequently it was stated that the case of Samsung Electronics and others was taken up by the Supreme Court and vide order date 9-9-2010, the Supreme Court, in Civil Appeal No. 7541-7542 of 2010 in the matter of GE India Technology Centre Pvt. Ltd. v. CIT , has set aside the order of the Karnataka High Court by holding that tax is required to deduct at source only when the sum payable to a non-resident is chargeable to tax under the Income-tax. Act and not otherwise. In view of the above, contention of the appellant in the present case that no tax was required to be deducted at source on the commission paid by them and therefore since the commission was not chargeable to tax in India under the Income-tax Act, stands fortified. The appellant also submitted the statement of commission paid alongwith bank documents showing remittance of the said commission. It was also stated in the commission in the years ending 31-3-2005 and 31-3-2006 were paid to Indijack Ltd., UK. For assessment year 2005-06 assessment was completed under section 143(1). 9. The ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of GE India Technology Centre Pvt. Ltd. ( supra ). However the issue in that case is whether, the moment there is remittance, whether the obligation to deduct tax at source arises? While the Hon ble Supreme Court has not answered this question in the affirmative, the Apex Court has held that in a given case when the sums remitted outside India come within the definition of royalty or fees for technical services or other sums chargeable under the Income-tax Act, then it will be open to the Assessing Officer to disallow such claim for deduction. It has further been stated that section 195(2) is based on the principle of proportionality , the said subsection gets attracted only in cases where the payment made is a composite payment in which a certain proportion of payment has an element of income chargeable to tax in India. In the said case the ITAT had held that such sum paid by the appellant to the foreign software supplier was not a royalty and that the same did not give rise to any income taxable in India and therefore the appellant/s was not liable to deduct tax at source. However the High Court did not go into the merits of the case and went straight to conclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the introduction of Explanation to this clause, which has been made effective retrospectively. Thus, the Board s Circulars are not applicable in view of the Act as it stands after amendment. In view of the above position is clear that the appellant has paid to Indijack Ltd, a composite amount including fees for technical services which is taxable in India, and for which payment the applicant was obliged to deduct tax at source under section 195 of the Income-tax Act. On the appellant s failure to do so, the payment is liable to be disallowed under section 40( a )( i ) of the Income-tax Act. The addition made by the Assessing Officer is therefore confirmed . 10. Aggrieved, assessee preferred an appeal before us. The ld. Counsel for the assessee Shri Rajeev Waglay pointed out at page 84 of the Paper Book consisting of the Agency Agreement between Indijack and the assessee. The ld. counsel for the assessee distinguished the case of Elkem Technology v. Dy. CIT [2001] ITR 164 (AP) which dealt with the issue of supply of equipment ana Engineering Services which were purely technical service and hence pleaded that the same was inapplicable to the assessee s case. He also po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India under the Income-tax Act, 1961 and in the absence of any income chargeable to tax in India, question of applying section 195 of Income-tax Act, 1961 does not arise. Hence we allow asscssee s appeal on this issue. 15. Second ground relates to disallowance of travelling expenses amounting to ₹ 23,64,006 being 25 per cent of the travelling expenses confirmed by the ld. CIT(A) on the ground that no supporting evidence was furnished by the assessee and the expenses were not incurred wholly and exclusively for the purpose of business. 16. The ld. Counsel for the assessee Shri Waglay filed bulky Paper book wherein from pages 87 to 120 the entire details of travel by the partners had been produced before us. The ld. CIT(A) has also observed that the expenses have been undertaken for the purpose of business. We are of the opinion that the ld. CIT(A) had wrongly disallowed 25 per cent of the expenses on adhoc basis when the assessee had furnished all the details such as ( a ) details of travelling expenses ( b ) list of the foreign parties visited ( c ) copies of the passport ( d ) relevant correspondence with the foreign parties ( e ) statement of sales made to the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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