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TMI Blog2016 (9) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... erred, in law and on facts, in deleting the disallowance of Rs. 51,79,355 made on account of disallowance of commission expenses under section 40(a)(i) of the Act, without properly appreciating the facts of the case and material on record. 3. To adjudicate on this appeal, only a few material facts need to be taken of. The assessee before us is a resident company engaged in the business of trading in chemicals. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has claimed deduction of Rs. 58,73,635 in respect of the commission paid, out of which sums aggregating to Rs. 51,79,355 were paid to be non-resident entities without any tax withholding at source. In response to the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommission remitted abroad to non-resident agent rendering services abroad, was income accruing or arising in India, and the fact that the nonresident agent rendered services abroad was wholly irrelevant for the purpose of determining situs of their income. It was also, according to the Assessing Officer, held in the said case that since the right to commission arose in India, for the simple reason that the orders were executed in India. The Assessing Officer was of the view that "the facts of the assessee's case are identical to the afore cited case since assessee was liable to pay the export commission to non-resident for export order from abroad, but the orders were executed from India". A reference was then made to Explanation 4 to Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable in India, there could not have been any occasion to deduct tax at source from the remittances in question. Learned CIT(A) further held that the advance ruling relied upon by the Assessing Officer, i.e. SKF Boilers (supra) and Rajeev Malhotra In Re [(2006) 284 ITR 564 (Del)] did not apply to the facts of this case. The disallowance was thus deleted. The Assessing Officer is aggrieved and is in appeal before us. 4. We have heard the rival contentions, perused the material on record and duly considered the facts of the case as also the applicable legal position. 5. The basic contention of the Assessing Officer is that in view of the scope of deeming fiction under section 9(1)(i), which inter alia holds that any income 'arising direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llacious. 6. As for the AAR ruling in the case of SKF Boilers (supra), on which so much reliance has been placed by the Assessing Officer, we find that this decision merely follows the earlier ruling in the case of Rajiv Malhotra (supra) which, in our considered view, does not take into account the impact of Explanation 1 to Section 9(1)(i) properly. That was a case in which the non-resident commission agent worked for procuring participation by other non-resident entities in a food and wine show in India, and the claim of the assessee was that since the agent has not carried out any business operations in India, the commission agent was not chargeable to tax in India, and, accordingly, the assessee had no obligation to deduct tax at sourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case before us hinges on the applicability of Section 9(1)(i) and, it is, therefore. important to ascertain as to what extent would the rigour of Section 9(1)(i) be relaxed by Explanation 1 to Section 9(1)(i). When we examine things from this perspective, the inevitable conclusion is that since no part of the operations of the business of the commission agent is carried out in India, no part of the income of the commission agent can be brought to tax in India. In this view of the matter, views expressed by the Hon'ble AAR, which do not fetter our independent opinion anyway in view of its limited binding force under s. 245S of the Act, do not impress us, and we decline to be guided by the same. The stand of the revenue, however, is that thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum is to be deducted and it is the statutory obligation of the person responsible for paying such 'sum' to deduct tax thereon before making payment. He has to discharge the obligation to TDS". If one reads the observation of the Supreme Court, the words "such sum" clearly indicate that the observation refers to a case of composite payment where the payer has a doubt regarding the inclusion of an amount in such payment which is exigible to tax in India. In our view, the above observations of this Court in Transmission Corporation case (supra) which is put in italics has been completely, with respect, misunderstood by the Karnataka High Court to mean that it is not open for the payer to contend that if the amount paid by him to the nonresid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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