TMI Blog2016 (9) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... Kumar AM and S S Godara JM For The Appellant : Ashsih Pohare For The Respondent : Dhiren Shah ORDER Per Pramod Kumar, AM: 1. This appeal, filed by the Assessing Officer, seeks to challenge the order dated 12th October, 2015 passed by the CIT(A) in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2012-13. 2. Grievance of the Assessing Officer, as set out in the memorandum of appeal, is as follows: The learned CIT(A) has erred, in law and on facts, in deleting the disallowance of ₹ 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 ₹ 58,73,635 in respect of the commission paid, out of which sums aggregating to ₹ 51,79,355 were paid to be non-resident entiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the expression through shall mean to include, and shall always be deemed to have included, by means of , in consequence of and by reason of . The claim of the assessee that the income did not accrue or arise in India was thus rejected. As regards the reliance on the certificate issued by the chartered accountant, certifying that no tax deduction at source was warranted from the remittances for commission, the Assessing Officer relied upon decision of the Tribunal, in the case of DCIT Vs Rediff.com India Limited [(2011) 47 SOT 310 (Mum)] in support of the proposition that such a certificate cannot be conclusive determination of taxability in the hands of the recipient. As regards all the judicial precedents cited by the assessee, the Assessing Officer rejected the same by observing that various decisions cited by the assessee, CBDT circular no. 786 by way of new circular 7 of 2009 dated 22/10/2009 whereby all the payments to nonresidents without deduction of tax at source have been withdrawn . On the basis of this line of reasoning, the Assessing Officer held that the commission paid to nonresident agents, amounting to ₹ 51,79,355, is to be disallowed under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Assessing Officer is based on a half-baked legal theory, and the conclusions, therefore, clearly fallacious. 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 source from such commission payments to the non-resident agent. On these facts, the Authority for Advance Ruling, inter alia, opined that no doubt the agent renders services abroad and pursues and solicits exhibitors there in the territory allotted to him, but the right to receive the commission arises in India only when exhibitor par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. In view of the above discussions, in our considered view, learned CIT(A) was indeed justified in holding that given the undisputed and uncontroverted facts of this case, the non-resident commission agents were not taxable in India in respect of their commission earnings from orders procured abroad. 8. It is also now well settled in law that when the payment made to a nonresident does not have an element of income, tax deduction source requirements under section 195(2) do not come into play at all. Hon ble Supreme Court, in the case of G E India Technology Centre Pvt Ltd Vs CIT [(2010) 327 ITR 436 (SC)], has inter alia observed as follows: In our view, Section 195(2) is based on the principle of proportionality . The said sub-Section 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. It is in this context that the Supreme Court stated, If no such application is filed, income-tax on such 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 dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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