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Income Tax Officer, Ward 2 (1) (1) , Ahmedabad Versus Excel Chemicals India Limited and Vica-Versa

2016 (9) TMI 107 - ITAT AHMEDABAD

TDS u/s 195 - Disallowance of commission expenses under section 40(a)(i) - taxability of a non-resident in respect of “income accruing or arising or deemed to accrue or arise, in India - Held that:- For application of Section 195, it is sine qua non that the payment to no- resident must have an element of income liable to be taxed under the Indian Income Tax Act, 1961. On the facts of this case, as we have already concluded, no part of the remittance to the commission agent was taxable in India. .....

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, CO No. 29/Ahd/2016 - Dated:- 29-7-2016 - Pramod 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: .....

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he 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 entities without any tax withholding at source. In response to the Assessing Officer s requisition to show cause as to why these payments not be disallowed under section 40(a)(i), for want of appropriate tax withholding at source, it was explained by the assessee that the sale commission was pa .....

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paid to non-resident entities is not taxable in India. None of these submissions, however, impressed the Assessing Officer. The Assessing Officer noted that under section 5(2)(b) of the Act, a non-resident assessee is taxable in India in respect of all his incomes accruing or arising in India and incomes deemed to accrue or arise in India, and that, by the virtue of deeming fiction under section 9(1)(i), income accruing or arising in India, directly or indirectly through any business connection .....

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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 .....

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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 .....

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nd that, since no income was 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 t .....

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sing or deemed to accrue or arise, in India,, income arising in the hands of the non-resident commission agent is taxable in India. What he overlooks, however, is the impact of Explanation 1 to Section 9 (1)(i) which states that for the purpose of this clause [i.e. 9(1)(i)], in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attri .....

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because admittedly no business operations were carried out in India, and, therefore Explanation 1 to Section 9(1)(i) comes into play. The seemingly erudite analysis by 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 Malhotr .....

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o 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 participates in the India International Food & Wine Show (to be held in India), and makes full and final payment to the applicant in India and that .....

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on in India, the Explanation 1 to Section 9(1)(i) takes the entire commission income from outside the ambit of deeming fiction under section 9(1)(i), and, in effect, outside the ambit of income deemed to accrue or arise in India for the purpose of Section 5(2)(b). The point of time when commission agent s right to receive the commission fructifies is irrelevant to decide the scope of Explanation 1 to Section 9(1)(i), which is what is material in the context of the situation that we are in seisin .....

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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 these rulings, being from such a high quasi-judicial forum, even if not binding, cannot simply be brushed aside either, and that these rulings at least have persuasive value. We have no quarrel with this proposition. We have, with utmo .....

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mission 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 attrac .....

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ourt, 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 .....

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