TMI Blog2009 (3) TMI 1044X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The assessee also relied on Board Circular No. 23 dated 23.7.1969 in which it was clarified that, where the non-resident agent operates outside the country, no part of his income arose in India, and such commission payments are not taxable in India and, therefore,' there is no requirement of deduction of tax at source. The assessee further relied on Board Circular No. 786 dated 7.2.2000, in which the contents of Board Circular No. 23 were reiterated. The Assessing Officer did not accept the reply of the assessee on the ground that the assessee made payments to a non-resident, who is neither a company nor a foreign company and because of this the assessee failed in its duty of deducting TDS as per section 195. He further relied on Section 40(a)(i) and held that, where tax is deductible at source under Chapter XVII-B and such tax was not deducted, the deduction is not allowable. Thus, the Assessing Officer was of the view that the assessee did not comply with the provisions of Chapter XVII-B in respect of deduction of tax even though the same was paid outside India as foreign agency commission to a non resident. He further relied on the Hon'ble Supreme Court decision in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the issue was fully in favour of the assessee by CBDT Circular No. 786 dated 7.2.2000. He also pleaded that the decision of Hon'ble Apex Court in the Transmission Corporation case, which has been made the basis by the Assessing Officer for disallowing the amount in this case actually does not help the case of the Revenue. He argued that the Assessing Officer cannot disregard the CBDT Circular, which is binding on the Revenue authorities. For this proposition, he relied upon the decision of Hon'ble Apex Court in the case of State of Kerala and Others vs. Kurian Abraham Pvt. Ltd. and Anr (2008) 303 ITR 284 (SC). He further placed reliance upon the decision of Guwahati Bench of the ITAT in the case of JCIT vs. George Williamson (Assam) Ltd. (2008) 118 TTJ (Gau) 859 for assessment year 1995-96, wherein, in the context of section 195 and disallowance under section 40(a)(i) the Tribunal had referred to the CBDT Circular No. 23 dated 23.7.1969 and Circular No. 786 dated 7.2.2000 and decided the issue in favour of the assessee. 8. We have carefully considered rival submissions and perused the relevant records. As per the facts emanating in this case, the assessee has paid f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Sub Section (1) only on that proportion of the sum which is so chargeable. (3) Subject to rules made under Sub Sectoin (5), any person entitled to receive any interest or other sum on which income-tax has to be deducted Under Sub Section (1) may make an application in the prescribed form to the Assessing Officer for the grant of a certificate authorising him to receive such interest or other sum without deduction of tax under that sub-section, and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub section (1). (4) A certificate granted under sub section (3) shall remain in force till the expiry of the period specified therein or, if it is cancelled by the Assessing Officer before the expiry of such period, till such cancellation. (5) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an agent is not liable to income tax in India on the commission. 12. In Circular No.786, dated 7th February, 2000, the Board reviewed the applicability of s. 195 r/w s.40(a)(i) in relation to commission paid to foreign agents, as under: In the audit report for 1997-98, D.P. No. 79(IT) the Comptroller and Auditor General (CandAG) raised an objection that the Assessing Officer in computing the profits and gains of business or profession, in a case in Mumbai charge, had wrongly allowed a deduction in respect of a payment to a non-resident where tax had not been deducted at source. The nature of the payment in this case was export commission and charges payable for services rendered outside India. In the view of CandAG the expenditure should have been disallowed in accordance with the provisions section 40(a)(i) of the IT Act, 1961. It has come to the notice of the Board that a similar view, on the same set of facts has been taken by some AOs in other charges. The deduction of tax at source under s. 195 would arise if the payment of commission to the non-resident agent is chargeable to tax in India. In this regard attention to CBDT Circular No. 23, dt. 23rd July, 1969 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pe of disallowance u/s 40(a)(i). It is settled law that CBDT Circulars are binding on Revenue authorities. For this proposition, we rely upon the decision of the Hon'ble Apex Court in the case of Union of India vs. Azadi Bachao Andolan (263 ITR 706) wherein it has been reiterated that the CBDT Circulars are binding on the Revenue. As regards the Hon'ble Apex Court decision in Transmission Corporation case is concerned, it cannot be said that the same mandates that the tax should be deducted at source, if the nonresident recipient renders services outside India, which is not chargeable to tax. In the said case, the assessee, Andhra Pradesh State Electricity Board made certain payments to a non-resident against the purchase of machinery and equipment and also against the works executed by the non-resident in India of erecting and commissioning the machinery and equipment. Hence, the facts of the present case before us are clearly distinguishable from that in the Hon'ble Apex Court decision cited above in as much as no part of services in the present case is rendered in India. The Hon'ble Court in that case had held at pages 594 and 595 as under: The scheme of sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, if the income is from profits and gains of business, it would be computed under the Act as provided at the time of regular assessment. The purpose of sub-section (1) of section 195 is to see that the sum which is chargeable under section 4 of the Act for levy and collection of income-tax, the payer should deduct income-tax thereon at the rates in force, if the amount is to be paid to a non-resident. The said provision is for tentative deduction of income-tax thereon subject to regular assessment and by the deduction of income-tax, the rights of the parties are not, in any manner, adversely affected. Further, the rights of the payee or recipient are fully safeguarded under section 195(2), 195(3) and 197. The only thing which is required to be done by them is to file an application for determination by the Assessing Officer that such sum would not be chargeable to tax in the case of the recipient, or for determination of the appropriate proportion of such sum so chargeable, or for grant of certificate authorizing the recipient to receive the amount without deduction of tax, or deduction of income-tax at any lower rates or no deduction. On such determination, tax at the appropriat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a trading receipt which may or may not include pure income . The language of section 195(1) for deduction of income-tax by the payer is clear and unambiguous and casts an obligation to deduct appropriate tax at the rates in force. We make it clear that learned counsel for the parties have not advanced any submissions with regard to other findings given by the High Court. In this view of the matter, the answers given by the High Court that:- (i) the assessee who made the payments to the three non-residents was under obligation to deduct tax at source under section 195 of the Act in respect of the sums paid to them under the contracts entered into; and (ii) the obligation of the respondent-assessee to deduct tax under section 195 is limited only to the appropriate proportion of income chargeable under the Act, are correct. In view of the above we do not find any merit in the contention of the Revenue that in the above decision the Apex Court had categorically observed that income aspect is not relevant for deducting tax at source. Rather, the Apex Court had clearly upheld that the obligation of the assessee to deduct tax is limited to the appropriate portion ..... X X X X Extracts X X X X X X X X Extracts X X X X
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