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2016 (11) TMI 1150 - ITAT MUMBAI

2016 (11) TMI 1150 - ITAT MUMBAI - TMI - TDS u/s 195 - Non deduction of tds on overseas commission - Held that:- It is not in dispute that the assessee paid the commission for the services rendered outside India which is not taxable in India. Therefore, the assessee is not under obligation to deduct the TDS u/s.40(a)(ia) of the Act. Accordingly this issue is decided in favour of the assessee. - I.T.A. No.1264/Mum/2011, I.T.A.No.736/Mum/2012 & 2176/Mum/2013 - Dated:- 23-9-2016 - SHRI R.C.SHARMA, .....

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oversy is also of the same which can conveniently be adjudicated together for the sake of convenience. ITA NO.1264/MUM/2011(2007-08):- 2. The assessee has raised the following grounds:- 1. The Learned Commissioner of Income Tax (Appeals) -23, Mumbai [hereafter referred to as the CIT(A)] erred in confirming the disallowance made by the Assessing Officer (AO) of the claim for deduction of overseas commission of ₹ 22,20,549/- paid to the non-resident foreign sales agents u/s.40(a)(i) of the I .....

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he return of income declaring total income to the tune of ₹ 1,21,80,421/- on 30.10.2007. The return was processed u/s.143(1) of the Income Tax Act, 1961 ( in short the Act ) at the returned income. The case was selected for scrutiny. Notice u/s.143(2) of the act was issued on 05.08.2008 and served upon the assessee on 13.08.2008. Thereafter, the notice u/s.142(1) of the Act was also issued and served upon the assessee. The assessee is a firm engaged in the business of exports. Under the ye .....

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see has raised the sole point with regard to the wrong confirmation of addition of overseas commission to the tune of ₹ 22,20,549/- in view of the section contains in section 40(a)(i) of the Act. We have heard the arguments advanced by the learned representative of the parties and perused the record. The learned representative of the assessee has argued that the assessee has made payment to the tune of ₹ 22,20,549/- and did not deduct the TDS on the same because the TDS was not requi .....

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TAT-Mumbai) and CIT Vs. EON Technologies Pvt. Ltd. 343 ITR 366 (Delhi High Court). It is also argued that the learned CIT(A) has wrongly arrived at this conclusion that the Commission paid to the various persons is in managerial in nature, therefore the TDS is required to be deducted in accordance with law but the said finding is not justifiable as each and every transaction have brought into the notice of the Assessing Officer, therefore in the said circumstances the addition is not liable to b .....

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its exports are to Africa, Middle East, South East etc. It exports the products like four wheeler engines, fuel pumps, and its spare parts for automobiles, trucks and tractors under the brand name ARROW It does not have any overseas office, neither any overseas staff. In export market there is always a cut throat competition from local as well as international traders and OEM suppliers. So these Commission Agents are imperative to work as representatives of the company and held in marketing the .....

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He coordinates with the existing customers for their periodical requirements, availability of ships, shipment schedules. e) He coordinates with customers and follows up for payment if and when required. f) He gives the information about the new developments in the markets, competition and their products. g) He gives us information about the trade fairs, exhibition etc. h) He also helps in obtaining VISA - getting VISA for some of the middle east and / or African countries is very time consuming. .....

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ces and staff in addition to agents. We are a small company with limited resources. We cannot afford to have overseas offices and high profile staff to take care of such offices. Our overseas commission payment is just around one percent of the total turnover, which is fully justified. 6. Thereafter, the Assessing Officer issued the notice for not deducting the TDS. The assessee has also made submission which has been mentioned below: We have already submitted detailed note on the services rende .....

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sis. b. The services are rendered by the agents outside India and they do not have any PE or any branch or any business connection in India and therefore there is no income which is deemed to have accrued or arisen in India as per the provision of section 9 of the Act. c. Circular No.23 dt. 23.07.1969 dealing with meaning of business connection has dealt with the tax liability of foreign agents of Indian exporters in para 3(4) of the circular issued by the CBDT, as follows: A foreign agent of In .....

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these circulars only reiterated the principles laid down by the Supreme Court in R.D.Agarwal & Co. (56 ITR 20) and Toshoku Ltd. (125 ITR 525) for understanding the concept of business connection and attribution of profits to a business connection. However, the decision of the Supreme Court in these cases cannot be nullified merely by withdrawal of the aforesaid circulars. e. Moreover, the circulars have been withdrawn w.e.f. 22.10.2009 and therefore it at all a view has to be taken that TDS .....

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re not attracted and requested you to please allow the claim for deduction of commission to foreign agents. 7. Thereafter, the Assessing Officer arrived at this conclusion that the services offered by the said persons are covered under the managerial services and included as fees for technical services. The assessee did not obtain any services u/s.194(2) of the Act, therefore, the payment made to the various persons to the tune of ₹ 22,20,549/- was disallowed u/s.40(a)(i) of the Act. No do .....

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which it can be assumed that the said commission is liable to be taxed in India. On this issue the law has already been settled in case of Gujarat Reclaim & Rubber Products Ltd. Vs. Additional Commissioner of Income Tax 10(2), ITAT, Mumbai bench in which it is specifically held that where the assessee has paid commission to non-resident agent outside India for services provided in foreign countries and in absence of PE of non-resident agent in India said payment would not be chargeable to t .....

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mission made to overseas agent without deduction of TDS does not attract disallowance u/s.40(a)(ia) of the Act and also place reliance upon the CBDT Circular No.7 dated 22.10.2009. 8. In the instant case the services have been rendered outside India which is not liable to be taxable in India. Moreover, it is pertinent to subscribe the contents of the circular no.786 dated 07.02.2009 issued by CBDT which may clarify more in connection with the services rendered outside the India which is not liab .....

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to a nonresident 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 C&AG the expenditure should have been disallowed in accordance with the provisions of section 40(a)(i) of the Income Tax 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 Assessing Officers in other charges. The deduction of tax at so .....

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abroad it cannot be held to have been received by or on behalf of the agent in India. Such payments were therefore held to be not taxable in India. The relevant sections, namely section 5(2) and section 9 of the Income Tax Act, 1961 not having undergone any charge in this regard, the clarification in Circular No.23 shall prevails. No tax is therefore deductible under section 195 and consequently the expenditure on export commission and other related charges payable to a non-resident for service .....

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by relaying upon the law mentioned above we set aside the order of the CIT(A) and direct the Assessing Officer to delete the said addition, therefore this issue is decided in favour of the assessee against the revenue. In the result the appeal filed by the assessee is hereby ordered to be allowed. ITA NO.736/MUM/2012(A.Y.2008-09):- 10. The assessee has raised the following grounds:- 1. The Learned Commissioner of Income Tax (Appeals) -23, Mumbai [hereafter referred to as the CIT(A)] erred in co .....

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r services rendered outside India and the AO may be directed to delete the disallowance of ₹ 18,59,299/- made u/s.40(a)(i) of the Act. 2. The CIT(A) erred in confirming the disallowance made by the AO in respect of payment of freight charges for the shipment of goods from the Ports in India to the destinations outside India to the non-resident shipping companies and / or their agents in India to the extent of ₹ 7,35,614/- u/s. 40(a)(ia) of the Act on the ground that tax was not deduc .....

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No.1264/Mum/2011 however the figures are different. The matter of controversy involved is also the same which has been involved in the above mentioned appeal. In the instant case the assessee has challenged the confirmation of disallowance made by the Assessing Officer paid to the agents as overseas commission to the tune of ₹ 18,59,299/- in view of the provision u/s.40(a)(ia) of the Act. Since this matter of controversy has already been adjudicated in ITA No. 1264/Mum/2011, therefore we .....

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