TMI Blog2016 (8) TMI 1153X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses is eligible for deduction as revenue expenditure. - Decided in favour of assessee Disallowance on account of electric installations - Held that:- This issue is also covered, in favour of the assessee, by order in assessee’s own case for the assessment year 2005-06. Learned CIT(A) has merely followed this decision in deleting the addition - Decided in favour of assessee - I.T.A. No.2028/Ahd/13, CO No. 13/Ahd/2014 - - - Dated:- 16-8-2016 - S. S. Godara (Judicial Member) And Pramod Kumar (Accountant Member) For the Appellant : James Kurian (Assessing Officer) For the Respondent : Karan Shah and Jwalin Nanavati ORDER Pramod Kumar (Accountant Member) 1. This appeal, filed by the Assessing Officer, seeks to challenge the order dated 9th May 2013 passed by the CIT(A) in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2009-10. 2. In the first ground of appeal, the Assessing Officer has raised the following grievance: The learned CIT(A) has erred, in law and on facts, in deleting the disallowance of ₹ 37,67,237 made on account of foreign commission. 3. So far as this grievance is conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 in India or through any source of income in India, shall be deemed to accrue or arise in India. He then referred to a ruling of Hon ble Authority for Advance Ruling, in the case of SKF Boilers and Driers Pvt Ltd In Re [(2012) 343 ITR 385 (AAR)] in support of the proposition that commission remitted abroad to non-resident agent rendering services abroad, was income accruing or arising in India, and the fact that the non-resident 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 nonresident for export order from abroad, but the orders were executed from India . A reference was then made to Explanation 4 to Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 5(2), which enables taxability of a nonresident in respect of income accruing or arising 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 attributable to the operations carried out in India . Only if he was to take into account the scope of Explanation 1 to Section 9(1)(i), coupled with the fact that admittedly no part of operations of the non-resident commission agent were carried out in India, he would have realized that even though deeming diction under section 9(1)(i) is triggered on the facts of this case, on account of commission agent s business connection in India, it has no impact on taxability in the hands of commission agent because admittedly no business operations were carried out in India, and, therefore Explanation 1 to Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The revenue s 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 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 utmost care and deepest respect, perused the above rulings rendered by the Hon ble Authority for Advance Ruling. With greatest respect, but without slightest hesitation, we humbly come to the conclusion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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. The assessee was, therefore, not under any obligation, on the facts of this case, to deduct any tax at source from the commission payments to the non-residents. Since there was no obligation to deduct tax at source, the very foundation of impugned disallowance under section 40(a)(i) ceases to hold good in law. Learned CIT(A) was, therefore, quite justified in deleting the impugned disallowance. We uphold his action, and dismiss the grievance raised by the Assessing Officer. 5. As regards the references to Section 9(1)(vii), as made by the Assessing Officer and the learned Departmental Representative, we find that aspect of the matter is also covered, in favour of the assessee, by a large number of judicial precedents- including Hon ble Madras High Court s judgment in the case of CIT Vs Farida Leather Co. [(2016) 66 taxmann.com 321 (Madras)], wherein Their Lordships have, inter alia, observed as follows: 5. The main contention of the learned counsel for the assessee/respondent i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date specified in sub-section (1) of section 139: Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation: For the purposes of this sub-clause,- (A) royalty shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9: (B) fees for technical services shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9: (ia) thirty per cent of any sum payable to a resident, on which tax is deductible at source under Chapter XVIIB and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139. Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub section (1) of section 139 thirty per cent of, such su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be deemed to accrue or arise in India : (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India. ** ** ** Explanation 4.- For the removal of doubts, it is hereby clarified that the expression through shall mean and include and shall be deemed to have always meant and included ''by means of , in consequence of or by reason of .' 7.1 Section 40 of the Act spells out what amounts are not deductable from the income charged to tax under the profits and gains of business or profession. 7.2 Section 40(a)(i) of the Act deals with interest and other sums payable outside India. The provisions of this sub-clause made applicable to interest have been extended to payment of royalty, technical fees and any other sum chargeable under this Act. The section provides that the sums covered by the sub-clause, which are chargeable under the Act and are payable outside India, shall not be allowed as an expenditure to the assessee, unless tax i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous liability on the part of the assessee to deduct the tax at source does not exist. 10. Further, just because, the payer/assessee has not obtained a specified declaration from the Revenue Authorities to the effect that the recipent is not liable to be taxed in India, in respect of the income embedded in the particular payment, the Assessing Officer cannot proceed on the basis that the payer has an obligation to deduct tax at source. He still has to demonstrate and establish that the payee has a tax liability in respect of the income embedded in the impugned payment. 11. In the instant case, it is seen, admittedly that the nonresident agents were only procuring orders abroad and following up payments with buyers. No other services are rendered other than the above. Sourcing orders abroad, for which payments have been made directly to the non-residents abroad, does not involve any technical knowledge or assistance in technical operations or other support in respect of any other technical matters. It also does not require any contribution of technical knowledge, experience, expertise, skill or technical know-how of the processes involved or consist in the development and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of Section 9 of the Act, then there is no question of applying Explanation 4 to Section 9 of the Act. Therefore, the Revenue has no case and the Tax Case Appeal is liable to be dismissed. 6. Clearly, therefore, the payment of commission in the hands of the non-resident agent, as long as such an agent carries out its activities outside India, does not result in taxability in the hands of the agent in India. Accordingly, the provisions of Section 195, and, therefore, 40(a)(i), donot come into play. Learned CIT(A) was thus quite justified in granting the impugned relief. We uphold his order on this issue and decline to interfere in the matter. 7. Ground no. 1 is thus dismissed. 8. In ground no. 2, the Assessing Officer is aggrieved of learned CIT(A) s deleting the disallowance of ₹ 30,86,537 made on account of product registration fees . 9. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has incurred an expenditure of ₹ 38,78,253 in registration of patents of assessee company s products with various government authorities in the respective countries, and required the assessee to show cause as to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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