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2017 (5) TMI 909

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..... visit by ld. Assessing Officer. - Decided in favour of assessee for statistical purpose. Non TDS on commission payment to the non-resident marketeer - addition u/s.40(a)(i) - Held that:- Assessee was not obliged to deduct tax at source on the commission paid by it to the non-resident marketeer. Question of getting a certificate from the Assessing Officer under Section 195(2) of the Act will be applicable only where the assessee considers only a part of the payment as liable for deduction of tax at source and not the whole. Disallowance of A10,35,967/- made u/s.40(a)(i) of the Act stands deleted. See CIT Versus M/s. Farida Leather Company [2016 (2) TMI 798 - MADRAS HIGH COURT] - Decided in favour of assessee. - I.T.A. No. 487/Mds/2017 - - - Dated:- 3-5-2017 - SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER For The Appellant : Shri. K.Balasubramanian, Adv. For The Respondent : Shri. M. Murali Mohan, JCIT. ORDER Grounds taken by the assessee in this appeal directed against an order dated 28.12.2016 of Commissioner of Income Tax (Appeals)-5, Chennai are reproduced hereunder:- 1. Learned A/O has erred in disallowing ₹ 9,67,348 being interest pai .....

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..... he ld. Authorised Representative, assessee could not be visited with the rigours of Sec. 40(a)(ia) of the Act, considering second proviso to the said section. 3. The second disallowance as per ld. Authorised Representative was on payment of commission to a Non-resident agent, again for want of deduction of tax. As per the ld. Authorised Representative, assessee had paid a commission of A10,35,967/- to M/s. Freedom Leather, Italy. According to him, one M/s. Tara Leather Exim Pvt Ltd was having an exclusive agency agreement with M/s. Freedom Leathers, Italy for collecting orders for leather goods. As per ld. Authorised Representative M/s. Tara Leather, thereafter apportioned the orders received through M/s. Freedom Leather among various leather exporters of which assessee was one. According to him, as per the agreement between assessee and M/s Tara Leather, assessee was obliged to give 5% as service charges to M/s. Tara Leather and 4% as commission to M/s. Freedom Leather, Italy. Contention of the ld. Authorised Representative was that no managerial service or technical service was done by M/s. Freedom Leather, abroad or in India, for the assessee. According to him lower authori .....

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..... partmental Representative is that such a claim was never preferred by the assessee before lower authorities and it was a fresh ground which should not be considered by the Tribunal, at this stage of the proceedings. Be that as it may be, what I find is that assessee has filed a certificate dated 09.01.2017 from Chartered Accountants as prescribed in first proviso to Sec. 201(1) of the Act. This certificate says that M/s. Reliance Capital Limited had taken into account interest paid by the assessee for computing their taxable income. In my opinion first proviso to Sec. 201(1) of the Act did not prescribe therein any specific time limit for furnishing such a certificate. It may be true that assessee had not produced this certificate before lower authorities. However, if payee had taken into account the interest paid by the assessee while computing their taxable income and had filed their return, then in my opinion assessee cannot be visited with rigours of Sec. 40(a)(ia) of the Act, by virtue of first proviso therein. Accordingly, I am of the opinion that question regarding liability of the assessee to deduct tax on the interest payments made to M/s. Reliance Capital Ltd, requires a .....

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..... tention, it is necessary to consider the relevant provisions of the Act:- (i) Section 40 (a) (i) of the Act :- Section 40 - Amounts not deductible: Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession , (a) in the case of any assessee (i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable,- (A) outside India; or (B) in India to a non-resident, not being a company or to a foreign company, 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 subsection (1) of section 139, such sum shall be allowed as a deduction in computing t .....

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..... r by the issue of a cheque or draft or by any other mode : Provided further that no such deduction shall be made in respect of any dividends referred to in section 115-O. [Explanation 1] :..... [Explanation 2.- For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has-- (i) a residence or place of business or business connection in India; or (ii) any other presence in any manner whatsoever in India. (iii) Explanation 4 to Section 9 (1) (i) of the Act:- Section 9 - Income deemed to accrue or arise in India - (1) The following incomes shall 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. ..... Explanatio .....

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..... abroad, it cannot be inferred that the person making the remittance, namely, the assessee, in the instant case, has committed a default in discharging his tax withholding obligations because such obligations come into existence only when the recipient has a tax liability in India. 9.2. The underlying principle is that, the tax withholding liability of the payer is inherently a vicarious liability on behalf of the receipient and therefore, when the recipient / foreign agent does not have the primary liability to be taxed in respect of income embedded in the receipt, the vicarious liability of the payer to deduct tax does not arise. This vicarious tax withholding liability cannot be invoked, unless primary tax liability of the recipent / foreign agent is established. In this case, the primary tax liability of the foreign agent is not established. Therefore, the vicarious 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 .....

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..... Act, 2012, with retrospective effect from 01.04.1962. 15. The issue raised in this case has been the subject matter of the decision, in the recent case, reported in (2014) 369 I.T.R. 96 (Mad) (Commissioner of Income Tax v. Kikani Exports Pvt. Ltd.) wherein the contention of the Revenue has been rejected and assessee has been upheld and the relevant observation reads as under:- ... the services rendered by the non-resident agent could at best be called as a service for completion of the export commitment and would not fall within the definition of fees for technical services and, therefore, section 9 was not applicable and, consequently, section 195 did not come into play. Therefore, the disallowance made by the Assessing Officer towards export commission paid by the assessee to the non-resident was rightly deleted 16. When the transaction does not atract the provisions 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 . Considering the above judgment and the facts of this case, I am of the opinion that assessee was not o .....

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