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The DCIT, Cir. 2 (1) (2) , Ahmedabad Versus Komal Amin Exports Pvt. Ltd.

2018 (2) TMI 968 - ITAT AHMEDABAD

TDS u/s 195 - payment made to non-residents towards the services rendered by them - non deduction of tds - existence of PE in India - income accrual in India - Held that:- The provision of section 5(2)(b) r.w.s. 9(1)(i) of I.T. Act are not applicable as the payee has not earned any income in India as the services by the foreign agents have been rendered outside India without having any PE or business connection in India.The Hon’ble Apex Court in the case of Toshoku (1980 (8) TMI 2 - SUPREME Cour .....

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had rendered services outside India and they were not having P E in India therefore, we uphold the decision of the ld. CIT(A) that the assessee was not liable to deduct tax on the commission paid to foreign agents - Decided in favour of assessee - ITA No. 3298/Ahd/2014 - Dated:- 8-2-2018 - Shri S. S. Godara, Judicial Member And Shri Amarjit Singh, Accountant Member For The Revenue : Shri Sumit Kr. Verma, Sr. D.R. For The Assessee : Shri S.N. Divetia, A.R. ORDER PER : AMARJIT SINGH, ACCOUNTANT ME .....

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overseas agents is not to be deemed to accrue or arise in India and thereby not chargeable to tax in India and liable to deduction of tax u/s 195 of the I.T. Act. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 4. It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer may be restored to the above extent. 3. The brief fact of the issue in appeal is that return of in .....

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ts for services performed in foreign countries and no service was performed in India. He further stated that non-resident agent has neither any business collection in India nor have any permanent establishment in India, therefore, the provision of section 195 is not applicable. The assessing officer has not accepted the explanation of the assessee and stated that section 195 of the act cast an obligation on the person to deduct tax at source while making a payment to a non-resident from a sum wh .....

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therefore squarely be applicable to the case of the assessee company. Consequently, the expenditure claimed under the head commission expenses amounting to ₹ 51,99,991/- was disallowed and added to the total income of the assessee u/s. 40(a)(ia). 4. Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee by observing as under:- 3.3 Decision: I have carefully considered the facts of the case, the assessment order and the written submissi .....

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dings,that the appellant had also failed to prove the commissions paid to the agents were genuine and justified. The appellant on the other hand, in its detailed written submission, -has claimed that the Provisions of Section 5 (2)(b) read with section 9 (l)(i) of Income Tax Act were not applicable in its case. The income has been earned abroad and is therefore, not taxable in India. It has also given detailed evidences to prove that the commission paid was genuine. The issues which are to be ex .....

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t issue it is noted from the evidences given by the appellant as well as noted by the AO in his order that the services have been rendered by the foreign agents outside India. The sales were booked by them in their country or for the country for which they have been appointed as commission agents. None of the activity of soliciting the clients and procuring the orders is in India. The goods are being delivered by the appellant company in the other country. The activities of procuring the payment .....

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been derived from sales which has been made from India. The income has been derived from the activity of soliciting the sales on behalf of the appellant company. The agents have carried out all the activity on the foreign soil and none of their activity is in India therefore, it cannot be said that the income has accrued or arisen in India and the source of income was in India. There is no fact brought out by the AO in the order as well as observed by me during the course of appellate proceedin .....

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where the procurement service has been provided for which the commission has been paid, and therefore, the issue is directly and squarely covered by the Apex Court decision. Regarding the observation of the AO that the income is deemed to accrue or arise in India by applying the provisions of section 9 (1)(i) it is seen that there is no fact on record to indicate that any of the agents had any permanent establishment in India. All the agents had their offices on the foreign soil and the correspo .....

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a as the source of income is the services rendered and not the sales. There is no business connection in India from which the income has been earned, there is no property through or from which the income has been earned. Therefore, the provisions of section 9(1)(i) also cannot be applied. The appellant has rightly placed reliance on the judgement of honourable Supreme Court in the case of GE India Technology Centre Private Limited 327 ITR 456. In a recent judgement of honourable ITAT Chennai ben .....

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n be categorized as technical services, have been offered. The appellant has also rightly placed reliance on the judgement of Honourable Gujarat High Court in the case of Vinayak Exports (supra) and the judgement of Bangalore Bench of ITAT Exotic Fruits Pvt Ltd (supra). Therefore, in view of the preceding discussion the AO was not justified to hold that the commission payable to the overseas agents was deemed to accrue or arise in India and is taxable under the Act in view of the specific Provis .....

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s not the interest. It has to be seen whether the payment is covered under the term "any other sum chargeable under the provision of this Act". It has been observed in the preceding discussion that income was not chargeable to tax as it has not been received in India nor it has accrued or arisen in India directly or indirectly. Therefore, once the income is not taxable there is no liability to deduct tax and therefore, it was not obligatory for the appellant to deduct tax in view of th .....

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) for deduction of tax at a lower or nil rate of tax under a bona fide belief that no part of the payment made to the non-resident is chargeable to tax, then he is not under any statutory obligation to deduct tax at source on any part of thereof. While deciding the case the honourable Bench has considered several cases which were relevant to the issue. In the present case the appellant did not deduct the tax or approached the AO for low/no deduction of tax certificate as there are several judici .....

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nsidering the above discussion there was no liability on the part of the appellant to deduct tax under section 195 or approach the I.T. Authorities for no deduction tax certificate. 2.3.3 The last issue which is to be adjudicated is that whether the commission payment was genuine and the services were rendered. The AO has briefly dealt with the issue in para- 5 of his order. The appellant, during the course of appellate proceedings, has submitted evidences which could not be produced during the .....

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etter dated 25/08/2014 has been reproduced in the preceding pages of this order. As discussed earlier the evidence submitted by the appellant has been admitted as sufficient opportunity was not given during the course of assessment proceedings to produce the evidences in respect of the rendering of services. The AO has commented in its remand report that the details given by the appellant were examined by her and no primafacie discrepancies were noticed. It has been reported by her that the appe .....

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s received from those parties. It is noted that the commission payment have been sent through banking channel and are duly supported by various evidences. It is noted that the appellant is also doing business with the help of these commission agents during the current year and in the later period also as the appellant has given copies of e-mail correspondence in respect of some commission agents pertaining to the current period also. In view of these evidences, I am of the considered opinion tha .....

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ion is not taxable in India and accordingly no liability to deduct tax was there. Further the decision of honourable Supreme Court of India in the case of Hon'ble Supreme Court in the case of CIT vs. Toshoku Limited 125 ITR 525, still prevails as on date and is the law of the land as regards applicability of TDS provisions to commission paid to overseas/non-resident agents by Indian Exporters. In view of the preceding discussion, it is clear that the appellant was not liable to deduct tax on .....

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tion we have perused the material on record and observed that the asssessee has paid commission to the overseas parties in respect of services rendered by them at abroad. The ssessing officer failed to establish that the overseas parties were having business connection or PE in India. The assessee has furnished evidences of payment of impugned commission through the bank on the basis of debit notes raised by the payees and stated that none of the activities of soliciting the customers or procuri .....

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