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TMI Blog2018 (5) TMI 1601X X X X Extracts X X X X X X X X Extracts X X X X ..... n the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 3. 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 only issue raised by the Revenue is that Ld. CIT(A) erred in deleting the disallowance made by the AO on account of non- deduction of TDS u/s 195 r.w.s 40(a)(i) of the Act. 4. Briefly stated facts are that the assessee in the present case is a Private Ltd. Company and engaged in the manufacturing business of Microcrystalline Cellulose Powder, Crosscarmellose Sodium, Sodium Starch Glycolate, Dl Calcium Phosphate etc. 5. The assessee, in the year under consideration has claimed commission expenses of Rs. 54,06,265/- for the services rendered by the foreign commission agents in connection with its business. The details of the parties, commission amount and volume of the business referred by the commission agents are reproduced as under: Sr. No Name of the Commission Agent Country of Residence Amount of commission Paid/provided (in Rs.) Amount of Sales made by Commission Agent (in Rs.) 1. Ariel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax Act. 2. Whether the provisions of section 195(2) were applicable on the appellant and he should have deducted tax and in case of no deduction he should have obtained a no deduction certificate from the AO. And 3. Whether the commission paid was genuine and the services have been rendered. 2.10. Regarding the first 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 activities soliciting the clients and procuring the orders has taken place in India. The goods were being delivered by the appellant company in the other country. The activities of procuring the payment on behalf of the appellant company were also done abroad. The AO was, therefore, incorrect to hold that the source of income lies in India as the sales have been made from India. The provisions of Income Tax Act clearly provide that the tax would be deducted on the income which is taxable in India. The activity of earning the income is not the sale but sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -- -- -- -- 88,920 88,920 ii P.T.Signa Husada Indonesia -- 3,13,042 -- -- -- 3,13,042 12 Pharmo Trade Dhaka 34,414 -- -- -- 34,414 13 S B R and Co., Pakistan P. Ltd. Pakistan -- 47,810 -- -- -- 47,810 14 Sevex Pharma Belgaria 2,501,419 -- 7,96,572 -- -- 3,297,991 15 Shine Resources Ltd. - Vietnam Vietnam 1.64,680 8,12.220 7,60.564 2,00,645 44,504 19,82,613 16 Tentra Chemie P. Ltd. -- -- -- -- 11,836 11,836 17 Trans Continental Agencies Inc. Pakistan 13,25,399 9,30,795 4,28,574 3,08,468 1,83,733 31,76,969 18 Trans - Pharm (Hong Kong) Ltd. Hongkong -- 22,334 65,597 78,630 1,83,733 31,76,969 19 Varunesh Tuli Brasil 4,24,645 4,83,099 -- -- 1,45,686 10,53,440 A Export commission to foreign agent (wherein no TDS has been made) 54,06,265 34,29,381 24,12,765 23,66,747 12,84,816 1,48,99,974 2.12. The appellant has relied upon various judgements of Hon'ble Courts and on the identical facts it was held that no TDS u/s.195 is warranted when the commission income has not arisen in Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as made upon which no TDS was liable to be made. Therefore the observations of the A.O. in this regard were not relevant. 2.17. Therefore, in view of the discussion in preceding paras, 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 provisions of sections 5 (2)(b) read with section 9 [l)[ij of Income Tax Act. 2.18. 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 - 4 of assessment order. It has placed on record several documents which indicate that the agents have rendered services. It is further observed that the payments have been made through banking channel and are duly documented. The appellant has given satisfactory evidences in respect of all commission payments, and therefore, considering the overall facts and circumstances the payment made to the agents is taken as genuine. Even the AO in para No.4.5 of the assessment order himself has observed "no doubt the agents must have rendered services abroad and have solicited ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices Pvt. Ltd. [14 ITR (T) 282 (Mum.) * CLSA Limited vs. ITO (International Taxation) [56 SOT 254 (Mum.) * ACIT Vs. Moderal Insulators Ltd. [56 DTR 362 (ITAT, Jaipur)] * Ishikawajama - Harima Heavy Industries Ltd. Vs. Director of Income Tax [207 CTR 361] * DCIT Vs. Eon Technology Pvt. Ltd. [46 SOT 323 (Delhi ITAT) * Sukani Enterprises Vs. ACIT [ITA No. 1330/Mum/2011] (ITAT, Mumbai) * ITO Vs. Pipavav Shipyard Limited [(2014) 42 Taxmann.com 159] * ACIT 17(2), Mumbai Vs. Vilas N. Tamhankar (2015) [55 Taxmann.com 413] * CIT V. Vinayak Exports 82 CCH 0032 (Guj) (2012) * CIT Vs. Fluidtherm Technology (P.) Ltd. (2015) 57 taxmann.com 87 (Madras) * CIT Vs. Orient Express (2015) 56 taxmann.com 331 Madras) * Asst. CIT v. India Shoes Exports (P.) Ltd. (2015) 57 taxmann.com 303 (Chennal - Trib) * Indo Industries Ltd. v. 1TO (2015) 53 taxmann.com 458 Mumbai -Trib.) * Khimji Visram & Sons v. Addl. CIT (2014) 52 taxmann.com 485 (ITAT, Mumbai) * Commissioner of Income-tax, Chennai v. Faizan Shoes (P.) Ltd. [2014] 48 Taxman.com 48 (Mad.) * Assistant Commissioner of Income-tax, Co. Circle - 1(3) v. Comex Exports (P) Ltd. [2014] 45 taxmann.com 406 (Chennai -Trib.) * Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1195. 72[(1) 73Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest 74[***] or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries" 75[***]) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force :" A plain look at the above statutory provision makes it clear that the assessee is liable to deduct TDS on the payment to Non Residents on any sum chargeable under the provision of this Act. Now, the question arose whether payment made to the foreign agent is chargeable to tax in India. For this purpose, we need to refer the provision of Sec. 5(2) of the Act which reads as under:- Scope of total income. 475. 48(1) Subject to49 the provisions of this Act, the total income49 of any previous year of a person who is a resident includes all income from whatever source derived which- XXXXXXXXXXXXXXX (2) Subject to49 the provisions of this Act, the total income49 of any previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls any of the conditions :- i) Business connection in India; or ii) From any property in India; or iii) From any asset or source of income in India or iv) Transfer of capital asset situated in India From the above, we note that the case of assessee is not falling in any of the category as discussed above. Similarly, we also note that it is not the case of Revenue that payment was made by assessee on account of technical services rendered by the foreign agents. Therefore, in our considered view, assessee was not liable to deduct TDS u/s 195 of the Act. In holding so, we find support and guidance from the judgment of Hon'ble Madras High Court in the case of CIT vs. Farida Leather Co. reported in 66 taxman.com 321 (Mad) wherein it was held as under:- "9.2 The underlying principle is that, the tax withholding liability of the payer is inherently a vicarious liability on behalf of the recipient 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 pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermining situs of his income". We do not consider this approach to be correct. When no operations of the business of commission agent is carried on in India, the Explanation 1 to Section 9(1)(i) takes the entire commission income from outside the ambit of deeming fiction under section 9(1)(i), and, in effect, outside the ambit of income 'deemed to accrue or arise in India' for the purpose of Section 5(2)(b). The point of time when commission agent's right to receive the commission fructifies is irrelevant to decide the scope of Explanation 1 to Section 9(1 )(i), which is what is material in the context of the situation that we are in seisin of. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In any manner whatsoever in India. is indisputably true that such explanation inserted with retrospective effect provides that obligation to comply with subsection [1] of Section 195 would extend to any person resident or non-resident, whether or not non- resident person has a residence or place of business or business connections in India or any other persons in any manner whatsoever in India. This expression which Is added for removal of doubt is clear from the plain language thereof, may have a bearing while ascertaining whether certain payment made to a non- resident was taxable under the Act or not. However, once the conclusion is arrived that such payment did not entail tax liability of the payee under the Act, as held by the Supreme Court in the case of GE India Technology Centre P. Limited [Supra], sub-section [1] of Section 195 of the Act would not apply. The fundamental principle of deducting tax at source in connection with payment only, where the sum is chargeable to tax under the Act, still continues to hold the field. In the present case, the Revenue has not seven seriously contended that the payment to foreign commission agent was not taxable in India. Tax Appeal I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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