TMI Blog2016 (3) TMI 1308X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 2010-11. The solitary issue raised by the assessee in appeal is against the disallowance u/s. 40(a)(i) amounting to ₹ 8,17,740/- paid to Mod-en Italy as commission. 2. The brief facts of the case as emanating from records are: The assessee company is engaged in the business of manufacturing of precision measuring, checking instruments and gauges to control the dimensional precise quality within micron of engineering production. The assessee filed its return of income for the assessment year 2010-11 on 15-10-2011 declaring total income of ₹ 1,95,25,727/-. The case of the assessee was selected for scrutiny and accordingly notice u/s. 143(2) was issued to the assessee on 24-08-2011. During the course of scrutiny assessment proceedings the Assessing Officer observed that the assessee has made payment of ₹ 8,17,740/- as commission to Moden Italy on which no tax at source was deducted. The Assessing Officer held that the assessee was required to deduct tax at source on the aforesaid payment u/s. 195 of the Act. Since, the assessee has failed to deduct the same, the amount of commission paid is liable to be disallowed u/s. 40(a)(i) of the Act. Aggrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taxable only in the resident country (Italy) unless the enterprise carried on the business in the other county (India) through permanent establishment situated therein. 3.2 The ld. AR further referred to the decision of Hon'ble Madras High Court in the case of Commissioner of Income Tax Vs. Faizan Shoes Pvt. Ltd. reported as 367 ITR 155 (Mad) and the decision of Delhi Bench of the Tribunal in the case of Welspring Universal Vs. Joint Commissioner of Income Tax reported as 56 taxmann.com 174, wherein it was held that commission paid by the assessee to non-resident agent for procuring export orders is not chargeable to tax in India, therefore, the assessee was not required to deduct tax at source. 4. On the other hand Shri Hitendra Ninawe representing the Department vehemently supported the findings of Commissioner of Income Tax (Appeals). The ld. DR submitted that the order was procured by the assessee from an Indian entity. Thus, the services were provided in India, the citus of the foreign agent is in India. Therefore, the assessee was liable to deduct tax at source under the provisions of section 195 on the payment of commission for procuring supply orders. The ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an Italian company. Therefore, the Italian company must be having control on decision making precision of its subsidiary. The foreign agent was involved in procuring the orders for the assessee from Indian subsidiary company by liaisoning/follow up with the Italian company. 7. The CBDT Circular No. 786 dated 07-08-2000 has clarified regarding taxability of export commission payable to non-resident agent for rendering services abroad. The same is reproduced here-in-under for ready reference: 1314. Clarification regarding taxability of export commission payable to non-resident agents rendering services abroad 1. In their Audit Report for 1997-98 [D.P. No. 79(I.T.)] the Comptroller Auditor General (C A G) Raised an objection that the Assessing Officer in computing the profits and gains of business or profession, in a case in Mumbai charge, had wrongly allowed a deduction in respect of a payment to a non-resident 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 A.G. the expenditure should have been disallowed in accordance with the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on FOB basis. That appears to be a commission simpliciter. What is the nature of technical service that the so-called non-resident agent has provided abroad to the assessee is not clear from the order of the Assessing Officer. The opening of letters of credit for the purpose of completing export obligation is an incident of export and, therefore, the non-resident agent is under an obligation to render such services to the assessee, for which commission is paid. The non-resident agent does not provide technical services for the purposes of running of the business of the assessee in India. The services rendered by the non-resident agent can at best be called as a service for completion of the export commitment. We are, therefore, of the considered opinion that the commission paid to the non-resident agent will not fall within the definition of fees for technical services. 8. The other plea raised by Mr. T. Ravikumar, learned Senior Standing Counsel appearing for the appellant referring to Explanation to Section 9(2) of the Act is that the income of the non-resident shall be deemed to accrue or arise in India under Clauses (v) or (vi) or (vii) of Section 9(1) of the Act and sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble territories. If no operations of business are carried out in the taxable territories, it follows that the income accruing or arising abroad through or from any business connection in India cannot be deemed to accrue or arise in India (See CIT v. R. D. Aggarwal and Co. [1965] 56 ITR 20 (SC) and Carborandum Co. v. CIT [1977] 108 ITR 335 (SC) which are decided on the basis of s. 42 of the Indian I.T. Act, 1922, which corresponds to s. 9(1)(i) of the Act). In the instant case, the non-resident assessees did not carry on any business operations in the taxable territories. They acted as selling agents outside India. The receipt in India of the sale proceeds of tobacco remitted or caused to be remitted by the purchasers from abroad does not amount to an operation carried out by the assessees in India as contemplated by cl. (a) of the Explanation to s. 9(1)(i) of the Act. The commission amounts which were earned by the non-resident assessees for services rendered outside India cannot, therefore, be deemed to be incomes which have either accrued or arisen in India. The High Court was, therefore, right in answering the question against the department. 11. The facts of the present ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
