TMI Blog2018 (5) TMI 1742X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. - Decided in favour of assessee - ITA No.2570/Ahd/2016 And C.O. No.207/Ahd/2016 - - - Dated:- 15-5-2018 - Pramod Kumar AM And Mahavir Prasad JM For The Revenue : Prasoon Kabra For The Assessee : Karan Shah ORDER Per Pramod Kumar, AM: 1. This appeal, filed by the Assessing Officer, challenges correctness of the learned CIT(A) s order dated 12th July, 2016, in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2013-14. 2. Grievance of the appellant is as follows: Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied 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 fiction 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 Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 5(2)(b) read with section 9(1)(i) of the Act . The Authority for Advance Ruling also held that the fact that the agent renders services abroad in the form of pursuing and soliciting participants and that the commission is remitted to him abroad are wholly irrelevant for the purpose of determining 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 age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, in our considered view, learned CIT (A) was indeed justified in holding that given the undisputed and uncontroverted facts of this case, the non-resident commission agents were not taxable in India in respect of their commission earnings from orders procured abroad. 8. It is also now well settled in law that when the payment made to a nonresident does not have an element of income, tax deduction source requirements under section 195(2) do not come into play at all. Hon'ble Supreme Court, in the case of G E India Technology Centre (P.) Ltd. v. CIT [2010] 327 ITR 456/193 Taxman 234/7 taxmann.com 18, has inter alia observed as follows: In our view, Section 195(2) is based on the principle of proportionality . The said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, therefore, for application of Section 195, it is sine qua non that the payment to no-resident must have an element 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 nonresidents. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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