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2018 (10) TMI 715

TDS liability u/s 195 - Additions u/s 40(a)(ia) - payment made to overseas entity towards fees for technical services - Held that:- in the case of the assessee for the relevant assessment years 2010-11 & 2011-12 payment made towards commission to foreign agents for marketing, procurement of orders and systematic market research, provisions of Section 195 of the Act will not be applicable and consequently provisions of Section 40(a)(ia) of the Act cannot be invoked. - Decided in favor of assessee. - I .T.A.No.1572 & 1573/Chny/2017 - Dated:- 23-7-2018 - Shri N.R.S. Ganesan, Judicial Member And Shri A. Mohan Alankamony, Accountant Member For the Appellant : Shri Saroj Kumar Parida, Advocate For the Respondent : Ms. Paruna Sundri, CIT ORDER PER A. MOHAN ALANKAMONY, AM:- These appeals by the assessee are directed against the common order passed by the learned Commissioner of Income Tax(Appeals)-6, Chennai, dated 10.04.2017 in ITA No.189 & 188/CIT(A)-6/2013-14 for the assessment years 2010-11 & 2011- 12 passed U/s. 250(6) r.w.s. 143(3) of the Act. 2. The assessee has raised several identical grounds in its appeals and the cruxes of the issues are that (i) The Ld.CIT(A) has erred .....

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assessee had not deducted tax at source towards these payments, the Ld.AO invoked the provisions of Section 40(a)(ia) of the Act and thereby disallowed the expenditure. On appeal, the Ld.CIT(A) relying on the order of the Tribunal for the assessment year 2009-10 reported in 142 ITD 0618 in the assessee s own case on the same issue confirmed the order of the Ld.AO. 4.1 After the date of the hearing, it was brought to our notice that the Hon ble Jurisdiction Madras High Court, in the assessee s own case in Tax Appeal No. 572 of 2013 in M.P.No.1 of 2013 for the assessment year 2009-10, on the identical issue held the issue in favour of the assessee reversing the Order of the Tribunal. The relevant portion of the order of the Hon ble Jurisdiction Madras High Court is extracted herein below for reference:- 26. Having found that the payments were for marketing the products of the assessee company, for procuring of orders for the assessee company and for systematic research with regard to the demand for the products of the assessee. The Assessing Officer erred in arriving at the conclusion that payments made by the appellant assessee could not be said to have been made for the purpose of .....

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road or co-ordination with the supplier or to ensure timely payment or making available its office space for visit by the suppliers, were ordinarily things which any agent or broker undertook incidental to brokerage service. 30. There is no finding that any of the commission agents had any place of business in India. Explanation 1 to Section 9(1)(i) of the IT Act would attract liability to Indian tax for a non-resident with business connections in India, only in respect of income attributable to his operations in India. In this case, there is nothing which shows that the income in question was attributable to operations in India. That was not even the factual finding of the Assessing Officer. The Assessing Officer proceeded on the basis that the situs of the rendering of services was not relevant. It was only the situs of the payer and the situs of the utilization of services which determine taxability of such services in India. 31. Section 195 of the IT Act attracts tax only on chargeable income, if any, paid to a non-resident. Where there is no liability, the question of tax deduction does not arise. Where no part of the income is chargeable in India, even clearance under Section .....

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es not include consideration for any construction, assembly, mining or like project undertaken by the recipient. Service of market survey only to ascertain the demand for the product in the market is incidental to the function of a commission agent of procuring orders and is, in any case, not managerial, technical or consultancy service. 34. In GE India Technology Centre P. Ltd., supra, the Supreme Court clearly held that no tax is deductible under Section 195 of the IT Act on commission payments and consequently the expenditure on export commission payable to non-residents for services rendered outside India becomes allowable expenditure. In Toshoku Ltd., supra, the Supreme Court held that payments to agents for performance of services outside India are not liable to be taxed in India. 35. In Commissioner of Income Tax, Delhi-IV, New Delhi v. EON Technology (P) Ltd., (2011) 15 Taxmann.com 391 (Delhi), the High Court of Delhi held that payment of sales commission to non-resident who operates outside the country would not attract tax, if payment was remitted abroad directly. Merely because an entry had been made in the books of accounts of the appellant/assessee, that would not mean .....

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ill not be applicable and consequently provisions of Section 40(a)(ia) of the Act cannot be invoked. Therefore we hereby direct the Ld.AO to delete the addition made by invoking the provisions of Section 40(a)(ia) of the Act for the amount of ₹ 4,42,30,697/- & ₹ 2,55,18,179/- for the assessment years 2010-11 & 2011-12 respectively. 5. Ground No.2(ii) : Addition of ₹ 68,512/- by invoking Rule 14A r.w.r. 8D(iii) of the Rules for the assessment year 2010- 11:- At the outset, we find that neither the Ld.AO nor Ld.CIT(A) had extensively examined the actual expenditure incurred by the assessee towards earning dividend income which is exempt from tax. On the very same issue on an earlier occasion we have held as follows in the case in ITA Nos.1729 & 1730/Chny/2016, M/s. Sthithi Insurance Services Pvt. Ltd., vide order dated 18.06.2018,:- 5.2 We have heard the rival submissions and carefully perused the materials on record. It is apparent from the facts of the case, that the assessee has made huge investments in shares which earn dividend income exempt from tax. According to Section 14A of the Act the expenditure incurred towards earning exempt income cannot a .....

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