TMI Blog2016 (8) TMI 1420X X X X Extracts X X X X X X X X Extracts X X X X ..... source arises only when the payment is chargeable under the provisions of the Act-i.e. taxable in India. Facts of the case are that the assessee had made payments to non-resident agents, that the agents did not have PE in India, that the services were rendered outside India. In our opinion, considering these facts the assessee had rightly not deducted tax at source for making the payments to the non-resident agents. Non-resident agent was only procuring orders for the assessee and following up payments and no other services were rendered, held that the non-resident agent did not provide any technical services to the assessee, that the commission payment made to the non-resident agent did not fall under the category of royalty or fees of technical services and, therefore, the Explanation to section 9(2) had no application to the facts of the assessee's case. The commission payments to the non-resident agents were not chargeable to tax in India and, therefore, the provisions of section 195 were not applicable.- Decided against revenue. - ITA/7397/Mum/2014 - - - Dated:- 24-8-2016 - Shri Rajendra, Accountant Member And C. N. Prasad, Judicial Member For The Revenue : Shri N. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of section 22(22)(e)of the Act, that the partners of the assessee-firm held more than 10% shares in both the companies, that the companies were having accumulated profits, that the assessee had received substantial advances from the companies. He, therefore, computed the peak advances and taxed the same as dividend u/s.22(22)(e) of the Act. 3. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA) and made the same submissions that were advanced before the AO. After considering submission of the assessee and the assessment order, he held that loans/advances to the specified shareholders or for the benefit of such shareholders or to the concerns in which such shareholders were substantially interested, were taxable as dividend. He referred to the case of CIT v. Universal Medicare (P.) Ltd. [2010] 324 ITR 263/190 Taxman 144 of the Hon'ble Bombay High Court wherein the Hon'ble Court had approved the decision of the Special Bench of the Tribunal that the dividend can be taxed in the hands of shareholder only and not in the hands of the concern and that the shareholder had to be both registered shareholder as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second class of payments is by way of advance or loan to any concern in which such shareholder is a member or partner and in which he has substantial interest. The third class is payment by any such company for the individual benefit of any such shareholders to the extent of which the company in either case possesses accumulated profits. Section 2(22)(e) pulls in notional or artificial income for assessment by a fiction. The primary burden to bring to tax amounts, on the ground that the transaction is a deemed dividend, (when it is not so otherwise) is upon the Department. To discharge that burden, the Department cannot rest content or surmises and assumptions ; it should premise them, rather on facts. We would also like to refer to the case of CIT v. Impact Containers (P.) Ltd. [2014] 367 ITR 346 of the Hon'ble Bombay High Court, wherein the Hon'ble Court has held as under: A bare perusal of section 2(22) of the Income-tax Act, 1961, would indicate that the term dividend includes any distribution by a company of accumulated profits. any distribution to its shareholders by a company of debentures, debenture stock, or deposit certificates in any form, whether wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court held that it is only where a loan is advanced by the company to the registered shareholder and other conditions set out in section 2(6A)(e) of the Indian Income-tax Act, 1922, are satisfied that the amount of the loan would be liable to be regarded as deemed dividend within the meaning of that provision. The loan granted to the beneficial owner of the share, who is not a registered shareholder would not fall within the meaning of section 2(6A)(e) of the 1922 Act. What the section is designed to strike at is advance or loan to a shareholder and the word shareholder can mean only the registered shareholder. All the three limbs of the section analyzed in UNIVERSAL MEDICARE denote the intention that closely held companies, namely, companies in which public are not substantially interested which are controlled by a group of members, even though having accumulated profits would not distribute such profit as dividend because if so distributed the dividend income would become taxable in the hands of the shareholders. Instead of distributing the accumulated profits as dividend, companies distribute them as loan or advances to shareholders or to concern in which such shareholders h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eals with the deduction of tax at source by the payer, i.e., the assessee, if the payments are to be made to a non- resident. The obligation to deduct the tax at source arises only when the payment is chargeable under the provisions of the Act-i.e. taxable in India. Facts of the case are that the assessee had made payments to non-resident agents, that the agents did not have PE in India, that the services were rendered outside India. In our opinion, considering these facts the assessee had rightly not deducted tax at source for making the payments to the non-resident agents. We find that in the case of CIT v. Faizen Shoes (P.) Ltd. [2014] 367 ITR 155 the Hon'ble Madras High Court has dealt the issue of deduction of tax at source with regard to the payment made to foreign entities. The facts of the case were that the assessee was engaged in the leather business. For the AY.2009-10, it entered into an agency agreement with a non-resident agent to secure orders from various customers, including retailers and traders, for the export of leather shoe uppers and full shoes by the assessee. In terms of the agency agreement, the business was to be transacted by opening letters of cre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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