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TMI Blog2017 (12) TMI 1730X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 37,09,646/- U/s 40(a)(ia) of the Income Tax Act, 1961 without considering the submission of the assessee that the payment of commission was made to NRI. 2. Under the facts and circumstances of the case, the ld CIT(A) has erred in sustaining the disallowance of Rs. 37,09,646/- U/s 40(a)(ia) of the Income Tax Act, 1961 without considering the submission of the assessee that the payment was not made as fees for technical services." 4. Both these grounds of the appeal are interlinked and is against confirming the disallowance of Rs. 37,09,646/- U/s 40(a)(ia) of the Act. The ld CIT(A) has upheld the action of the Assessing Officer by holding as under: 5.3 I have gone through the assessment order as well as submissions made by the appellant. 1. That the appellant is engaged in the business of manufacturing and trading of granites and other stones. 2. That during the year under consideration the appellant had declared a gross receipts of Rs. 8.27erores (approx) declaring net profit of Rs. 25,53,873/- for the year under consideration. 3. That during the under consideration the appellant had claimed commission expenditures of Rs. 37,09,646/-. 4. That the said commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of services of technical or other personnel) if such services: a) Are ancillary and subsidiary ....; or b) Make available technical knowledge, experience, skill, know-how or processes or consists of the development and transfer of a technical plan or technical design. Therefore, taking into account factual matrix of the case, it is my considered view that the A.O is justified in disallowing the payment as it had attracted provision of section 195 of the Act, which the appellant had failed to deduct tax at source. Accordingly, the disallowance of Rs. 37,09,646/ on account of commission paid for consultancy/managerial services under section 40(a)(ia) of the Act is sustained. Appellant's ground of appeal is dismissed." 5. While pleading on behalf of the assessee, the ld AR has submitted as under: 1. That during the year under consideration assessee has claimed expenses under the head of commission of Rs. 37,09,646/- to foreign parties, i.e. Salwa Mohammad Abdul Rehman, Jeddah, Kingdom of Saudi Arabia and not deducted TDS with reference to Circular No. 876 dated 07.02.2000. The Learned Assessing Officer made the addition on the ground that Circular No. 876 dated 07. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall not be so included unless it is derived from a business controlled in or a profession set up in India. (2) Subject to the provision of this Act, the total income of any previous year of a year who is a non resident includes all income from whatever sources derived which- (a) Is received or is deemed to be received in India in such year by or on behalf of such person ; or (b) Accrues or arises or is deemed to accrue of arise to him in India during such year Meaning thereby that if a NRI derives any income which is received or is deemed to be received in India OR any income which accrues or arises in India can only be liable to tax in India" In case wherein the agent is operating in his own respective country and the commission was paid to him for procuring the export order for the assessee from outside India and the foreign agents had no business connection in India. In such a situation the commission paid to him is totally out of scope of section 5 of the Act and therefore, commission earned by him is not taxable in India. Section 9 (I) (i) does not seek to bring in to the tax net the profits of a non - resident which cannot reasonably be attributed to operation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer further held that the certificate under section 195(2) of the Act had also not been produced. Accordingly, he disallowed/added the commission amount in assessee's income. The Appellate Tribunal held that: The Revenue's only grievance is that the aforesaid foreign agency commission paid by the assessee to the non residents/payee attracts disallowance under section 40 (a)(i) for non deduction of TDS. It is made clear that in support of this plea, no cogent evidence has been produced. It transpires from the case file the assessee has paid foreign exchange commission to its non-resident agent who do not have any permanent establishment in India. There is no material to prove that these payment have arisen out of an agreement executed in India. Nor there is any evidence to conclude that the nonresident/payee has rendered any technical service to the assessee. The Revenue also fails to prove the payments to have been accrued, arisen or paid in India so as to make it taxable under provision of the Act. Taking into consideration all these circumstances, CIT(A) held that the assessee was not liable to deduct TDS on above stated commission paid to its non-resident pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e find that all the questions as framed by the department are covered by our judgment in CIT v. M/s Model Exims, Kanpur, Income Tax Appeal (Def.) No.164 of 2011, decided in favour of the assessee and against the revenue on 10.09.2013 and die judgment in CIT, Kanpur v. M/s Allied Exims, Income Tax Appeal No.313 of 2013 decided on 13.11.2013. In both these judgments we have held, that A.O. did not bring anything on record, which could demonstrate that non-resident agents were appointed as selling agents, designers or technical advisers. The payment of commission to foreign agents did not entitle such foreign agents to pay tax in India and thus the TDS was not liable to be deducted under Section 195 of the Act. The disallowance made by A.O. under Section 40 (a) (i) for non-deduction of tax at source under Section 195 were not justified." This judgement was also followed by ITAT Lucknow Bench in the case of Northern Tannery case in ITA No. 636/LKW/2013 order dated 18 June 2015 copy of which is submitting here with. Therefore the addition so confirmed by the Learned. CIT Appeal deserves to be deleted." 6. On the other hand, the ld Sr. DR has relied on the orders of the authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability of the recipent/foreign agent is established. In this case, the primary tax liability of the foreign agent is not established. Therefore, the vicarious liability on the part of the assessee to deduct the tax at source does not exist. 10. Further, just because, the payer/assessee has not obtained a specified declaration from the Revenue Authorities to the effect that the recipent is not liable to be taxed in India, in respect of the income embedded in the particular payment, the Assessing Officer cannot proceed on the basis that the payer has an obligation to deduct tax at source. He still has to demonstrate and establish that the payee has a tax liability in respect of the income embedded in the impugned payment. 11. In the instant case, it is seen, admittedly that the nonresident agents were only procuring orders abroad and following up payments with buyers. No other services are rendered other than the above. Sourcing orders abroad, for which payments have been made directly to the nonresidents abroad, does not involve any technical knowledge or assistance in technical operations or other support in respect of any other technical matters. It also does not require ..... X X X X Extracts X X X X X X X X Extracts X X X X
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