TMI Blog2019 (5) TMI 1819X X X X Extracts X X X X X X X X Extracts X X X X ..... affirm the decision of learned CIT(A) and Revenue fails in this appeal. Addition u/s 68 - CIT(A) relying on the additional evidences filed by the assessee accepted the contention of the assessee and allowed relief to the assessee - HELD THAT:- In terms of Rule 46A(3) of the 1962 Rules, it was incumbent upon Ld. CIT(A) to have forwarded additional evidences to AO for necessary verifications/ comments . The Principles of Natural justice are clearly breached by learned CIT(A) by non affording AO to rebut additional evidence filed by assessee for the first time before learned CIT(A). Rule 46A(3) of the 1962 Rule is not merely an empty formality as principles of natural justice are embedded in it as clearly Revenue is entitled to rebut any additional evidence filed by the taxpayer for the first time before learned CIT(A) and violation thereof will clearly vitiate the order. It is also observed that learned CIT(A) accepted this additional evidence filed by the assessee for the first time before learned CIT(A) without making any enquiry or verification itself as to the veracity of this additional evidences filed by the assessee for the first time before learned CIT(A). - we are incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s concerning deletion made by Ld. CIT(A) of the addition of ₹ 1,68,19,775/- for payments made to non-residents without complying with the mandate of amended Section 195 of the 1961 Act. The assessee has made payments towards commission to overseas agents . The assessee submitted details of said payments for last three years as under:- Financial Year Overseas Transaction Value (in Rs . ) Overseas Commission Value (in Rs . ) % age of Overseas Commission 2008-09 12,23,22,188.00 1,68,19,755.00 13. 75% 2009-10 16,93,05,845.00 1,05,30,824.00 6.22% 2010-11 6,00,73,432.00 12,01,469.00 2% 3.2. The assessee submitted copies of agency agreement/contract and exclusivity agreement pertaining to 4 major overseas agents based in USA Europe as well copies of ledger account of these agents. The assessee submitted that it is into exports of pharmaceutical products and intermediar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year in order to cover up the expenses mentioned above. The assessee submitted that these commission or agency charges also included out of pocket expenses which is the responsibility of the overseas agents to be incurred by them. It was also submitted that these overseas commission were paid to overseas agents only after completion of registration and other formalities and achievement of sales target in terms of value and volume . 3.3. The AO rejected the contention of the assessee that these commission on sales to overseas agents also included registration charges.It was observed by the AO that registration cost has no nexus with sales commission. The AO was of the view that even if the agents incurred registration charges on behalf of the assessee, then the same needed to be recovered in the first year itself and it is not possible that these overseas commissions were recovered by overseas agents in three years. The AO referred to agency contract and observed that it provided that the agents shall arrange for the annual order for the products from its customers in Europe and USA on regular basis for the minimum period of three years from the date of first sale. The AO also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of item , sale value and basis of computation of commission charged. The AO observed that these confirmations are nothing but self serving documents obtained by the assessee during the course of assessment and all are dated December 2011. The AO held that these overseas commissions are not allowable expenses and are thus disallowed. 3.4. Without prejudice to the above discussions disallowing the aforesaid expenses towards overseas commissions, the AO also observed that provisions of Section 195 of the 1961 Act are not complied with. The AO also observed that w.e.f. 01.04.2008 , the provisions of Section 195 stood amended. It was observed by the AO that it is no more the discretion of the assessee or its CA to take a call whether to deduct income-tax at source before making any payments to Non-Residents or to a foreign company. The AO also referred to provisions of Section 195(2) of the 1961 Act. The AO observed that with effect from 01.04.2008, the assessee has to make an application to AO for determination of sum so chargeable to income-tax and accordingly deduct income-tax at source from such sum which is so chargeable. The AO also observed that the assessee is required to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nkers also did not ask for proof of deduction of income-tax at source before making payments to these overseas agents for commission , which itself shows that no income-tax was deductible at source on these payments. The assessee relied upon the decision of Hon ble Supreme Court in the case of G.E. India Technology Centre Private Limited v. CIT reported in (2010) 193 Taxman 234(SC) to contend that only if the payee is taxable in India, then only Section 195 can be invoked. Thus, prayers were made by assessee that Section 195 read with Section 40(1)(i) of the 1961 Act has no applicability to the instant case and no disallowance of the expenses are warranted. On deductibility of expenses on merits , the assessee claimed that there is a clear nexus of these expenses with the business of the assessee and the AO cannot sit in the armchair of businessmen to decide how much expenses are reasonable. It was claimed by the assessee that these payments are genuine and were paid to selling agents , thus these expenses cannot be disallowed. The assessee claimed that these payments were made owing to commercial expediency. Thus, the assessee prayed that these expenses be allowed towards overseas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been accrued during the year, is evidenced by the fact that Commission to the 2 agents are still outstanding till date of this order. -Without prejudice to the merit of the case as discussed above and ALTERNATIVELY, the Overseas Commission is not admissible as Business expense, as the assessee has violated the provision of section 195 and therefore invoking the provision of section 40(i) of The I. T. Act. 6.5 In view of the above, the entire overseas Commission of ₹ 168,19,755/- is thus disallowed and added back to the total income of the assessee. Penalty proceedings u/s 271(1)(c) of I. T. Act 1961 is initiated separately for furnishing inaccurate particulars on income. 4. The assessee carried the matter in appeal before Ld. CIT(A) and detailed contentions were made by assessee before learned CIT(A) both on merits of allowability of deduction towards payments made to overseas agent towards commission as well on applicability of deduction u/s 195 of the 1961 Act. The learned CIT(A) accepted the contentions of the assessee both on merits as well on allowability of deduction in the midst of Section 195 read with Section 40(a)(ia) of the 1961 Act. So far as merits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been paid during the previous year; or in the subsequent year before the expiry of the time prescribed under subsection (1) of s. 200 . 50. The perusal of the above provisions shows that any expenditure which is payable outside India on which tax is deductible at source but has not been deducted or after deduction has not been paid, shall not be allowed as deduction. Thus, these provisions are applicable in respect of the expenditure payable outside India on which either tax are not deducted or if deducted, not paid. We submit that in order to invoke the said provisions, it is necessary to make the payment outside India of income on which tax is deductible at source. If the tax is not deductible at source at all, the provisions of section 40(a)(i) shall not be applicable. Under these circumstances, it is necessary to consider whether the provisions of section 195 are applicable or not. The relevant provisions of section 195 are reproduced below: 195. (I) Any person responsible for paying to a nonresident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making the payment/remittance of the commission; no deduction of tax was enforced by the bankers which itself proves that the payment is not subjected to tax. 55. Once it is established that these agents are not taxable in India, the provisions of TDS u/s. 195 of the Act shall not be applicable. It is categorically held by the Hon'ble Supreme Court in the case of GE India Technology Centre Pvt Ltd v. CIT [327 ITR 456] wherein it is held that only if, the payee is taxable in India, section 195 can be invoked. Thus, in view of the settled position, we submit that the provisions of section 195 and 40 (a) (i) cannot be made applicable in the case of the appellant, 56. The above submissions were also made before the Assessing Officer at the time of assessment proceedings. However, in the assessment order, the Assessing Officer has objected to the said submission on the ground that w.e.f. 01.04.2008, the provisions of s. 195 had undergone some changes according to which, it is not in discretion of the assessee or its chartered accountant to take call that whether to deduct tax from any payment made to the nonresident. According to him, after 01.04.2008, the appellant has to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermine the proportion of the total amount which can be subjected to TDS. The said s. 195(2) of the Act clearly proves that it is only applied to a situation where the amount payable to the non-resident is taxable in India and the quantum of income out of the total amount payable to the non-resident cannot be ascertained reasonably. In other words, s. 195(2) would be applicable only in a case where the amount payable by the appellant to the overseas agents is otherwise liable to TDS. In order to invoke s. 195(2) of the Act, it is necessary to establish that the amount payable to the non-resident is otherwise liable to tax in India. It is only if the amount is liable to tax- in India, the provisions of s. 195(2) have to be invoked to determine the quantum of income embedded in the income on which TDS is to be deducted. 60. In the present case, admittedly the amount is not liable to TDS as the same is not chargeable to tax in India. This fact is also not disputed by the Assessing Officer in the assessment order. Since the amount claimed as the overseas commission is not chargeable to tax in India, the appellant was under no obligation to deduct tax on the said payment made by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 (1) they are not required to pay any tax in India as stated in the D.T.A.A agreement entered by India with Germany. D.T.A.A WITH U.S.A. a) The said agreement is reproduced in the notification bearing No.GSR 990(E) dated 20.12.1990. On perusal of the clause article 4(1), 7(1), 15 (1) and 23 (1) it will clearly reveal that the abroad non resident commission agent is not required to pay tax in India vide the said agreement. D.T.A.A WITH U.K a) The said agreement is being reproduced in the notification No.GSR 19 (E) dated 11.02.1994. On perusal of the article 7 (1) and article 15 (1) it will clearly reveal that the transaction is clearly covered under the said notification and D.T.A.A. agreement entered by India with U.K. and the non resident commission agent is not required to pay the taxes in India, b) On perusal of circular No. 786 dated 07.02.2000 reported in 241 ITR (St.) 132 where it is been clearly stated that there is no need to deduct the Tax i.e TDS u/s 195 would arise if the payment of commission is to the non resident agent is chargeable to tax in India. Further attention is drawn on the CBDT circular No. 23 dated 23.07.1969 where the taxability of fore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted to the respective parties through Banking channels this clearly established the genuinely of the transaction and the Ld. Assessing Officer has not discharged his burden of proof. Thus, in nut-shell the assessee prayed before learned CIT(A) that additions made on account of expenditure incurred for overseas commission on the grounds of non deductibility of income-tax at source u/s 195 read with Section 40(a)(i) of the 1961 Act by the AO , be deleted. 4.3 The learned CIT(A) was pleased to delete the additions as were made by the AO on merits vide appellate order dated 29.10.2012 passed by learned CIT(A) , by holding that these are business expenses which are incurred wholly and exclusively for the purposes of the business of the assessee. There is no dispute as to it as Revenue has accepted this part of the appellate order dated 29.10.2012 passed by learned CIT(A). 4.4. The dispute between rival parties is with respect to appellate order dated 29.10.2012 passed by learned CIT(A) granting relief to the assessee on this ground of non deductibility of income-tax at Source u/s 195 of the 1961 Act read with Section 40(a)(i) of the 1961 Act, by holding as under:- 6.8 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that decision of Hon ble Supreme Court in the case of G.E India Technical Centre P. Ltd.(supra) is a decision prior to amendments being made in Section 195 of the 1961 Act , and the assessee in the instant case has failed to comply with the requirements of amended Section 195 of the 1961 Act. It was submitted by Ld. DR that the assessee was required to make application before the AO u/s 195(2) for grant of certificate for no deduction/lower deduction of income-tax at source than prescribed rates but no such application was made by the assessee and hence provisions of Section 195 were clearly infringed leading to infringement of Section 40(a)(i) of 1961 Act. Our attention was also drawn to Sub-section 195(6) of the 1961 Act and it was submitted that vide amended provisions , the assessee has clearly defaulted by nondeducting income tax at source while making payments for commissions to overseas agents or else the assessee was required to approach the AO for grant of certificate for non deduction of incometax at source or for deduction of income-tax at source at lower rates u/s 195(2) of the 1961 Act and hence the additions were rightly made by the AO. 5.2 The Ld. Counsel for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 75% 2009-10 16,93,05,845.00 1,05,30,824.00 6.22% 2010-11 6,00,73,432.00 12,01,469.00 2% The assessee had duly submitted copies of agency agreement/contract and exclusivity agreement pertaining to 4 major overseas agents based in USA Europe as well copies of ledger account of these agents. The four foreign agents to whom aforesaid payment of commission of ₹ 1.68 crore were made are as under: Sr. No. Name of the company Name of the country 1 Regal Rank Ltd UK 2. SRK Pharmachemie (Europe) GmBH Germany 3, NJK Holdings LLC USA 4. Roscio Alassandro Italy The Revenue is not doubting the genuineness of these commissions to overseas agents which was claimed by assessee as business expenses u/s 37(1) as that part of appellate order holding the issue in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned above. The assessee submitted that these commission or agency charges also included out of pocket expenses which is the responsibility of the overseas agents to be incurred by them. It was also submitted that these overseas commission were paid to overseas agents only after completion of registration and other formalities and achievement of sales target in terms of value and volume . The authorities below have perused the agency agreements. It is provided in the agreements that targets as to value and volumes are fixed for overseas agents to get commission and in case the performances are not forthcoming, the assessee will not be liable to pay these commissions. Thus, these commissions paid to overseas agents are linked to performance by way of export orders generated or import of raw material etc facilitated for the assessee. The assessee was new to export business and as this being the first year of exports , hence the assessee was required to get registration done with various authorities/agencies in foreign countries . The said overseas agents assisted assessee in getting itself registered and undertook work for marketing and sales of assessee s products for which necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings wherein it is certified by CA that no sum so paid by assessee towards commission to these overseas agents is liable to be taxed under provisions of the 1961 Act. the Revenue could not controvert this position. It is important at this stage to refer to decision of Hon ble Madras High Court in the case of Evolv Clothing Company Private Limited v. ACIT reported in (2018) 407 ITR 72(Mad.), wherein it was held as under: 19. From the judgment and order of the learned Tribunal under appeal, it appears that the Revenue only contended that the payee in question had rendered technical services in the nature of systematic research to the appellant and received fee in lieu thereof, which was liable to be taxed as per Article 13 (Clause 4) of the Indo-Italian Double Taxation Avoidance Agreement (DTAA). 20. The learned Tribunal took note of the agreement between the appellant and the payee which, inter alia, provided as follows: The SECOND PARTY agrees to undertake and carryout the following services on behalf of the FIRST PARTY: 1. To procure orders for the FIRST PARTY and to negotiate the terms of such orders and contracts with said foreign buyers but the terms there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of non resident would be deemed to accrue or arise in India under Clause (v) or clause (vi) or clause (vii) of sub-section(1) and be included in the total income of the non-resident whether or not the non-resident has a residence or place of business or business connection in India, and whether or not the nonresident has rendered services in India is attracted in the facts and circumstances of this case? 23. The first question necessarily and obviously has to be answered in favour of the appellant/assessee and against the Revenue, the question being covered by the judgment of Supreme Court in Toshoku Ltd., supra. The issue before the learned Tribunal was whether the appellant/assessee had paid for systematic research or for procuring export orders. It was all along the contention of the appellant/assessee that the foreign agent was paid for procuring orders and assessing the market. The learned Tribunal erred in concluding that there was no issue between the parties that the assessee had paid for systematic research. For the sake of convenience, the second, the third and the fourth questions are dealt with together. 24. The learned Tribunal found, on facts, on perusal of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t rendered services in India. The exceptions provided under Section 9(1)(vi)(b)/9(1)(vii)(b) of the IT Act, which apply to utilization of services of business outside India, did not cover the assessee's case. 28. The Assessing Officer had also taken note of withdrawal of two circulars: (i) Circular No.786, dated 7.2.2000, dealing with payment of export commission, opining that withdrawal, being procedural in nature, would apply to proceedings pending; and (ii) Circular No.23 of 1969, which exhaustively dealt with subject of Non residents Income accruing or arising through or from business connection in India Liability to tax Section 9 of the Income Tax Act, 1961 . 29. From the Service Agreement with the agents abroad, it is clear that the service rendered is essentially brokerage service. The very first clause of the agreement states to procure orders . The reference to market research abroad 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 agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the domestic law or under Double Taxation Avoidance Agreement. In any case, even if a non-resident Indian did have a permanent establishment, but income was earned without availing of such permanent establishment, the income for services rendered abroad could not have been liable for tax deduction at source. 33. Under Section 9(1)(vii)(b), income by way of fees for technical services payable by a person, who is a resident, is taxable income except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India. In view of Explanation (2) to Section 9(1)(vii), technical services means any consideration, including lumpsum consideration, for rendering of any managerial, technical or consultancy services, including the provision of services of technical or other personnel, but does 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 procuri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Explanation, it is apparent that fees for technical services does not contemplate commission which is order specific and computable at a small percentage of the order value. Section 40(a)(i) does not contemplate order wise commission based on the order value. 40. For the reasons discussed above, the appeal is allowed and the questions framed are answered in favour of the assessee against the Revenue. No costs. Consequently, connected miscellaneous petition is closed. The aforesaid is the decision of Hon ble Madras High Court in the case of Evolv Clothing Company Private Limited(supra) for AY 2009-10 wherein the Hon ble Madras High Court has referred to decision of Hon ble Supreme Court in the case of GE Technology Centre Private Limited v. CIT (2010) 327 ITR 456(SC) , wherein Hon ble Supreme Court held that what is relevant is the sum chargeable to income-tax under the provisions of the 1961 Act before provisions for deduction of income-tax at source u/s 195 come into service. Thus merely because the assessee has not made an application u/s 195(2), it will not bring the said sum chargeable to income-tax which otherwise is not chargeable to income-tax within provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Guj.) , wherein Hon ble Gujarat High Court held that on payments made to overseas agents towards commission for export orders will not entail deduction of income-tax at source u/s 195 and no disallowance u/s 40(a)(i) is warranted by holding, as under: Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal dated 19.04.2018 raising following questions for our consideration: A. Whether the Appellate Tribunal had erred in law and on facts in upholding the order of the CIT(A) deleting the addition made on account of disallowance u/s. 40(a)(ia) of the Act for non deduction of tax on commission payable to foreign agents of ₹ 1,20,72,972/-? B. *** 2. Question A pertains to disallowance made by the Assessing Officer under section 40(a)(ia) of the Income-tax Act, 1961 ['the Act' for short] for the failure of the assessee to deduct tax at source on exemption paid to foreign agents. This issue has been considered in Tax Appeal No. 1232 of 2018 in following manner: 1. The issue arises in relation to assessment year 2011-12. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had paid payment of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court in case of GE India Technology Center P. Ltd (supra) holding that on mere remittances of an amount to non-resident, duty to deduct tax at source would not arise unless such remittances contains wholly or partly taxable income. 5. Section 9 of the Act carries the heading income deemed to accrue or arise in India. Sub-section (1) of section 9 provides that in following incomes, contained in various clauses therein, shall be deemed to accrue or arise in India. Clause (i) of sub section (1) provides that all income accruing or arising, whether directly or indirectly, through or from any business connection in India or through or from any property in India or through or from any asset or source of Income in India or through the transfer of a capital asset situate in India shall be deemed to accrue or arise in India. 6. In the present case, as noted, admitted facts are that the non-resident agents appointed by the assessee for procuring export orders do not have permanent establishment in India. Their agents are situated outside India. Their activities as commission agents are being carried out outside India. The Tribunal therefore correctly held that there was no liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion agent outside India. We observe that the agents were notarized and not having fixed base in India and have rendered all the sales and marketing services outside India. We have also perused the judicial pronouncements of the Hon'ble Supreme Court in the case of GE India Technology CEN Private Limited v. CIT [2010]193 Taxman 234(SC), wherein, it was held that section 195 gets attracted in cases where payment made is a composite payment in which a certain proportion of payment has an element of income chargeable to tax in India and prayer seeks a determination of appropriate proportion of sum chargeable. We are of the considered view that the assessee has paid commission to non-residents in respect of services rendered abroad and the non-residents has not carried any business operation in India, therefore, we find that the assessee is not liable to deduct tax at source. We have also noticed that the assessing officer has not controverted the claim of the assessee that commission was paid to non-residents in respect of services rendered abroad. After looking to the fact as stated supra and judicial finding, we consider that disallowance of commission paid to the aforesaid nonr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment only, where the sum is chargeable to tax under the Act, still continues to hold the field. In the present case, the Revenue has not seven seriously contended that the payment to foreign commission agent was not taxable in India. 6. Tax Appeal is therefore dismissed. We have observed that the assessee has rightly relied on the decision of Hon ble Madars High Court in CIT v. Farida Leather Company in Tax Case Appeal No. 484 of 2015 , wherein Hon ble Madras High Court decided the appeal in favour of the taxpayer on the ground that even if the taxpayer has not applied for certificate from AO u/s 195(2) but since the sum paid to non resident is not chargeable to incometax under the provisions of the 1961 Act, no disallowance u/s 40(a)(i) is warranted, by holding as under: 2.4 Aggrieved over the order of the Income Tax Appellate Tribunal, the Revenue has preferred this Appeal, raising the following substantial questions of law:- 1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that no disallowance can be made as per Section 40(a)(i) of the Act with respect to payment of commission to non-resident foreign agents without d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is that: (a) the assessee paid the amount by way of commission to foreign agents for the services rendered outside India; (b) the Tax Deduction at Source (TDS) is required to be made on all payments to non-residents, only if such payments are liable to be taxed in India. (c) following the decision of this Court, CIT v. Faizan Shoes (P.) Ltd. [2014] 367 ITR 155/226 Taxman 115/48 taxmann.com 48 (Mad.), the assessee is not liable to deduct tax at source, when the non-resident agent provides services outside India on payment of commission. 5.2 The contention of the Revenue is that such services are attracted by Explanation (2) to Section 9 (1) (vii) of the Act and therefore TDS certificate is essential. 6. Whether this contention is correct, is the issue to be decided. 7. In order to appreciate this contention, it is necessary to consider the relevant provisions of the Act:- (i) Section 40(a)(i) of the Act :- Section 40 - Amounts not deductible: Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession , - (a) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for paying to a non-resident not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) or section 194LD or any other sum chargeable under the provisions of this Act (not being income chargeable under the head Salaries ) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode : Provided further that no such deduction shall be made in respect of any dividends referred to in section 115-O. [Explanation 1] :............... [Explanation 2.- For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and upon such determination, the tax has to be deducted under Section 195(1) of the Act. The payment is made credited to the account of the payee. 8. The question now is, whether the assessee ought to have deducted tax at source as contemplated under Section 195 of the Act, when the assessee paid commission to foreign agent. 9. This question has been answered by the Hon 'ble Supreme Court, in the case of G.E.India Technology Centre (P.) Ltd. (supra), in which, it is very categorically held that the tax deducted at source obligations under Section 195(1) of the Act arises, only if the payment is chargeable to tax in the hands of the non-resident recipient. 9.1 Therefore, merely because a person has not deducted tax at source or a remittance abroad, it cannot be inferred that the person making the remittance, namely, the assessee, in the instant case, has committed a default in discharging his tax withholding obligations because such obligations come into existence only when the recipient has a tax liability in India. 9.2 The underlying principle is that, the tax withholding liability of the payer is inherently a vicarious liability on behalf of the receipient and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tegory of fees of technical services and therefore, explanation (2) to Section 9(1)(vii) of the Act, as invoked by the Assessing Officer, has no application to the facts of the assessee's case. 13. In this case, the commission payments to the non resident agents are not taxable in India, as the agents are remaining outside, services are rendered abroad and payments are also made abroad. 14. The contention of the learned counsel for the Revenue is that the Tribunal ought not to have relied upon the decision G.E.India Technology's case, cited supra, in view of insertion of Explanation 4 to Section 9(1)(i) of the Act with corresponding introduction of Explanation 2 to Section 195(1) of the Act, both by the Finance Act, 2012, with retrospective effect from 01.04.1962. 15. The issue raised in this case has been the subject matter of the decision, in the recent case, CIT v. Kikani Exports (P.) Ltd. [2014] 369 ITR 96/[2015] 232 Taxman 255/49 taxmann.com 601 (Mad.) wherein the contention of the Revenue has been rejected and assessee has been upheld and the relevant observation reads as under:- '... the services rendered by the non-resident agent could at best be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly M/s Chikhloli Chemicals Pvt. Ltd. were to the tune of ₹ 47,37,752/- , but as per ledger account filed by the said party, the said party namely the said party namely M/s Chikhloli Chemicals Pvt. Ltd only confirmed to have made purchases from the assessee to the tune of ₹ 47,37,752/- but the said party never confirmed sales made by it to the assessee to the tune of ₹ 27,39,215/-. The sssessee filed a copy of computer generated ledger account of the assessee in the books of accounts of said party namely the said party namely M/s Chikhloli Chemicals Pvt. Ltd but as per said ledger account , the said party has shown to have made sales to the assessee on 23.09.2008 to the tune of ₹ 23,94,000/- , while the assessee was contending to have made purchases to the tune of ₹ 27,39,215/- . Thus, there was also an difference in the balance as is appearing in books of accounts of the assessee and the balance as was appearing in books of accounts of the said party. The said copy of ledger account was signed by some third party one M/s Purva Inorganics Private Limited and hence this piece of evidence being confirmation from said party filed by the assessee was discar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid additions to income as were made by the AO. 7.3 Now being aggrieved by appellate order dated 29.10.2012 passed by learned CIT(A), the Revenue has filed an appeal before the tribunal. The learned DR claimed that there is an infringement of Rule 46A of the Income-tax Rules, 1962 by Ld. CIT(A) who did not forward additional evidences by way of fresh confirmation filed by assessee for the first time before learned CIT(A), to AO for his comments and verification as no remand report was called by learned CIT(A) from the AO. The learned DR submitted that learned CIT(A) did not called for remand report from the AO on the additional evidence by way of confirmation from M/s Chikhloli Chemicals Private Limited filed by the assssee before learned CIT(A) for the first time and clearly there is an breach of Rule 46A of the 1962 Rules. It was submitted that under these circumstances , the matter need to go back to the file of the AO for fresh adjudication so that necessary verifications of these additional evidences can be done by the AO. The Ld. Counsel for the assessee on the other hand submitted that that it was merely an clerical error wherein wrong stamp of sister concern o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r made by the AO vide assessment framed u/s 143(3), which led to infringement of Rule 46A(3) of 1962 Rules. The Rule 46A of the 1962 Rules is reproduced hereunder: Production of additional evidence before the [Deputy Commissioner (Appeals)] [and Commissioner (Appeals)]. 46A . (1) The appellant shall not be entitled to produce before the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)], any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the [Assessing Officer], except in the following circumstances, namely :- (a) where the [Assessing Officer] has refused to admit evidence which ought to have been admitted ; or (b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the [Assessing Officer] ; or (c) where the appellant was prevented by sufficient cause from producing before the [Assessing Officer] any evidence which is relevant to any ground of appeal ; or (d) where the [Assessing Officer] has made the order appealed against without giving sufficient opportunity to the appellant to adduce evid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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