TMI Blog2019 (10) TMI 1430X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals)-2, Ahmedabad (CIT(A)' in short), dated 30.11.2017 arising in the assessment order dated 22.11.2016 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2013-14. 2. The grounds of appeal raised by the Revenue read as under: 1 The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of commission to foreign agents amounting to ₹ 4,63,62,693/- paid without properly appreciating the facts that the assessee was unable to lead evidence to prove the factum of actual rendering of services by such recipients. Reference in this regard is made to the decision of Hon'ble Supreme Court in the case of Premier Breweries Ltd. vs. CIT Cochin, 2015 56 Taxmann.com 361 (SC). 1.1 Without prejudice to the above, the Ld. CIT(A) has erred in law on facts in deleting the disallowance u/s. 40(a)(1) of the IT. Act on export commission payments made to the Non-resident Agents solely relying on the decision of the Hon'ble Supreme Court in the case of CIT vs. Toshuku Ltd., (1980) 125 ITR 525 (SC) which is no more applicable in view of the subsequent amendments brought in the IT. Act. 1.2 The Ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1961, the provisions of section 195 would therefore be applicable. 2.4. The appellant on the other hand, in its detailed written submission, has claimed that the Provisions of Section 5(2)(b) read with section 9(1)(i) of Income Tax Act were not applicable in its case. The income has been earned abroad and, is therefore, riot taxable in India. It has also given detailed evidences to prove that the commission paid was genuine. The appellant claimed that there was no PE of the foreign agents/nun-residents in India, therefore, no TDS was required to be deducted from such payments. 2.5. It was claimed that the goods were exported through agent who basically was from UAE. The appellant also made sales to other countries like Tanzania and Mozambique. It is further claimed these overseas agent was providing export orders by searching/inquiring export - import from countries spread over world-wide along with other services. 2.6. He also provided the relevant details to the AO during assessment proceedings through its letter dated 18/11/2016 as under:- (i) Statement of all transactions entered into with M/s. Stone Hill Electromechanical Contracting, Fab House Technologies LLC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there is no income deemed to accrue or arise in India in view of the explanations to the provisions of section 9(1)(i) of the I.T. Act as the overseas agent had rendered services outside India and the commission was also paid to them outside India. Hence, there was no obligation to deduct the tax from such commission payments as per the provisions of section 195 of the I.T. Act. 2.9. Thus, it has been submitted that the identity and genuineness of the overseas commission agent is proved with the evidences such as, credit notes to overseas agents, export invoices, shipping bills, bank certificate for export realization, copy of Form No. 15CA 8, 15CB and commission payment etc. as discussed above. 2.10. Having considered the facts and submissions, the issues which are to be examined and decided are as under:- 1. Whether the commission paid to foreign agents is taxable in India by virtue of the provisions of section 5 (2)(b) read with section 9(1)(i) of Income Tax Act. 2. Whether the provisions of section 195(2) were applicable on the appellant and he should have deducted tax and in case of no deduction he should have obtained a no deduction certificate from the AO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or arise in India by applying the provisions of section 9(1)(t), it is seen that there is no fact on record to indicate that the agent had any permanent establishment in India. The agent had its office on the foreign soil and nothing on record that it had PE in India. Further the assessing officer has also not pointed out any such fact in its order which indicate that there was any such office of the overseas agent in India which attract the deeming provisions. Further the observation that the source of income was in India is also not proper as it has clearly been discussed in the preceding paragraphs that none of the services have been rendered in India and source of income cannot be said to be in India as the source of income is the services rendered and not the sales. There is no business connection in India from which the income has been earned, there is no property through or from which the income has been earned. Therefore, the provisions of section 9(1)(i) also cannot be applied. 2.14. Reliance is placed on the judgment of honourable Supreme Court in the case of GE India Technology Centre Private Limited, 327 ITR 456 and the judgment of honourable ITAT Mumbai in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance on the decision of Hon'ble Authority of Advance Rulings in the case of SKF Boilers and Driers (P.) Ltd., (2012) 18 Taxmann 325 and Rajiv Malhotra (2006) 284 ITR 564 (Delhi). The judgments are not applicable to the present facts as there are several other decisions of Hon'ble ITAT, Mumbai in the case of AC IT (International Taxation) Vs. Star Cruise India Travel Services Pvt. Ltd., [14 ITR (T) 282 [Mum], CLSA Limited Vs. ITO (International Taxation) [56 SOT 254], which hold that such kind of commission is not taxable in India and accordingly no liability to deduct tax was there. Further the decision of honourable Supreme Court of India in the case of CIT vs. Toshoku Limited, 125 ITR 525, still prevails as on date and is the law of the land as regards applicability of TDS provisions to commission paid to overseas/non-resident agents by Indian Exporters. 2.19. Further, reliance is placed on the following decisions/judgments:- * ACIT Vs. Modern Insulators Ltd. [56 DTR 362 (Jaipur Trib.)[ * Ishikawajama - Harima Heavy Industries Ltd. Vs. Director of Income Tax [20/CTR 361] * Dy. Commissioner of Income Tax Vs. Divi's Laboratories Ltd., 1 (2011) 60 DTR (H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e services rendered by the agents the commission expenses to foreign agents has been disallowed under section 37(1) of the Act. 9. Apart from that according to the Learned Assessing Officer since the assessee failed to deduct tax on the commission payment for nonresident foreign agents further show-cause dated 13.10.2016 was issued to him as to why commission on which TDS is not deducted should not be disallowed and added to the income of the assessee. The assessee was further directed to furnish agreement, nature of services provided by the commission agents, details of sale in order to prove genuineness of transaction. 10. In reply to the said show-cause the assessee submitted his written arguments dated 17.10.2016 inter alia as follows: With regard to asking the complete names, addresses services rendered of the parties to whom commission on export sales have been paid during the year under consideration to foreign/overseas commission agents. In this connection, we have already submitted the required details in our earlier submissions in response to details asked vide your notice. Out of total foreign sales commission on exports, of ₹ 29356350/-. We have paid a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, such explanation given by the assessee was not accepted by the assessing officer in the absence of any contract agreement with the foreign agents and the nature of services rendered on the basis of which the commission has been paid been furnished by the assessee. According to the assessing officer though the agents have rendered services abroad and have solicited orders therefrom the right to receive the commission arises in India with the order executed by the assessee in India and thus according to him the income accrued is sourced in India and the said commission is taxable. Thus the provision of section 195 is squarely applicable to the case of the assessee and the obligation to deduct tax at source under the said provision has been failed to be complied with by the assessee as held by the Learned Assessing Officer and the expenditure claimed under the head commission expenses paid to non residents has been disallowed and added back to the income of the assessee under section 40(a)(1) of the Act. 11. In appeal, Learned CIT(A) considered the details submissions made by the assessee. The Learned CIT(A) also considered the submissions made by the assessee that no disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of section 195(2) were applicable on the appellant and he should have deducted tax and in case of no deduction he should have obtained a no deduction certificate from the AO. And 3. Whether the commission paid was genuine and the services have been rendered. 2.11. Regarding the first issue it is noted from the evidence, given by the appellant as well as noted by the AO in his order that the services have been tendered by the foreign agents outside India. The sales were booked by them in other countries or for the country for which they have been appointed as commission agents. None of the activities soliciting the client and procuring the orders has taken place in India. The goods were being delivered by the appellant company in the other country. The activities of procuring the payment on behalf of the appellant company were also done abroad. The AO was therefore, incorrect to hold that source of income lies in India as the sales have been made from India the provisions of Income Tax act clearly provide that the tax would be deducted on the income which is taxable in India. The activity of earning the income is not the sale but soliciting the sales by commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also cannot be applied. 2.14 Reliance is placed on the judgment of honourable Supreme Court in in case of GE India Technology Centre Private Limited, 327 ITR 456 and the judgment of hon'ble ITAT Mumbai in the case of our Ardesi B Cursetjee Sons Ltd. 115 TTJ 916. 2.15. Therefore, in view of the preceding discussion the AO was not justified to hold that the commission payable to the overseas agent was deemed to accrue or arise in India and is taxable under the Act in view of the specific provisions of sections 5(2)(b) read with section 9(1)(i) of Income Tax Act. 2.16. Regarding the issue of obtaining no deduction certificate under section 195 it is seen that for the applicability of the provisions of this section, the sum must be chargeable under the provisions of the income tax Act. Section 195 provides for deduction of tax by the person responsible for paying to a nonresident any interest or any other sum chargeable under the Provisions of the Act. It is clear that the payment was not the interest. It has to be seen whether the payment is covered under the term any other sum chargeable under the provision of this act . It has been observed in the proceeding discuss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs Ltd. [56 DTR 362 (Jaipur Trib.)] Ishikawajama - Harima Heavy Industries Ltd. Vs. Director of Income Tax [207 CTR 361] Dy. Commissioner of Income Tax Vs. Divi's Laboratories Ltd. [(2011) 60 DTR (Hyd) (Trib) 210] ITO, International Taxation, Chennai Vs. Prasad Production Ltd. [(2010) 125 ITD 263 Chennai) (SB) ACIT, Circle - 16(3) (Hyderabad-Trib) vs. Priyadarshini Spinning Mills (P.) Ltd. (2012) ITA No. 1776 (2011) ACIT (International Taxation) vs. Star Cruise India Travel Services Pvt. Ltd. [14 ITR (T) 282 (Mum.) 2.20. In view of the preceding discussions, the submissions of the appellant, including the judgments/decisions of various courts and considering the fact that identical issue has been decided by CIT(A)-2, Ahmedabad in A.Y. 2012-13 and by this office in preceding year i.e. A.Y. 2013-14 in favour of the appellant, it is clear that the appellant was not liable to deduct tax on the commission paid to foreign agent. Therefore, the disallowance of ₹ 2,93,56,350/- under section 40(a)(ia) made by the AO is directed to lie deleted. 12. We find that the same issue was considered by the Co-ordinate Bench in respect of A.Y. 2012-13 in assessee&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... XXXXXXXXXXXXXXX (2) Subject to the provisions of this Act, the total income 49 of any previous year of a person who is a non-resident includes all income from whatever source 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 or arise to him in India during such year. It is beyond doubt that the payment for the commission was not received by the foreign agents in India. Therefore, the same cannot be taxed in India as per clause (a) of sub-section (2) of section 5 of the Act. Similarly, we further note that the income was received by the foreign agents on account of services rendered by them in their respective countries. Therefore, we conclude that such income has not accrued or arisen in India and consequential not chargeable to tax in India. Now coming to the fact that whether such commission income by the foreign agents were deemed to accrue or arise in India in terms of provision of Section 9 of the Act, which reads as under:- Income deemed to accrue or arise in India. 9. (1) The following incomes shall be deemed to accrue or arise in India:-- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayer to deduct tax does not arise. This vicarious tax withholding liability cannot be invoked, unless primary tax liability of the recipient/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. We also find support and guidance from the order of ITAT Ahmedabad Bench in the case of DCIT (International Taxation) vs. Welspun Corporation Ltd., reported in 77 taxmann.com 165 (Ahd), wherein it was held as under:- 33. There are a couple of rulings by the Authority for Advance Ruling, which support taxability of commission paid to non-residents under section 9(1)(i), but, neither these rulings are binding precedents for us nor are we persuaded by the line of reasoning adopted in these rulings. As for the AAR ruling in the case of SKF Boilers Driers (P.) Ltd. In re [2012] 343 ITR 385/206 Taxman 19/18 taxmann.com 325 (AAR - New Delhi), we find that this decision merely follows the earlier ruling in the case of Rajiv Malhotra, In re [2006] 284 ITR 564/155 Taxman 101 (AAR - New Delhi) which, in our considered view, does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the commission agent can be brought to tax in India. In this view of the matter, views expressed by the Hon'ble AAR, which do not fetter our independent opinion anyway in view of its limited binding force under s. 245S of the Act, do not impress us, and we decline to be guided by the same. The stand of the revenue, however, is that these rulings, being from such a high quasi-judicial forum, even if not binding, cannot simply be brushed aside either, and that these rulings at least have persuasive value. We have no quarrel with this proposition. We have, with utmost care and deepest respect, perused the above rulings rendered by the Hon'ble Authority for Advance Ruling. With greatest respect, but without slightest hesitation, we humbly come to the conclusion that we are not persuaded by these rulings. Similarly we also find support guidance from the judgment of Hon'ble Gujarat High Court in the case of PR CIT Vs. MGM Exports in R/Tax Appeal No. 309 of 2018 vide order dated April 11, 2018. The relevant extract of the order is reproduced below: 7. In the recent order in Tax Appeal No. 290 of 2018, we had dealt with similar situation making following observations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seven seriously contended that the payment to foreign commission agent was not taxable in India. Tax Appeal is therefore dismissed. The principles laid down in the above cited judgments are squarely applicable to the instant facts of the case. Thus, it can be safely concluded that the Commission income in the hands of foreign agent is not chargeable to tax in India in the given facts circumstances. Once an income is not chargeable to tax in India then the question of deducting TDS under the provision of section 195 of the Act does not arise. Accordingly, we do not find any reason to interfere in the order of Ld. CIT-A. Hence the ground of appeal raised by the revenue is hereby dismissed. 14. In that view of the matter, we do not hesitate to conclude that the commission income in the hands of the foreign agents is not chargeable tax in India in the present facts and circumstances of the case and therefore the assessee is not liable to deduct TDS. The observation made by the Learned CIT(A) does not call for any interference in view of the above conclusion made by us respectfully following the judgments passed by the Co-ordinate Bench as well as judgment passed by the Apex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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