9911796707
TMI Blog2021 (12) TMI 707X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee in all the three years relates to the disallowance made u/s 40(a)(i) of the Act. It is pertinent to note that the appeal pertaining to AY 2010-11 is second round of appeal. In the first round, the Tribunal has restored this matter to the file of Ld CIT(A), since the Ld CIT(A) had decided this issue in favour of the assessee without considering certain observations made by the AO. In the second round as well as in AY 2011-12 and 2012-13, the Ld CIT(A) decided this issue against the assessee. The facts as available in AY 2010-11 are narrated hereunder. 4.1 The AO noticed that the assessee has paid sales commission to overseas agents located in Austria and Italy. However, it has not deducted tax at source from the commission so paid. When enquired about the same, the assessee submitted that the foreign agents do not have Permanent Establishment (PE) in India and hence the income is chargeable in their respective Country only as per the provisions of DTAA. Accordingly, it was submitted tax need not be deducted at source from commission payments. However, the AO took the view that the assessee should have approached the AO u/s 195(2) of the Act for determining the taxabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in they have certified that they have received the commission only for getting orders, i.e., no other service has been rendered by them. 4.5 We heard rival contentions and perused the record. We notice that the tax authorities have come to the conclusion that the foreign agents are rendering managerial services on the basis of explanations given by the assessee to the AO to the effect that the foreign agents are well aware of the local needs. We notice that the assessee has stated so only to reiterate the necessity of appointing foreign selling agents. The foreign agents, being local persons in their respective countries, are well aware of the local needs in terms of design, price etc. Accordingly, they could understand the requirements of foreign buyers and hence they can convey the customer's requirements to the assessee. The leather garments industry is prone to changes in fashion and further the quality and selling price, inter alia, also constitutes an important elements for securing foreign orders. It is quite natural for the assessee to seek those details from the agents, which the agents could furnish in view of their local presence. Thus, we notice that the foreign agents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) has held in favour of the assesee. Thought for the assessment year 2005-2006, the revenue had filed an appeal before the Tribunal, on account of low tax effect that appeal could not be pursued by the Tribunal. However, what we are required to see is whether in the instant case, the CIT(A) has recorded a finding as to the nature of services availed by the assessee from the non-resident. After hearing the submissions of the auhorized representative of the assessee, the CIT(A) perused the copies of the agreement and on facts, found that the amounts paid by the assessee were sales commission and marketing services to non resident agents outside India for their services rendered outside India by way of canvassing sales order and none of the entities to whom payments were made by the assessee have a Permanent Establishment [PE] in India. Further, taking note of the relevant Articles in the respective DTAA agreements entered into between India and the respective Country, it was held that the income earned is taxable in those Countries. In support of the conclusion, the CIT(A) relied on the decision of the Hon'ble Supreme Court in the case of G.E.Technology Centre (P) Ltd., vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments have been made to the foreign agents for getting sales orders. Hence, as held by Hon'ble Madras High Court in the above cited case, the sourcing commission paid cannot be considered as fee for technical services. Accordingly, we hold that the tax authorities are not correct in law in holding that the commission was paid to the agents for rendering technical services in the form of managerial services. Thus, it shall constitute business income in their respective hands. There is no dispute that these foreign agents do not have permanent establishment in India and hence under Article 7 of India and Austria DTAA as well under Article 7 of India - Italy DTAA, no business profit is taxable in India. Since no income out of commission payment is chargeable to tax in India in the hands of foreign agents, there is no requirement of deducting tax at source u/s 195 of the Act. Accordingly, we are of the view that disallowance made u/s 40(a)(i) in all the three years is not justified. Accordingly, we set aside the order passed by Ld CIT(A) on this issue in all the three years and direct the AO to delete the disallowance made u/s 40(a)(i) of the Act in all the three years under conside ..... X X X X Extracts X X X X X X X X Extracts X X X X
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