TMI Blog2021 (12) TMI 707X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 - disallowance made u/s 40(a)(i) in all the three years is not justified. - Decided in favour of assessee. Nature of expenditure - Disallowance of payments made for software purchase - AO held that there was enduring benefit on purchase of computer software and it to be capital expenditure and allowed depreciation thereon - HELD THAT:- We notice that the Ld A.R is placing reliance on a case law in order to contend that software purchase is allowable as revenue expenditure. However, as rightly pointed out by Ld D.R, the assessee has not furnished any details relating to the computer software purchased by it. The assessee has not furnished the cop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia 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 taxability or otherwise of the commission income given to the foreign agents. The AO also referred to the reply given by the assessee, more particularly, following portion of the reply:- Agents are needed because of their knowledge in the respective country s leather garments market, the competitive rates, the need and latest fashion trends, the design and quality of the products to be sold. Accordingly, the AO took the view that the services rendered by the foreign agents fall under the category of technical services and these services also have a component of advertising and marketing services . Accordingly, the AO took the view that the assessee was liable to deduct tax at source from the commission payments made to foreign agents. The Ld CIT(A) upheld the view of the AO in the second round in AY 2010-11 and also in other two years under consideration. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 have provided the details of market trends and requirements of foreign buyers, which are usually provided by any agent. Hence the same, in our view, cannot constitute managerial services. There is no dispute that the sales commission has been paid on the value of sales effected through them. Hence, in effect, the agents have acted as the link between the assessee and its customers and have received commission on sales effected through them. 4.6 We notice that the Hon ble Madras High Court has held in the case of CIT vs. Wheels India Ltd (Tax Case Appeal No.448 of 2012 dated 06/08/2021) has held that the sourcing commission paid does not fall under the category of technical services. The order passed by Hon ble Madras High Court is extracted below:- 4. The short issue which falls for consideration is whether the Tribunal was right in affirming the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king 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. CIT [327 ITR 456]. Thus, on facts, the nature of services rendered by the non-resident to the assessee was considered by the CIT(A) after perusing the copies of the agreement. This factual finding has attained finality as the appeal filed by the revenue before the Tribunal was dismissed by the impugned order. 6. Further, the assessee would place reliance on the decision of the Hon'ble Division Bench of this Court in the case of Commissioner of Income Tax vs. Farida Leather Company [(2016) 95 CCH 0146 ChenHC] wherein it was held that sourcing orders abroad, for which payments have been made directly to the non-residents abroad, does not involve any technical knowledge or assistance in technical operations. In the case of Commissioner of Income Tax vs. Faizan Shoes Pvt. Ltd., [(2014) 367 ITR 0155(Mad)], it was held that the commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 consideration. 5. The assessee is also contesting the decision of Ld CIT(A) in confirming the disallowance of payments made for software purchase in AY 2010-11. The AO noticed that the assessee has claimed deduction of ₹ 4,64,313/- towards software purchase expenses. The assessee submitted that it has given a contract to M/s Affordable Business Solutions P Ltd, Bangalore for development and maintenance of customised ERP and other production software as per the business needs of the assessee. It was further submitted that the supplier is delivering the software in phased manner and the payments are also made in phased manner. It was contended that, since the software is required to be corrected/altered frequently, the same is treated as revenue expenditure. 5.1 The AO did not accept the contentions of the assessee. He held ..... X X X X Extracts X X X X X X X X Extracts X X X X
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