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TMI Blog2015 (7) TMI 1402X X X X Extracts X X X X X X X X Extracts X X X X ..... ce u/s.40(a)(i) of the I.T. Act, 1961, by following the order of the Tribunal in the case of Faizan Shoes (P) Ltd. (58 SOT 425). 3. The brief facts of the case are that the assessee claimed an expenditure of Rs. 30,61,686/- under the head 'commission and discount'. On an enquiry by the Assessing Officer, the assessee stated that the said amount was not liable for TDS as the services were rendered outside India. The Assessing Officer disagreeing with the contention of the assessee, disallowed the claim u/s.40(a)(i) of the Act. Against this, the assessee went in appeal before the Commissioner of Income-tax(Appeals). 4. On appeal, the Commissioner of Income-tax(Appeals) observed that the payment is made in foreign exchange to nonresident for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arise in India. Since the source of income of the non-resident, who is the agent of the assessee, it earned commission from the business activity of the assessee and the assessee has not deducted TDS, it should be disallowed u/s. 40(a)(i) of the I.T. Act. The services rendered by the agent falls within the ambit of Explanation (2) of sec. 5 of the I.T. Act. The fact that the agent has rendered services abroad in the form of soliciting orders and the commission is to be remitted to them abroad is wholly irrelevant for the purpose of determining the situs of their income. According to the Ld. DR, non-deduction of TDS towards this income is to be disallowed. 6. On the other hand, the Ld. AR submitted that the income accrued outside India for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion". He also relied on the judgment of the Jurisdictional High Court in the case of CIT v. Kikani Exports Pvt. Ltd. (369 ITR 97), wherein it was held, "dismissing the appeal, that the services rendered by the nonresident agent could at best be called as a service for completion of the export commitment and would not fall within the definition of "fees for technical services" and, therefore, section 9 was not applicable and, consequently, section 195 did not come into play. Therefore, the disallowance made by the Assessing Officer towards export commission paid by the assessee to the nonresident was rightly deleted." 6.1 According to the A.R., the income has been accruing outside India for the services rendered for marketing assessee's p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be looked into section 40(a)(i) which reads as under:- "40 Not withstanding ............. (a) In the case of any assessee - (i) Any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938) royalty, fees for technical services or other sum chargeable under this Act, which is payable A. Outside India - B. In India to a non-resident, not being a company or to a foreign company, On which tax is deductible at source under Chapter VIIB and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200:" 8. The aforesaid clause makes it clear that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable on record clearly suggest that the nonresident agents did not carry out any business operations in India and has acted as selling agents of the assessee outside India. Therefore, the commission earned by them for services rendered by them outside India cannot be considered as income chargeable to tax in India. The AO has not established the fact on record that any one of the non-resident agents is carrying on business through a permanent establishments. Therefore, when the commission paid to the non-residents are not chargeable to tax under the provisions of the Act, no deduction of tax is required to be made u/s 195(1) of the Act. 10. In the present case, the AO has failed to bring any material on record on the basis of which it co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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