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TMI Blog2022 (5) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... sting expenses without deduction of tax at source as required u/s 195 of the Act. 4. The facts as culled out from the orders of the lower authorities are reproduced hereunder so as to deal with contentions raised in this appeal by the Department. ''The assessee company filed its E-ITR for A.Y. 2016-17 on 28-09-2016 thereby declaring total income of Rs.5,50,08,880/- which was further revised on 29-09-2016 thereby declaring Rs.5,49,71,640/-. The case was selected for complete scrutiny under CASS. Therefore, notice u/s 143(2) of the I.T. Act was issued on 9- 09-2017 by fixing the case for hearing on 26-09-2017. Further to complete the assessment proceedings, notice u/s 142(1) alongwith questionnaire was issued through ITBA Portal on 05-07-2018 and in response thereto the assessee submitted required details/ documents and on perusal of the same, the following points are emerged. 2. Disallowance u/s 40(a)(ia) of the I.T. Act 2.1 On perusal of audited final accounts of the assessee, it has been observed that the assessee has made payment of Rs.2,11,07,351/- towards Selling Commission, Rs.15,70,429/- towards Exhibition expenses and Rs.2,09,191/- towards Testing Expenses without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under:- The relevant extract of the assessment order is as under "2.1 On perusal of audited final accounts of the assessee, it has been observed that the asses has made payment of Rs. 2,11,07,351/- towards selling commission, Rs. 15,70,429/- towards Exhibition expenses and Rs. 2,09,191/- towards Testing Expenses without making TDS, in view of insertion of explanation to section 195 by Finance Act, 2012 with retrospective effect from 01-04-1962. Therefore, a show cause notice was issued to the assessee on 26.11.2018, mentioning therein as to why the above expense shall not be disallowed u/s 40(a)(ia) of the I.T Act, and added the same to the total taxable income for the year under consideration. 2.2 In response to this show cause notice the assessee submitted its reply on 28.11.2018 stating therein that: "In this ..............................................................Tax Act." 3. This office considered the above reply and the case laws cited therein by the AR of the assessee, but not found tenable on merits as the assessee has not deducted TDS on selling commission payment of Rs. 2,11,07,351/-, on Exhibition expenses Rs. 15,70,429/- and on Testing Expenses Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith immediate effect it could simply mean that provisions of law should be interpreted as if such circular had never been issued on the subject. Provisions of the Act will have to be interpreted without taking any help from the circular. 3.5.2 Further, in the Circular No. 7 of 2009 dated 22nd October, 2009 itself it has been mentioned that: "Even when ......................................................................... the circular." 3.6 In light of above and after holding that the circular is declaratory i.e. it is applicable in all cases where amendments etc. are pending irrespective of A.YS., the central issue, so far as determination of total income of the assessee is concerned, is disallowance U/s 40(a)(i) of payments made to non resident where tax has not been deducted at source as required U/s 195 of the Act and whether any payments have been made to a person which is not in accordance with the provisions of Section 9 of the Income Tax Act, 1961. Relevant provisions u/s 195 are as under: "(1) Any person................................. sub section (1) 3.7 Thus, there is no explicit provision under the Act, for making a payment to nonresident without deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a is not allowable expenditure and they deserve to be disallowed u/s 40(a)(ia) of the act. Therefore, an amount of Rs. 2,11,07,351/- towards selling commission, an amount of Rs. 15,70,429/- towards Exhibition expenses and an amount of Rs.2,09,191/- towards Testing Expenses, totaling to Rs. 2,28,86,971/ (2,11,07,351 + 15,70,429 + 2,09,191) is disallowed and added to the total income of the assessee." 2.2 The relevant extract of the submission of the appellant is as under: "1. Covered matter: 1.1 It is pertinent to note that the assessee-made similar payments and even almost to the same very parties i.e. the foreign payees in the past and the AO made disallowances u/s 40(a)(ia) in A.Y. 2013 14 & 2014-15, which was confirmed by the Id. CIT(A). However, in the second appeal the Hon'ble ITAT deleted the disallowance in JLC Electromet (P) Ltd. vs. ACIT (2019) 201 TTJ 811 (JP) (PB 552- 578) holding as under: "23. We have.............................................instant case." 1.2 Fully covered issue:-Pertinently, very recently this Hon'ble Bench of ITAT has again taken a view in favor of assessee holding that the payment of commission made to a nonresident for procu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.11.2016 & 18.11.2015. The jurisdictional facts thus, are not denied and duly admitted therefore, it cannot be said that any income accrued or arose in respect of all the three subjected payments u/s 4, 5 or 9 of the Act in India. 4.2.1 Commission Expenses: The subjected payments included commission expenses of Rs.1.63 crore which was paid to the foreign selling agents who rendered their services to the appellant outside India. The payments in this respect were also made outside India only. Kindly refer ledger accounts of Selling commission (Export) providing the complete detail as regard the name of the payee, reference to the export invoice of the appellant, the rate / amount of commission etc. and when the same was credited to the account of the payee or paid to him, is enclosed. (PB 9-16) along with Copies of Agency agreement, Certificate of the payee, Foreign bills transaction advice, Letter by the assessee to the concerned bank with enclosure to make payment outside India (PB 17- 457). In the case of CIT vs. Toshoku Ltd 125 ITR 0525 (SC) it was held that the commission amounts which were earned by the non resident assessee for services rendered outside India cannot, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the respective payees, were not the income chargeable to tax in India in any manner whatsoever, hence s. 195 of the Act was not applicable in this case. 4.6 Moreover, no Certificate is required u/s 195/197, when S.195 is not at all applicable to the appellant. 5. Even Explanation is not applicable: 5.1 Firstly, the ld. AO has completely misread and misapplied Explanation 2 in as much as Sec.195 requires "Any person responsible for paying...." Any person includes all the persons be a resident or non-resident as defined u/s 2(31) of the Act. Therefore, even a non-resident person responsible for paying to a non-resident was liable to deduct TDS u/s 195 however, certain judicial pronouncements had created doubts about the scope and purpose of S.195. It is only therefore, with a view to clarify that the obligation to make TDS u/s 195(1) applies to all the persons whether resident or non-resident if such person is responsible for making payment to a non-resident whose income is chargeable to tax in India, therefore, Explanation 2 was inserted by the Finance Act, 2012 w.r.t. 01.04.1962. This is evident from the following extract from part capital -F. Rationalization of Intern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion or did not have their presence in any manner in India. Thus, the simply admitted facts were that all the payees rendered services outside India and payments were also made to them outside India therefore, by no stretch of imagination it could be said that income accrued or have arisen or deemed to have accrued or have arisen in India by virtue of Sec.5 or Sec.9. Consequently neither Sec. 195 nor Explanation 2 could be made applicable. 5.4 Explanation cannot override the main provision: Yet another settled rule of interpretation is that an Explanation though can explain the main provision but can never override or violate the terms of the main provision. Kindly refer Prithvi Information Infra. 6.1 Supporting case laws: 6.1.1 GE India Technology Cen. P Ltd v. CIT 6.1.2 The issue in hand is directly70) 327 ITR 456(SC) covered by the decision of Hon'ble Rajasthan High Court in the case of CIT vs. M/s Modern Insulators Ltd. (2014) 110 DTR 0297 (Raj) 6.1.3 Similar view has been taken by the Hon'ble ITAT Hyderabad in the case of Prithvi Information Solutions Ltd. Vs. ITO (2014) 34 ITR 0028 (Hyd Trib) 6.1.4 Also kindly refer Gujarat Reclaim & Rubber Products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of Ledger, laboratory expenses and transaction receipt (Details) in respect of every expense relating to Testing expenses. (PB 528-551) 10. From a perusal thereof it is evidently clear that The payee actually rendered the services outside India only, The payments were made to him outside India only, The payee did not have any office or other fixed place of business in India The payee did not have any dependent employee/ correspondent performing any business activity in India. They did not have permanent establishment or any sort of business connection, directly or indirectly, in India Thus, it is fully established that the subjected amount so received by respective payees, were not the income chargeable to tax in India in any manner whatsoever. 11. Cases cited by Revenue are completely distinguishable: The Id. AO also relied upon some decisions. However, the same was based on the peculiar facts available in those cases only which are not obtaining in the present case. They were rendered in different legal factual context and therefore hence are not at all applicable being completely distinguishable and hence kindly be ignored. 12. Commission cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hargeable under this Act which is payable to non-resident, deleted the disallowance in assessee's own case in JLC Electromet (P) Ltd. vs. ACIT (2019) 201 TTJ 811 (JP). Thus, this issue is fully covered in favour of the assessee. 12.2.2 Director of income tax (International Taxation) vs. Credit Lyonnais (2016) 95 CCH 0141 (Mum HC). In this case, the services of the non-resident sub-arrangers of attracting deposit to IMDS Scheme were carried out entirely outside India, which were held as not a case of FTS. Business Expenditure Appeal dismissed." 12.2.3 ACIT (International Taxation) vs. Sumit Gupta, (2015) 152 ITD 0533 (Jp). 12.2.4. CIT vs. Farida Leather Company (Mad. HC) [2016] 66 laxmann.com 321 (Madras) (Pr. 11) 2.2.5. Subhash Chand Gupta vs. ACIT in ITA No. 1122/JP/2016 for A.Y. 2013-14 Dated 26/12/2017 (Pr. 5 Page 61)(I DPB 69 & 70) 12.2.6. ACIT vs. Pahilajrai Jaikishin (2016) 157 ITR (trib) 1187 (Mum. Trib.). 12.2.7. CIT vs. Kikani Exports P. Ltd (Mad.HC) (2014) 369 ITR 0096 (Mad): (2015) 232 Taxman 0255 (Madras) (Pr. 5) (I DPB-108-113). Hence the impugned disallowance kindly be deleted in full." 2.3 I have perused the facts of the case, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the entirety of facts and circumstances of the case, the disallowance made by the Assessing Officer is directed to be deleted. 32. Now, coming to ITA No. 23/JP/19 for AY 2014-15 undisputedly, the facts and circumstances of the case are exactly identical to facts and circumstances of the case in ITA No. 1494/JP/2018, out findings and directions contained therein shall apply mutatis mutandis to this appeal. In the result, both the appeals filed by the assessee are allowed. 2.3.2 Since the facts in this year are similar to the earlier years and assessee gave certificate of recipients who are non residents and also have no permanent business establishment in India, therefore, the commission received by them from appellant for services rendered outside India cannot be taxed in India. Regarding exhibition expenses also, since it was paid to the non resident exhibitors, the same cannot be said to be covered under the ambit of section 195. Regarding testing expenses, it is seen that few payments were made in cash in INR but since they are very low and do not exceed the prescribed limit for making TDS, therefore, even though certain payments were made in India, yet no TDS is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR is not challenged and the decision relied upon where also not differentiated by the Ld. DR. He has only contended that payment made to non resident without deduction of tax and based on the finding of the assessing officer he prayed that the addition should sustained. He has heavily relied upon the finding of the Ld. AO and has not pointed any legal arguments or decision stating so as to why and how the finding of the Ld. CIT(A) for this year and ITAT Jaipur bench decisions for past year are incorrect. He has only filed a clarificatory letter obtained from the assessing officer dated 27.07.2021. The relevant portion of the contention of the AO is extracted here in below ; In this connection it is stated that during the A. Y. 2013-14 & A. Y. 2014-15 the decision of the Hon'ble ITAT was not accepted on merits as ITAT has totally ignored the various defects pointed by the AO and the same was also confirmed by the CIT(A) in toto. However, the tax effect was below the prescribed limit for filling further appeal as per CBDT circular no. 17/2019 dated 08.08.2019. Hence no further appeal was filed on this issue. 9. The ld. AR of the assessee has submitted a chart showing the breakup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings, the Assessing Officer found that the assessee has made payment of selling commission, exhibition expenses and testing expenses to various non-resident entities, without deducting tax at source and a show cause was issued as to why this payment should not be disallowed u/s 40(a)(ia) in view of insertion of Explanation 2 to section 195 by the Finance Act, 2012 with retrospective effect from 01.04.1962. 30. In the present case, undisputed facts are that the commission has been paid to various non-resident entities in respect of sales affected by the assessee outside of India, the services have been rendered outside of India and the payments have been made outside of India. In light of these undisputed facts, the legal proposition laid down in the aforesaid decision equally applies in the instant case and such commission payment cannot be held chargeable to tax in India. Similarly the exhibition expenses have been paid in respect of participation in various exhibitions held outside of India and even the testing charges have been paid for testing services outside of India. Therefore, these payments will not fall in the category of income which has accrued or arisen or d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) a residence or place of business or business connection in India; or (ii) any other presence in any manner whatsoever in India. 2.2 S. 40(a)(ia) of the Act, as stood at the relevant point of time, (relevant extract only) is as under: S. 40. 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 the case of any assessee (ia) any interest, commission or brokerage, [rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, (has not been paid on or before the due date specified in sub-section (1) of section 139 : xxxxxxxxxx 3. Firstly, we strongly rely upon our written submissions (relevant extract only) filed before the ld. AO on dated 30.11.2016 reproduced as under: "In this connection we submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esting Expenses made to non-residents since these payments made to non resident are not chargeable to tax in India as the no income accrues or arises in India in respect of these payments made to non-residents. The services in respect of these transactions have been rendered outside India by non-resident and as such no income accrues or arises in India in respect of these payments made to non-residents. Further these non-residents has no PE in india. It is also submitted here that as per provisions of section 195(1) of the Income tax act, the assessee company is not required to deduct the tax at source on these payments, the Explanation 2 to section 195 of the Income tax Act inserted by the Finance Act, 2012 w. r. e. f. 1-4-1962 has no relevance. b. In respect of Explanation 2 to section 195 of the Income tax Act inserted by the Finance Act, 2012 w. r. e. f. 1-4-1962, It is submitted that It is a clarificatory explanation and states that a non- resident person is also required to deduct tax at source before making payments to another non-resident, if the payment represents income of the payee non-resident, chargeable to tax in India. There are no other conditions specified in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia, Explanation cannot override main provision of section 195 about 'sum chargeable' under provisions of Act - Held, yes [Para 20] [In favour of assessee] (c) Deduction of export commission paid to foreign agents for sourcing of export orders in favour of assessee firm without deduction of tax at source under section 195 is to be allowed where export commission paid to foreign brokers is not chargeable to tax in hands of foreign brokers as contemplated under section 195 and is neither a fee for technical/managerial services as defined in Explanation 2 to section 9(1)(vii) so as to bring it to tax under fiction created by deeming provisions section 9. ACIT,Mumbai Vs. PahilajralJaikishin(2016) 66 taxmann.com 30(Mumbai-Trib.) (d) Commission payment made by assessee to commission agents outside India for procuring export orders could not be brought to tax in India and as a consequence, TDS was not deductible. Apsara Silk Vs. ITO, International Taxation (2016) 69 taxmann.com399 (Bangalore-Trib,) (e) We also rely on following judgments: (i) Dy. CIT VS. TVS Srichakra Ltd.(2015) 64 taxmann.com 18 (Chennai-Trib,) (ii) (ii) CIT, Coimbatore Vs. Kikani Exports(p) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hon'ble Jaipur Bench of Income TaxAppellate Tribunal in following cases: (i) The ACIT, Circle-6, Jaipur vs. M/s KanhiyalalKalyanmal (ITA No:324/JP/16) (ii) M/s Classic Enterprises Ltd. Vs. Jt. Commissioner of Income Tax, Range2, Alwar (ITA No: 808/JP/2014 The assessee company is not required to deduct tax at source u/s 195 of the Income Tax Act in respect of commission on export sale to non-residents and as such no disallowance can be made u/s 40(a)/(ia) of the Income Tax Act. 2. In respect of payment of Exhibition Expenses for stall booking outside India to nonresident, it is submitted that no income accrues or arises in India to non-resident in respect of payment of Exhibition Expenses for stall booking outside India to non resident. The details and other evidences in respect Exhibition Expenses were produced before you on the last date of hearing. We enclose herewith the details of Exhibition Expenses. No tax at source u/s section 195 of the Income Tax Act is required to be deducted in respect of Exhibition Expenses for stall booking outside India made to nonresident by the assessee company. In this connection We place reliance on the decision of Apex court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source payment to non resident Whether the moment a remittance is made to non-resident, obligation to deduct tax at source does not arise; it arises only when such remittance is a sum chargeable under the Act, i.e. chargeable sections 4, 5 and 9 Held, Yes. The assessee company is not required to deduct tax at source u/s 195 of the Income Tax Act in respect of above payments made to non-residents and as suchno disallowance can be made u/s 40(a)/(la) of the Income Tax Act." 4. Sec. 195 not applicable: 4.1 From the Crux of the various judicial pronouncements and the guidance provided (cited later in this w/s), it is clear that the only test of applying Sec.195 is whether the subjected payment is a sum chargeable under the provisions of this Act or not. The assessee had already submitted in great detail duly supported with all the evidences that all the subjected expenses viz. Selling Exp., Exhibition Exp, Testing Exp. were incurred outside India and in all the three cases the respective services were also rendered by the respective payees, only outside India. All the requisite details were submitted vide letter dated 17.11.2016 & 18.11.2015. The jurisdictional facts thus, ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly clear that undisputedly: All the payees actually rendered the services outside India only, The payments were made to him outside India only, None of the payees had any office or other fixed place of business in India. The payee did not have any dependent employee/ correspondent performing any business connection/activity in India. They did not have any permanent establishment (PE) or any sort of business connection, directly or indirectly, in India 4.4 All these details were admittedly produced vide our letter dated 28.11.2018 to the AO. The Id. AO examined the details thoroughly but these facts are not denied. 4.5 Thus, it is not a case where non-resident agents are carrying out any businessactivity in India as enumerated in Explanation 2 to Section 9(1) and consequently there is no business connection between the assessee and the Non-Resident Payees. Moreover, all the countries of the respective payees and India have already entered into DTAAS providing the taxing of the income, if any, in the hands of the concerned payee. Thus, it is fully established that the subjected amounts so received by the respective payees, were not the income chargeable to tax in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake other clarificatory amendments for providing certainty in law. I. It is, therefore, proposed to amend the Income Tax Act in the following manner: XXXXXXXXXXXXX (v) Amend section 195(1) to clarify that obligation to comply with sub-section (1)and to make deduction thereunder applies and shall be deemed to have alwaysapplied and extends and shall be deemed to have always extended to allpersons, resident or nonresident, whether or not the non-resident has: (a) a residence or place of business or business connection in India; or (b) any other presence in any manner whatsoever in India. These amendments will take effect retrospectively from 1st April, 1962 and willaccordingly apply in relation to the assessment year 1962-63 and subsequentassessment years." Thus, the Explanation 2 does not at all positively say that despite the fact that income of the non-resident payee is not chargeable to tax in India yet however, Sec.195 shall applies on the payer resident. 5.1.1 Supporting case laws: The aspect relating to invoking of Explanation-2, hasbeen considered in cases, decided in favor of the assessee, as under: 5.1.2 Similar view has been taken by the Hon'ble IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India so as to apply Explanation 2 r.w.s.195 and nor was the case of the appellant depended upon the same because it never contended that the payees did not have their residence/place of business/no business connection or did not have their presence in any manner in India. Thus, the simply admitted facts were that all the payees rendered services outside India and payments were also made to them outside India therefore, by no stretch of imagination it could be said that income accrued or have arisen or deemed to have accrued or have arisen in India by virtue of Sec.5 or Sec.9. Consequently neither Sec.195 nor Explanation 2 could be made applicable. 5.4 Explanation cannot override the main provision: Yet another settled rule of interpretation is that an Explanation though can explain the main provision but can never override or violate the terms of the main provision. Kindly refer Prithvi Information Infra. 6.1 Supporting case laws: 6.1.1 GE India Technology Cen. P Ltd v. CIT (2010) 327 ITR 456(SC) held as under: "TDS-Payment to non-resident-Obligation to deduct tax vis-a-vis taxability of remittance-Most important expression in s. 195(1) consists of the words "chargeab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission to three non-resident agents during assessment year 2007-08 and did not deduct tax at source-AO held that latest Circular 7 dated 22/10/2009 was applicable requiring Assessee to deduct tax-AO disallowed entire submit amount u/s. 40(a)(ia) on failure to explain business expediency for such payment CIT(A) deleted disallowance made by AO and further held that Assessee was not liable to deduct tax at source u/s. 195-ITAT upheld view of CIT(A)-Held, under section 40(a)(ia), in so far as payment is concerned, it is restricted to payment made to a resident and it nowhere specifies as to amount of commission having been paid to foreign agents/non residents-Relevant provision for disallowance, if any, would have been 40(a)(i) and not 40(a)(ia)--Merely because amount was more, that by itself did not justify disallowance and AO had to bring on record something more to disallow any payment-Liability for deduction of TDS u/s. 195, arises for payment made to a non resident, not being a company or to foreign company any interest or royalty-Any other sum was chargeable under provisions of IT Act and it was finding of fact by lower authorities that all three foreign agents were not assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.6 DIT (International Taxation) vs. credit Lyonnais (2016) 95 CCH 0141 Mum HC: "Business Expenditure-Interest, commission, brokerage etc. to a resident-Non applicability of provisions of 40(a)(i)-During Assessment Year 2001-02,- Assessee was appointed by State Bank of India (SBI) as arranger for mobilizing deposits in its India Millennium Deposits Scheme (IMDS)- In turn, Assessee was entitled to appoint sub arrangers for mobilizing IMDs both inside and outside India-Assessee explained that it mobilized deposits worth Rs.1235.8 crores and SBI accordingly provided long termdeposit of Rs.617.9 crore for period of 5 years-Besides, Assessee received a sum of crores from SBI as Arranger fees and commission in turn paid amount of Rs.37.07 crores to sub-arrangers by way of sub-arranger fees and commission-Amount of Rs.26.75 crores out of Rs.37.07 crores was paid by way of sub-arranger fees and commission to non-residents- Assessee had failed to deduct tax at source on Rs.26.75 crores paid to non-residents as sub-arranger fees and commission-Therefore, AO invoked section 40(a)(i) for failing to deduct tax u/s 195 to disallow expenditure to extent of Rs.26.75 crores by Assessment Order- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance with provisions of S. 40(a) (i) as tax had not been withheld on that payment-CIT (A) held that as per article 12 (6) of Indo Japan DTAA, fees for technical services paid by Japan PE of Assessee (JapanBranch) would be taxed in Japan only because, Assessee had PE in Japan and Fees for technical services was in connection with business of PE-CIT(A) Held that there was no liability fastened on Assessee company of withholding tax u/s 195 and deleted disallowance u/s 40a(i)-Held, Assessee was carrying on business outside India through its Japan Branch office-Japan BO was branch office of Assessee company and financial statements of japan branch were required to be incorporated in financial statements of Assessee company to complete accounts of Assessee company- However, it could not be said that expense of Fees for technical services were borne out by Assessee and not by Japan BO of Assessee Payments of fees for technical services borne by Japan BO of Assessee was not subject to withholding tax u/s 195, because there was no income deemed to accrue or arise in India in hands of recipient of such fees-Impugned sum was not chargeable to tax in India according to domestic tax laws and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th Section 195 holding said services to be managerial / technical services as defined under explanation 2 to Section 9(1)(vil).Those foreign agents were operating in their respective countries and rendering services to assessee firm from abroad and no part of such income could be reasonably attributable to any operation carried out in India by these foreign brokers as per facts which had emerged from records- Payments to said foreign brokers had been sent by assessee firm from India directly to their bank accounts abroad through banking channels with approval of Reserve Bank of India or payments were deducted by foreign buyers from payment due to assessee firm for making payment to these foreign agents directly-Foreign agents had rendered services for sourcing export orders and for collecting payments for and on behalf of assessee firm which was their business income not liable to tax in India- Other services such as sample approvals etc. were incidental to main activity of sourcing of export orders by these foreign brokers for assesssee firm-Services could not be described as managerial, consultancy or technical services as contemplated under explanation 2 to Section 9(1)(vii) to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services should be rendered in India No material to demonstrate and establish that design and development services, for which impugned payments were made, were rendered in India-Therefore Assessee had no liability u/S.195 read with S. 9(1)(vii) to deduct tax at source from such payments-Once Assessee had no obligation to deduct tax at source from such payments, no disallowance made in respect of such payments- Entire amount was paid and nothing was outstanding for payment- No services in respect of impugned payments were rendered in India- Services were not rendered in India by foreign parties to whom payment was made under head Design & Development charges-Further it was also not disputed that entire amount had been paid and nothing was outstanding for paymentpayment having been made before 8 May 2010, and no services having been rendered in India ITAT upheld conclusion arrived at by. CIT(A) that assesee did not have any tax withholding liabilities from foreign remittance for fees for technical services and thus no disallowance under section 40(a)(i) was warranted-Revenue's Appeal dismissed." 8.10 DCIT Vs. Avt Mccormick Ingredients Ltd. (2016) 137 DTR 0092(Chennai)(Trib) B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of every expense relating to Testing expenses. (PB 528-551) 10. From a perusal thereof it is evidently clear that The payee actually rendered the services outside India only, The payments were made to him outside India only, The payee did not have any office or other fixed place of business in India The payee did not have any dependent employee/ correspondent performing any business activity in India. They did not have any permanent establishment or any sort of business connection, directly or indirectly, in India Thus, it is fully established that the subjected amount so received by respective payees, were not the income chargeable to tax in India in any manner whatsoever. 11. Cases cited by Revenue are completely distinguishable: The ld. AO also relied upon some decisions. However, the same was based on the peculiar facts available in those cases only which are not obtaining in the present case. They were rendered in different legal factual context and therefore hence are not at all applicable being completely distinguishable and hence kindly be ignored. 12. Commission cannot be termed as Fees for Technical Services (FTS): 12.1 The ld. AO, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disallowance in assessee's own case in JLC Electromet (P) Ltd. vs. ACIT (2019) 201 TTJ 811 (JP).Thus, this issue is fully covered in favour of the assessee. 12.2.2 Director of income tax (International Taxation) vs. Credit Lyonnais (2016) 95 CCH 0141 (Mum HC). In this case, the services of the non-resident sub-arrangers of attracting deposit to IMDS Scheme were carried out entirely outside India, which were held as not a case of FTS. "Business Expenditure-Interest, commission, brokerage etc. to a resident-Nonapplicability of provisions of 40(a)(1)- During Assessment Year 2001-02,- Assessee was appointed by State Bank of India (SBI) as arranger for mobilizing deposits in its India Millennium Deposits Scheme (IMDS)- In turn, Assessee was entitled to appoint subarrangers for mobilizing IMDs both inside and outside India-Assessee explained that it mobilized deposits worth Rs.1235.8 crores and SBI accordingly provided it long term deposit of Rs.617.9 crore for period of 5 years-Besides, Assessee received a sum of Rs.22.19 crores from SBI as Arranger fees and commission in turn paid amount of Rs.37.07 crores to sub-arrangers by way of sub-arranger fees and commission- Amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to M/s BNP Media USA for advertisement of its product in an international monthly magazine Stone World" printed and published in USA. The recipient of commission rendered services outside the India and claimed as business income. The recipient of commission is non-resident and had no permanent establishment in India. No income had accrued or arisen to the non-resident U/s 9 of the Act in the India. The Coordinate Bench in ITA Nos. 42,43,44,45 & 46/JP/2012 had decided identical issue and held that no TDS U/s 195 of the Act is liable to be deducted. Therefore, respectfully following the Coordinate Bench decision on similar fact, we upheld the order of the learned CIT(A). Accordingly, the Revenue's appeal is dismissed." 12.2.4. CIT vs. Farida Leather Company (Mad. HC) [2016] 66 taxmann.com 321 (Madras) (Pr. 11) "11. In the instant case, it is seen, admittedly that the nonresident agents were only procuring orders abroad and following up payments with buyers. No other services are rendered other than the above. Sourcing orders abroad, for which payments have been made directly to the non résidents abroad, does not involve any technical knowledge or assistance in techni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the facts as emerging from records that commission income neither accrued nor arose in India in view of the decision of Hon'ble Delhi High Court in the case of EON Technology Pvt. Limited, 343 ITR 366 (Del.) Revenue has not brought on record any cogent material to substantiate that there is any PE or business association in India of these foreign agents, nor any evidence is brought on record to establish that there is any portion of services rendered by these foreign agents from India. In ITAT considered view, these foreign agents have rendered services for sourcing export orders and for collecting payments for and on behalf of the assessee firm which is their business income not liable to tax in India. The other services such as sample approvals etc. are Incidental to the main activity of sourcing of export orders by these foreign brokers for the assesssee firm. These services cannot be described as managerial, consultancy or technical services as contemplated under explanation 2 to Section 9(1)(vii) of the Act to come within deeming provisions of Section 9(1)(vil) of the Act, rather the foreign brokers have rendered services from abroad to the assessee firm for sourcing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it may be clarified that the rate of commission is different on the various products and one agent may be dealing in more than one products of the Company at given point of time, hence for this reason and otherwise also the rate of commission paid may be different. There apart, the conversion rate prevailing at the time of payment of commission to a particular payee, may also differ when compared with other occasions. 14. A recent decision in the case of Prime Oceanic Pvt. Ltd. Vs. ITO ITA NO. 652/JP/2019. Dt. 14/06/2021. (DPB 170-199): by this Hon'ble Bench, which Icovers all the issues raised by the AO involved in our case. Hence, the issues involved are fully covered in favor of the assesse. We also place reliance on GVK Industries 3711TR453(SC), applying which also, Sec 9(1)(vii) is not applicable in our case. 15 As directed, we may submit that out of as many 17 payees (PB 17-457) to whom commission was paid this year, there is no single party which is new in this year in as much as the 4 payees were added in AY 2015-16(wherein the claimed commission payment was allowed), which continued this year as well. The rest of the parties are continuing since AY2013-14 and AY2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also the reason no disallowance hasbeen made in these 2 years as also in AY2015-16. 18. Rule of Consistency: The law is well settled that in absence of any material change in the facts & circumstances, the Rule of Consistency require that the view already taken must be followed in later years as well. Kindly refer: 18.1 Godrej & Boyce Manufacturing Company Ltd. Vs. Dy. Commissioner Income-Tax & ANR. [394 ITR 449 (SC)/ [2017] 81 taxmann.com 111 (SC)] "38. In the present case, we do not find any mention of the reasons which had prevailed upon the Assessing Officer, while dealing with the Assessment Year 2002-2003, to hold that the claims of the Assessee that no expenditure was incurred to earn the dividend income cannot be accepted and why the orders of the Tribunal for the earlier Assessment Years were not acceptable to the Assessing Officer, particularly, in the absence of any new fact or change of circumstances. Neither any basis has been disclosed establishing a reasonable nexus between the expenditure disallowed and the dividend income received. That any part of the borrowings of the assessee had been diverted to earn tax free income despite the availability of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and thus, the order of the AO be restored. 14. We have persuaded the paper book filed by the assessee and have gone through the copies of the bills,ongoing thorough those bills it is evident that services were rendered outside India for the purpose of export outside India. It was submitted that the products are being tested and certified by the various agencies outside India to enable the assessee company to export its products, as it is the requirement of importing countries to get the products tested by designated agencies in their own countries. Thus, the contention of the assessee is that such fees for technical services are paid for services rendered outside India and has been utilized for the export business outside India and thus, the same are outside the purviews of section 9(1)(vii) and shall not be chargeable to tax in India so with holding of tax does not arise. 15. The ld AO rejected the contention of the assessee and held that the above payment is chargeable to tax in India in terms of provision of section 9(1)(vii) of the Act as they fall into the definition of fees for technical services. With respect to the applicability of Double Taxation Avoidance Agreement, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision that is relied upon by the AO which in detailed distinguished by the Ld CIT(A) are in correct. In fact, the department has accepted the contention that this sum is not disallowable as the subsequent assessment is completed by the department at retuned income. Not only that the ld. DR has also not countered the notable argument of the AR of the assessee that the subsequent year i.e. 2017-18, the AO raised a pointed query vide para no. 17 in a notice issued to the assessee and the assessee filed a detailed reply vide letter dated 25.01.2021 and Ld. AO after considering the overall facts presented being similar to the year under considered preferred not to make any addition on the similar issue and has accepted the contention of the assessee for that A. Y.2017- 18.Considering this development for the subsequent year even the disallowance made by the AO shall not sustained as the claim under this year is similar with that of A. Y. 2017-18.On this aspect Ld. DR choose to remain silent, whereas, the Ld. AR of the assessee relied on the judicial decision that in absence of any material change in the facts and circumstances, the Rule of Consistency require that the view alread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n case by the decision of Coordinated Bench of this Tribunal only and the issue being similar, the appeal should be decided in accordance with the judicial precedence available in assessee's own case. As the facts are identical relating to A.Y. 2017-18 wherein the AO has not preferred to dispute and has not made any disallowance on such foreign party's payments. Therefore, looking to the overall facts of the case, the addition made by the AO be deleted and the order of the ld. CIT(A) be upheld dismissing the appeal of the Department. 20. The ld. DR on the other hand vehemently argued before us that the considering the amendment made by the Finance Act, 2012, the assessee is required to deduct tax and, therefore, he has relied on the order of the AO. The ld. DR has also argued that Department has not filed any appeal in respect of earlier years orders of ITAT on account of CBDT instructions and, therefore, the issue may be decided afresh looking to the findings given by the AO in his order. He has also filed the copy of the letter dated 27.07.2021 being the status report on the filling of an appeal for A. Y. 2013-14 & 2014-15. The relevant contention of the AO is as under : No. D ..... X X X X Extracts X X X X X X X X Extracts X X X X
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