TMI Blog2023 (7) TMI 851X X X X Extracts X X X X X X X X Extracts X X X X ..... dent of Australia; had no PE in India; assisted the assessee in procuring service agreement with M/s. Tech Mahindra; received commission in foreign currency in Australia in lieu of services provided by them in Australia; income accrued to them outside India and cannot be deemed to have been accrued in India. Hence, their income is not liable for income tax in India. Therefore, no liability to deduct TDS arises thereto. It has been held in the following decisions that where payment of commission has been made by the assessee to non-resident agents for rendering services of procuring sales order etc. it was not FTS but business profit and in absence of PE of such agents in India, such commission payment was not taxable in India. Once we hold that the impugned payment by the assessee is not FTS the assertions made in the grounds of the Revenue do not have legs to stand. Moreover, these grounds do not arise out of the order of the Ld. CIT(A). We, therefore, reject them. Decided in favour of assessee. - ITA No.5/Del/2021 And CO No. 28/Del/2021 - - - Dated:- 18-7-2023 - Shri G.S. Pannu, Hon ble President And Ms. Astha Chandra, Judicial Member For the Assessee : Shri Mayank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscussion made by the AO on the admissibility of the commission expenses in the context o section 37(1) of the IT Act, 1961 did not constitute the operating part of the AO s order and hence, it did not require adjudication by the Learned CIT(A). 7. The CIT(A) has erred in law and on facts in not appreciating that his order is silent on the applicability of the Explanation-2 to the Section 9(i)(vii) of the I. T. Act, 1961 which has been held to be squarely applicable to the facts of the assessee s case. 8. The CIT(A) has erred in law and on facts in not appreciating that for the payees [in respect of commission paid by the assessee to his agent which has been held to the Fees for Technical Service by the AO], the cardinal issue to be ascertained is whether the source of income and certainly not the source of receipt is in India oi not. As the source of income in the hands of payees is undisputedly in India, the case does not fall in any of the exception provided in section 9(i)(vii) of the IT Act, 1961. 9. The Ld.CIT(A) s impugned order being erroneous on facts and on law may be set aside and that of assessment order of the AO may be restored. 3. Ground No. 1 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. AO in this regard. But on page 7 adverse inference was drawn stating that the assesee has neither withheld taxes on payment to non-resident nor furnished copies of Form15CA required to be filed in terms of Rule 37BB of the Rules. 4.1 In his application for admittance of additional evidence, the assessee stated that as per the questionnaire all requisite documents were submitted. Since the questionnaire was silent on Form 15CA, the assessee presumed that it was not necessary to produce it as the said Form is filed through the portal itself. It was in this backdrop that the assessee filed Form 15CA before the Ld. CIT(A) as additional evidence and the Ld. CIT(A) admitted the same as in his view the case of the assessee fell within the ambit of circumstances permitting him to admit the said additional evidence. Though sub-rule (2) of Rule 46A ordains the Ld. CIT(A) to record reasons for admission of additional evidence which the Ld. CIT(A) failed to do. However, the failure to record the reasons will not vitiate the grant of permission as held by the Hon ble Gujarat High Court in CIT vs. Motilal Hirabhai Spg Wvg Co. Ltd. (1978) 113 ITR 173 (Guj). 4.2 The actual fact is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India. Such a payee is not liable for income tax on his commission. Hence for an income which is not taxable in India, the liability to deduct TDS does not arise and the question of disallowance of the same under section 40(a)(i) does not arise. 6.3 The explanation did not convince the Ld. AO for the reason that the reply was silent on filing of Form 15CA in terms of Rule 37BB of the Rules. 6.4 The Ld. AO then asked the assessee to provide copies of agreements with the recipient of the commission and the copies of bills raised by the commission agents. These were submitted. 6.5 The Ld. AO reproduced the relevant recitals and covenants of the agreement at page 4 of the order as also the assessee s written submissions with regard to payments of commission which worked out to 66% (Approx.) of the sales made to M/s. Tech Mahindra Australia far below the limit fixed under the agreement. 6.6 The Ld. AO obtained adverse report from M/s. Tech Mahindra under section 133(6) of the Act, 1961 (the Act ) and show caused the assessee why commission expenses be not disallowed on account of non-deduction of TDS and the fact that enquiries made with M/s. Tech Mahindra showed that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... role played by the agents was denied by M/s. Tech Mahindra. According to Ld. AO, how commission expenses can be said to have been incurred wholly and exclusively for the purpose of the assessee s business is unanswered. Magnitude of commission (80% of the value of sales) for merely identifying potential customers was also doubted. 6.8. According to Ld. AO, the nature and scope of the services as delineated in the covenants shows that the services contained an element of consultancy and therefore, qualify as Fee for Technical Services ( FTS ) under section 9(1)(vii) of the Act. The Ld. AO observed that the assessee has admitted that the services provided by it to M/s. Tech Mahindra were performed in India. Therefore the consultancy services if any provided by the said agents in terms of the agreement, cannot but be said to have been utilised for the purposes of business in India. Explanation to section 9 has been referred to. 6.9 Under India-Australia Double Taxation Avoidance Agreement ( India- Australia DTAA ), the payments would be chargeable to tax in India in the hands of the agents as the same would be covered within the definition of royalty under Article 13 of India-A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oreign agents outside India. The appellant has relied upon the following case laws in support of his contention: M/s Divya Creations vs ACIT (ITAT Delhi), ITA No. 5959/Del./2017 Vimta Labs Limited vs DCIT (ITAT Hyderabad) DCIT vs Divi's Laboratories Ltd., [131 ITD 271] Euroflex Transmissions (India) Pvt. Ltd. GE India Technology Centre P. Ltd. 8.2.3 Seen in the light of citations referred above it is found that the ratio laid down by above judicial pronouncements is squarely applied to the facts of the present case. Therefore, respectfully following the principles referred above I hold that the provision of section 195 is not applicable to the present case as the commission payment has been made to agents outside the country and no part of service has been provided in India. Therefore, no such income is chargeable to tax under the provision of the Act as there is no requirement to do any TDS u/s 195 of IT Act. Hence, in my considered opinion disallowance of Rs. 1,54,83,082/- made/u/s 40(a)(1) was not required to be made and deserves to be deleted. 8.2.4 The AO has also held alternatively that the commission exp amounting to Rs. 1,54,83,08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance with the provision of the contracts. All the payments have been made through banking channel which is evident from the form 15CA furnished by the appellant during the appellate proceedings. There is no dispute regarding the payments being made by the appellant and the same being received by the agents who are resident of Australia, according to the terms of contracts entered between two parties. 8.2.7 Similarly, I have also noted the facts that assessee has disclosed an income of Rs. 22,31,430/- in his return of income. The assessee has countered the AO's observation with regard to huge amount of commission being paid to the overseas agents. The appellant has stated that first of all the amount of commission was not 80% but 67% of the total amount of billing. It has been further argued by the appellant that such commission was decided because assessee was not having any physical standing in Australia and it is a startup firm therefore they cannot afford building whole infrastructure in some another country that could cost lakhs of rupees and could cost the assessee more amount then the profit of the assessee. The appellant has highlighted the role of agents in securin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecorded the finding that the documents produced by the assessee prove the genuineness of the transaction as against the implied contrary finding of the Ld. AO. In this view of the matter, we reject ground No. 6 raised by the Revenue being contrary to the facts on record. 12. Now we proceed to deal with the nature of services provided by the agents in lieu of which the impugned payments were made to them. It is not in dispute that the assessee is engaged in the business of providing IT services to clients in Australia. To carry on his business the assessee entered into Independent Marketing Consultant Agreement with agents of Australia to provide marketing services to the assessee in the area of their expertise on commission basis for procurement of business for the assessee. Vide his written submission dated 18.12.2019 before the Ld. AO, the assessee stated that he engaged the agents to provide marketing services, inform about new business opportunities to identify potential new customers and to secure business contracts for the assessee. Does the above nature of services to be provided by the agents to the assessee contain an element of consultancy qualifying the impugned pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Ld. CIT (A) but de facto all the documents are already available with the Income Tax Department. Thus, there are no valid grounds for Ld. AO 3. That, the Ld. AO prepared a questionnaire to which the Respondent filed the submissions. The questionnaire was silent in terms of FORM 15CA. Although, Respondent Particularly mentioned about tilling of FORM 15CA. 4. That the Respondent with sufficient Evidence and proper Case Laws presented the Case before Ld. CIT (A) in Context of Section 9 of the Act for which Respondent was awarded with Natural Justice. 5. That, the money paid by the Respondent, Cross Border was an amount of Commission paid to the agents and no technical service was provided by them. Ld. AO intentionally trying to brag things without any sufficient grounds and is making case on his own. 6. That, the Ld. AO from the very first day of assessment was told that, the commission paid to the agents was for procuring business from a company based in Australia. Although the agents are the citizens of Australia hence, they are liable to pay their taxes in Australia only .Therefore, no liability arises to deduct TDS for the same transaction. 7. That the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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