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TMI Blog2024 (5) TMI 1493X X X X Extracts X X X X X X X X Extracts X X X X ..... 12-13, wherein the grounds of appeal raised by the assessee are as follows: "1. The grounds of appeal mentioned hereunder are without prejudice to one another. 2. The ld. Commissioner of Income-tax (Appeal), National Faceless Appeal Centre, Delhi [hereinafter referred to as the "CIT(A)]erred on facts as also in law in confirming disallowance made of Rs. 20,63,547/-, u/s 40(a)(ia) of the Income-tax Act, 1961 [hereinafter referred as to the 'Act'] on the alleged ground of failure to deduct tax at source on the payment of sale commission to non-resident as per provision of section 195 of the Act. The disallowance confirmed is unjustified and uncalled for, which deserves to be deleted, may kindly be deleted. 3. The ld. CIT(A) erred on facts as also in law in confirming disallowance made of Rs. 2,15,785/- u/s 40(a)(ia) of Act on the alleged ground of failure to deduct tax at source on the payment of sale promotion expenses to nonresident as per provision of section 195 of the Act. The disallowance confirmed is unjustified and uncalled for, which deserves to be deleted, may kindly be deleted. 3. Your honour's appellant craves leave to add, to amend, alter, or withdraw any or more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtends and shall be deemed to have always extended to all persons, resident or nonresident, whether or not the non-resident person has (i) A residence or place of business or business connection in India; or (ii) Any other presence in any manner whatsoever in India. Failure to deduct tax at source makes the expenditure disallowable u/s 40(a)(ia), Explanation 1 below section 195 itself was inserted, vide Finance Act 2012 with retrospective effect from 1st April, 1962 and mentioned in clear words that " it applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non resident, whether or not the non-resident person has a residence or place of business or business connection in India or any other presence in any manner whatsoever in India." 6. In view of the above, the assessing officer (A.O.) noted that the tax has to be deducted by payer on the payment of export commission to the non-residents whether or not the non-resident person has a residence or place of business or business connection in India or any other presence in any manner whatsoever in India. So far as the bearings of the DTAA, on such payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not accepted this contention of the assessee. 7. The assessing officer also noted with regards to the argument put forth by the assessee that the provision of Section 195 of the Act primarily deals with the deduction of tax at source on the amount of payments in the case of non-resident and which is chargeable under the provisions of Income tax Act, 1961 and that since the said income in the hands of a non-resident is not chargeable to tax in India, there is no requirement of deducting any tax at source in India, this argument of the assessee, was rejected by the assessing officer in view of the Explanation- 2 below the Section 195(1) inserted vide Finance Act, 2012 as discussed above and therefore, assessing officer stated that it is not tenable. In conclusion, the assessing officer held that since the assessee has failed to deduct tax at source on the commission payments as required u/s 194H, the expenses to the extent above are not allowable, as business expenditures in view of the provisions of Section 40(a)(ia) of the Income tax Act, 1961. Accordingly, expenses claimed of Rs. 20,63,547/- by way of sales commission was disallowed by the assessing officer as required by sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind that assessee has paid sales commission expenses to non-resident who does not have any business connection in India and does not file return of income in India. The expenses were paid in connection with export of the goods and services. The assessee submitted the details of expenses incurred on account of sales commission and sales promotion, on account of export turnover, which is reproduced below: ORBIT BEARINGS INDIA PRIVATE LIMITED DETAILS FOR EXPORT AND THEIR EXPENSES F.Y. A.Y. EXPORT TURNOVER EXPENSES (Selling & Promotion exp.) 2012-13 2013-14 3097,93,183 70,04,952 2013-14 2014-15 5350,09,405 63,29,976 2014-15 2015-16 7075,67,631 234,77,685 2015-16 2016-17 7972,32,407 410,96,385 2016-17 2017-18 12111,57,709 528,93,085 2017-18 2018-19 22804,76,416 480,65,980 The assessee also submitted before us, copies of invoices of sales promotion expenses incurred for the assessment year under consideration, which are placed in the assessee`s paper book page No. 1 to 11. The Ld Counsel also submitted before us, a copy of assessment order framed under section 143(3) of the Act, for assessment years (AY) 2013-14 and 2018-19, which are placed at paper book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected the claim of the assessee and stated that assessee has failed to deduct tax at source on the commission payments as required under section 194H of the Act, and assessing officer also noted that these expenses were not allowed as business expenditure in view of the provisions of 40(a)(ia) of the Act, hence, assessing officer, disallowed, sales promotion expenses of Rs. 2,15,785/-. 16. On appeal, Ld. CIT(A) has confirmed the action of the Assessing Officer. The Ld. CIT(A) observed that income is arised on account of commission payable to commission agent which is deemed to accrue and arise in India and is taxable under the Act in view of the specific provision of section 5 (2)(b) read with section 9(1 )(i) of Act. Therefore, as per the provisions of section 195 of the Act, the assessee was under obligation to deduct tax at source for payment to non-resident commission agent at the rate of tax as provided under the Finance Act. 17. Aggrieved by the order of Ld. CIT(A), the assessee is in appeal before us. The assessee argued before ld CIT(A) that assessee has taken part in business fare held in USA and paid to non-resident for providing services in the form of stall on ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng following observations: "It can thus be seen that while confirming the order of CIT [A], the Tribunal relied on judgment of the Supreme Court in the case of G.E India Technology Centre P. Limited vs. Commissioner of Income-Tax & Anr., reported in [2010] 327 ITR 456 (SC). In such judgment, it was held and observed that the most important expression in Section 195 [1] of the Act consists of the words, "chargeable under the provisions of the Act". It was observed that, "A person paying interest or any other sum to a non-resident is not liable to deduct tax if such sum is not chargeable to tax under the Act." Counsel for the Revenue, however, drew our attention to the Explanation 2 to sub-section [1] of Section 195 of the Act which was inserted by the Finance Act of 2012 with retrospective effect from 1st April 1962. Such explanation reads as under:- Explanation 2 - For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction there under applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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