THE PRINCIPAL COMMISSIONER OF INCOME TAX 2 vs. GUJARAT APOLLO INDUSTRIES LTD

Facts

The Revenue has filed this Tax Appeal under Section 260A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal (ITAT), Ahmedabad, dated September 19, 2018, for the assessment year 2011-12. The appeal challenges the ITAT's decision to uphold the CIT(A)'s order deleting an addition of Rs. 1,07,23,167. This addition was made under Section 40(a)(i) of the Act for the assessee's failure to obtain a certificate from withholding tax under Section 195(2). The appeal also concerns a disallowance of Rs. 1,89,56,798 under Section 40(a)(ia) for non-deduction of tax at source on commission payable to a foreign agent.

Held

The High Court held that there was no substantial question of law in the present appeal. The Court noted that the ITAT's decision was based on the ratio of this Court's decision in PR CIT vs. MGM Exports. The principle applied was 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. The ITAT had concluded that the commission income in the hands of the foreign agent was not chargeable to tax in India, and therefore, the obligation to deduct TDS under Section 195 did not arise. Consequently, the ITAT found no reason to interfere with the CIT(A)'s order, and the Revenue's ground of appeal was dismissed. The High Court found no error, let alone an error of law, in the ITAT's order and dismissed the Tax Appeal.

Key Issues

1. Whether the Appellate Tribunal has erred in law on facts in upholding the decision of the CIT(A) and thereby deleting the addition of Rs. 1,07,23,167 under Section 40(a)(i) of the Act, when the assessee did not obtain a certificate from withholding of tax under Section 195(2) of the Act? Assessee's Contention: The judgment does not record any specific contentions made by the assessee. However, the ITAT's decision, which was upheld, implies that the commission income in the hands of the foreign agent was not chargeable to tax in India. Revenue's Contention: The Revenue contended that the addition of Rs. 1,07,23,167 under Section 40(a)(i) was justified because the assessee failed to obtain a certificate for withholding tax under Section 195(2). The Revenue also raised an issue regarding the disallowance of Rs. 1,89,56,798 under Section 40(a)(ia) for non-deduction of TDS on commission to a foreign agent.