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

Facts

This Tax Appeal was filed by the Revenue against an order of the Income Tax Appellate Tribunal (ITAT), Ahmedabad, dated September 19, 2018, for Assessment Year 2010-11. The appeal challenges the ITAT's decision to uphold the Commissioner of Income Tax (Appeals) [CIT(A)] order, which deleted an addition of Rs. 1,89,56,798/-. This addition was made under Section 40(a)(ia) of the Income Tax Act, 1961, due to the assessee's failure to deduct tax at source on commission payable to a foreign agent. The procedural history involves the Assessing Officer making the addition, the assessee appealing to the CIT(A) who deleted it, and the Revenue then appealing to the ITAT, which also upheld the deletion. The High Court is now considering the Revenue's appeal.

Held

The High Court held that no error of law was committed by the ITAT in passing the impugned order. The Tribunal's decision was based on the principle 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 question of deducting TDS under Section 195 did not arise. The High Court found this reasoning sound and consistent with its own prior decision in PR CIT vs. MGM Exports. Consequently, the High Court found no substantial question of law in the appeal and dismissed it. No issue was expressly left undecided.

Key Issues

1. Whether the Appellate Tribunal has erred in law and on facts in upholding the decision of the CIT(A) and thereby deleting the addition of Rs. 1,89,56,798/- under Section 40(a)(ia) of the Act, when the assessee did not obtain a certificate for non-holding of tax under Section 195(2) of the Act? Assessee's Contention: The judgment does not record any specific contentions made by the assessee before the High Court. However, the ITAT's reasoning, which was upheld, indicates that the commission income in the hands of the foreign agent was not chargeable to tax in India. Therefore, the obligation to deduct TDS under Section 195 did not arise. Revenue's Contention: The Revenue argued that the addition of Rs. 1,89,56,798/- under Section 40(a)(ia) was justified because the assessee failed to obtain a certificate under Section 195(2) of the Act for non-deduction of tax at source on payments to a foreign agent.