THRIUS PHARMA EXPERTIZE LLP,MUMBAI vs. ITO WARD 3(2), KALYAN

आयकरअपीलीयअिधकरण, मुंबईपीठ� मुंबईपीठ�, मुंबई मुंबई आयकरअपीलीयअिधकरण आयकरअपीलीयअिधकरण आयकरअपीलीयअिधकरण मुंबईपीठ� मुंबईपीठ� मुंबई मुंबई INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI BENCH: E BEFORE SMT. BEENA PILLAI, JUDICIAL MEMBERAND SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER

ITA 40/MUM/2025 (िनधा�रणवष�/AssessmentYear:2020-21) THRIUS PHARMA EXPERTIZE ITO WARD 3(2) LLP ITO, WARD 3(2), KALYAN 2407 SOLUS NEAR BAYER KALYAN-, MAHARASHTRA HOUSE HIRAMANDANI ESTATE, Vs. PATLI PADA G.B ROAD, THANE WEST, THANE-400607, MAHARASHTRA अपीलाथ�Appellant ��थ� Respondent

Permanent Account Number of AANFT6635P Assessee:

अपीलाथ��ारा/Appellant represented by: Shri M. Subramaniam ��थ��ारा/Respondentrepresented by: Shri Dheeraj Singh Baghel, JCIT

सुनवाईकीतारीख/Date of conclusion of hearing: 14-Jul-2026 घोषणाकीतारीख/Date of pronouncement: 12.10.2026 आदेश / ORDER PER SMT. BEENA PILLAI, JUDICIAL MEMBER:

This appeal by the assessee is directed against the order dated 05/11/2024 passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“Ld. CIT(A)”] u/s. 250 of the Income-tax Act, 1961 (“the Act”) for A.Y. 2020-21, arising out of the assessment order dated 26/09/2022 passed u/s. 143(3) r.w.s. 144B of the Act.

ITA 40/MUM/2025 THRIUS PHARMA EXPERTIZE LLP “1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals), erred in dismissing the appeal and thereby upholding the disallowance made of Rs.55,09,938/- under section 40(a)(i) of the Act. The appellant craves leave to add, amend or delete any or all of the grounds of appeal at any time.”

2.1.Brief facts of the case are as under:-

Assessee is a partnership firm engaged in the business of providing project consultancy and export of pharmaceutical equipments. The assessee filed its return of income declaring total income of Rs.7,73,380/-. The case was selected for scrutiny through CASS and assessment was completed u/s. 143(3) r.w.s. 144B of the Act.

2.2. During the course of assessment proceedings, the Ld. AO noticed from the Profit & Loss Account that the assessee had shown total receipts of Rs.2,33,45,397/- and had claimed commission expenditure aggregating to Rs.55,09,938/-. On examination of the details furnished, the Ld. AO noticed that commission had been paid to the following foreign parties without deduction of tax at source:

Amount as recorded by the Name of the recipient Country Ld. AO

M/s. Incentive Building Information USA, as claimed by the Rs.50,63,084/- Technology Inc. assessee

M/s. Kheddache Consulting and Rs.4,46,855/- Algeria Engineering

2.3. The Ld. AO called upon the assessee to explain as to why tax had not been deducted u/s. 195 of the Act. In response, the assessee furnished copies of invoices, agreements, bank statements, details of commission expenditure, Form Nos. 15CA/15CB, shipping bills and other supporting documents. It 2

ITA 40/MUM/2025 THRIUS PHARMA EXPERTIZE LLP was submitted that the payments were made to foreign parties for services rendered outside India and that the recipients had no Permanent Establishment in India. Accordingly, it was contended that the payments were not chargeable to tax in India and therefore no tax was deductible u/s. 195 of the Act.

2.4. Insofar as M/s. Incentive Building Information Technology Inc. (“IBIT”) is concerned, the assessee specifically submitted that the recipient was incorporated in the USA and had no Permanent Establishment in India. The assessee also contended that the services were rendered outside India in connection with its overseas business/export activities and therefore the commission income in the hands of the recipient did not accrue or arise in India.

2.5. The Ld. AO, however, did not accept the explanation. The Ld. AO observed that the documents furnished by the assessee did not establish the tax residency of IBIT for the relevant F.Y. 2019- 20. The Ld. AO further referred to Form No.15CB wherein the nature of remittance was described as “Consulting Services” and held that the assessee was liable to deduct tax at source from the payments made to the foreign recipient.

2.6. In respect of the payment of Rs.4,46,855/- made to M/s. Kheddache Consulting and Engineering, the assessment order records that the assessee accepted the proposed variation. The Ld. AO ultimately disallowed the entire commission expenditure of Rs.55,09,938/- u/s. 40(a)(i) of the Act and determined the total income at Rs.62,83,318/-.

Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A). 3

ITA 40/MUM/2025 THRIUS PHARMA EXPERTIZE LLP 3. Before the Ld. CIT(A), the assessee reiterated that M/s. Incentive Building Information Technology Inc. was a U.S. entity and that the services had been rendered outside India. It was submitted that the recipient did not have any Permanent Establishment in India and therefore the payment was not liable to tax in India. Various supporting documents, including documents concerning the incorporation/status and U.S. tax particulars of the recipient, were also relied upon.

3.1. The Ld. CIT(A), however, upheld the action of the Ld. AO. The Ld. CIT(A) principally observed that the document relied upon by the assessee related to an earlier period and that no evidence establishing the tax residency of the recipient for F.Y. 2019-20 had been furnished. The Ld. CIT(A), accordingly, sustained the disallowance of Rs.55,09,938/- made by the Ld. AO u/s. 40(a)(i) of the Act.

Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us.

4.1. The Ld. AR specifically referred to page 62 of the paper book, containing a Certificate of Status issued by the State of Florida, and page 72, containing Form W-9 wherein M/s. Incentive 4

ITA 40/MUM/2025 THRIUS PHARMA EXPERTIZE LLP Building Information Technology Inc. is shown as a U.S. C- Corporation having its address at Jamaica, New York, USA, along with its U.S. taxpayer identification particulars.

4.2. The Ld. AR fairly submitted that the aforesaid documents are not a Tax Residency Certificate pertaining specifically to F.Y. 2019-20. It was, however, contended that mere absence of a contemporaneous TRC cannot result in the payment becoming chargeable to tax in India. According to the Ld. AR, the primary requirement u/s. 195 is that the amount paid to the non-resident must be chargeable to tax under the Act. Since the services were rendered outside India and the recipient had no business operations or Permanent Establishment in India, the commission was not chargeable to tax in India and consequently no tax was deductible at source.

4.3. The Ld. AR further submitted that the description “Consulting Services” appearing in Form No.15CB cannot determine the true character of the transaction. The expenditure had throughout been treated by the Ld. AO himself as commission expenditure and the underlying invoices, agreements and export documents demonstrated the nature of services. It was therefore prayed that the disallowance u/s. 40(a)(i), insofar as it relates to the payment made to IBIT, be deleted.

4.4. The Ld. DR relied upon the orders passed by the authorities below. It was submitted that the assessee had failed to produce a valid Tax Residency Certificate of the recipient for the relevant financial year and therefore the benefit claimed by the assessee could not be allowed.

ITA 40/MUM/2025 THRIUS PHARMA EXPERTIZE LLP We have perused the submissions advanced by both sides in light of the record placed before us.

5.1.At the outset, we find it necessary to clarify the nature of the documents relied upon by the assessee. At page 62 of the paper book is a Certificate of Status issued by the State of Florida, evidencing the incorporation/status of M/s. Incentive Building Information Technology Inc. as a corporation under the laws of the State of Florida. Page 72 contains Form W-9, wherein the recipient is shown as a U.S. C-Corporation having its address at Jamaica, New York, USA, together with its U.S. taxpayer identification particulars.

5.2. We, however, observe that neither of the aforesaid documents constitutes a Tax Residency Certificate for F.Y. 2019- 20. Thus, to this extent, the observation of the authorities below that a contemporaneous TRC pertaining to the relevant year had not been furnished cannot be faulted. We therefore do not proceed on the basis that pages 62 and 72 constitute a TRC for the relevant year, nor are we granting relief to the assessee merely by treating the aforesaid documents as sufficient compliance with the requirement of section 90(4) of the Act.

5.3. The matter, however, does not end there. The question which first requires determination is whether the amount paid to the non-resident was chargeable to tax in India under the provisions 6

ITA 40/MUM/2025 THRIUS PHARMA EXPERTIZE LLP of the Act. The obligation to deduct tax u/s. 195 arises in respect of a sum which is chargeable under the provisions of the Act. The Hon'ble Supreme Court in GE India Technology Centre (P.) Ltd. v. CIT [2010] 327 ITR 456 (SC) has held that the expression “sum chargeable under the provisions of the Act” occurring in section 195(1) is of significance and that the obligation to deduct tax arises only when the payment contains income chargeable to tax in India.

5.4. Thus, the absence of a TRC may have a bearing upon the entitlement of the non-resident to claim relief under a Double Taxation Avoidance Agreement. Section 90(4) itself provides that a non-resident shall not be entitled to claim relief under the relevant agreement unless a certificate of residence is obtained from the Government of the concerned country. However, absence of such certificate cannot, by itself, create a charge of tax under the domestic provisions where the income is otherwise not chargeable to tax in India. The chargeability under the Act has therefore to be examined independently before considering the consequences of non-furnishing of the TRC.

5.5. Coming to the facts of the present case, the assessment order itself repeatedly describes the payment as commission expenditure. It is the consistent case of the assessee that IBIT rendered services outside India in connection with the assessee's overseas transactions and had no Permanent Establishment, office or other business presence in India. The assessee had furnished the invoices, agreement, shipping documents and other supporting material before the Ld. AO. We find no material referred to by either of the authorities below demonstrating that IBIT had rendered any services in India or that any part of its 7

ITA 40/MUM/2025 THRIUS PHARMA EXPERTIZE LLP business operations giving rise to the impugned commission was carried out in India.

5.6. The Hon'ble Supreme Court in CIT v. Toshoku Ltd. [1980] 125 ITR 525 (SC), while dealing with commission earned by non- resident selling agents for services rendered outside India, held that where the non-resident did not carry on business operations in India, the commission earned for services rendered outside India could not be deemed to accrue or arise in India. The ratio of the aforesaid decision squarely applies to the chargeability aspect before us. In the present case, nothing has been brought on record to demonstrate any business operation of IBIT in India or rendition of the impugned services in India. Mere remittance of commission by an Indian payer does not, in the absence of the requisite nexus contemplated under the Act, result in the income of the foreign recipient accruing or arising in India.

5.7. The Ld. AO has also referred to the expression “Consulting Services” appearing in Form No.15CB. In our considered view, the nomenclature employed in Form No.15CB cannot by itself determine the true character of the payment. The nature of a transaction has to be ascertained from the underlying agreement, invoices, actual services rendered and surrounding facts. Significantly, the Ld. AO himself has throughout dealt with the payment as commission expenditure. There is no finding as to any specific technical, managerial or consultancy service having been rendered by IBIT in India, nor has any material been brought on record to demonstrate that the recipient made available any technical knowledge or rendered services of such nature as would, on the facts recorded by the lower authorities, independently establish chargeability in India. 8

ITA 40/MUM/2025 THRIUS PHARMA EXPERTIZE LLP 5.8. We, therefore, find that the disallowance has substantially proceeded on the premise that because the assessee failed to produce a TRC for F.Y. 2019-20, the payment necessarily became liable for deduction of tax u/s. 195. Such an approach reverses the statutory enquiry contemplated u/s. 195. The first requirement is to establish chargeability of the sum in the hands of the non-resident under the Act. Only thereafter does the question of treaty relief and fulfilment of the requirements for availing such relief arise.

5.9. In the facts before us, the Revenue has not demonstrated that the commission income earned by M/s. Incentive Building Information Technology Inc. for services rendered outside India, without any business operations or Permanent Establishment in India, was chargeable to tax in India under the provisions of the Act. Once the payment itself was not chargeable to tax in India, the assessee was under no obligation to deduct tax therefrom u/s. 195 of the Act. Consequently, the corresponding expenditure could not be disallowed u/s. 40(a)(i) merely for non-deduction of tax at source.

5.10.We accordingly direct the Ld. AO to delete the disallowance u/s. 40(a)(i) to the extent attributable to the payment made to M/s. Incentive Building Information Technology Inc. The amount shall be given effect to by the Ld. AO after verifying the arithmetical figures appearing in the assessment order.

5.13.Insofar as the payment of Rs.4,46,855/- made to M/s. Kheddache Consulting and Engineering is concerned, the assessment order specifically records that the assessee had

ITA 40/MUM/2025 THRIUS PHARMA EXPERTIZE LLP accepted the proposed variation in respect of the said payment. No independent material or submission has been placed before us to controvert the said factual position. We therefore find no reason to interfere with the disallowance to that extent.

Accordingly, the ground raised by the assessee is partly allowed.

In the result, the appeal filed by the assessee is partly allowed.

Order pronounced in the open court on 12.10.2026.

Sd/- Sd/- VIKRAM SINGH YADAV BEENA PILLAI ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai Dated: 12.10.2026 Shamik Sr. P.S.

ITA 40/MUM/2025 THRIUS PHARMA EXPERTIZE LLP Copy to: THRIUS PHARMA EXPERTIZE LLP, 2407 SOLUS NEAR BAYER HOUSE HIRAMANDANI ESTATE, PATLI PADA 1 G.B ROAD, THANE WEST, THANE-400607, MAHARASHTRA

ITO WARD 3(2), 2 ITO, WARD 3(2), KALYAN, KALYAN-, MAHARASHTRA

3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAIBENCH 5 GUARD FILE