ACIT 28(2), MUMBAI vs. SHRI. RIYAZ ABDUL KADER, MUMBAI

आदेश/ ORDER PER VIKAS AWASTHY, JM:

1. "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the disallowance u/s 195 r.w.s 40(a)(i) of the Act made by A.O. by holding that no such income is chargeable in India and hence no tax was deductible? 2. "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in ignoring the Explanation 2 to sub section (1) of section 195 of the Act which is inserted by Finance Act 2012 with retrospective effect from 01.04.1962?"

3. The appellant prays that the order of Ld.CIT(A) on the above grounds be reversed and that of the Assessing Officer be restored?"

3. Shri Akhtar H. Ansari, representing the Department submitted that the assessee has failed to deduct tax at source under the mandatory provisions of the Income Tax Act, 1961 (‘the Act’) on the commission paid to overseas agents. The ld. Departmental Representative submitted that the CIT(A) has erred in holding that the commission income has not accrued to the foreign agents in India. The ld. Departmental Representative vehemently, defended the assessment order and prayed for reversing the findings of CIT(A).

Name Territory Amount (Rs.) Tvalabeishvili Leila Georgia 5,25,067.00 Lukhutashvili Tamaz Armenia 14,89,939.24 Besarian Gauga UAE 10,11,110.00 Liana Saneblidge Georgia 5,27,208.00 Prodg. Geo Ltd. British Virgin Island 2,88,14,590.00 Total 3,23,97,914.24 During scrutiny assessment proceedings, the Assessing Officer held that the assessee ought to have deducted tax at source on the payment of commission to the aforesaid parties/agents. The Assessing Officer disallowed payment of aforesaid commission invoking the provisions of section 195 r.w.s. 40(a)(i) of the Act. Aggrieved against assessment order dated 26/03/2015, the assessee filed appeal before the CIT(A). The first appellate authority deleting the above addition in full by observing as under:-

“6.2 Ground No.2 is against addition of Rs.3,23,97,9147- paid as export commission on which the appellant had not deducted TDS. I have gone through the contention of the appellant as well as that of the AO. I have perused the order of the AO and find that the AO has disallowed the claim of the appellant merely because the circular No.23 of 1969 was withdrawn and as such according to the AO the appellant was required to deduct the tax from the payment made to the agents abroad. It is not a case of the AO that any of those agents had any PE in India or for that matter any establishment in India, to which such commission was attributable to. Further, it is also not a case of the AO that the payment was made for any fees for professional or technical services rendered by such agents and therefore, in absence of any such findings, it cannot be said that incomes to those agents accrued or arisen or deemed to have accrued or arisen in India, and since the same is not a case and since the amount in question was business receipts, the amount in question was not chargeable to tax in India. Hence as per the apex Court ruling in case of G.E. Electronics reported in 327 ITR, no tax was deductible in India. Further, the Hon'ble ITAT Mumbai in the case of Gujarat Reclaim & Rubber Products Ltd. Vs Addl. CIT (2013) 35 taxmann.com 587 as well as ITAT Bangalore in case of Exotic Fruits Pvt. Ltd reported in 40 Taxmann.com 348, has held that such income is not chargeable in India, and hence no tax was deductible and accordingly no disallowance was called for. In appellant's own case for AY 2011-12 then CIT(A)-33, Mumbai has allowed in favour of the appellant vide order dated 24-05-2014. Respectfully following the aforesaid judgments the addition made by AO is deleted and the ground of appeal is 'Allowed’. “

5. The Revenue has failed to rebut the contentions of assessee that: - Overseas agents have no permanent establishment in India; - The services were rendered by non-resident agents outside India and the commission was paid outside India in foreign currency on the export orders procured by the agents; - The payments made to overseas agents were not in the nature of fees for professional or technical services; and - Income to the overseas agents has not accrued/arisen deemed to have been accrued or arisen in India. The ld. Departmental Representative could not controvert the findings of the CIT(A) either.

In the instant case, the Revenue has not been able to substantiate that the commission paid to overseas agents is liable to tax in India. Once it is held that commission is not taxable in India, there is no question of deducting tax at source on payment of commission to overseas agents.

Order pronounced in open Court on Friday the 09th day of October, 2020.