HUSSAINI FAKHRUDIN NALWALA,MUMBAI vs. ASST CIT 23(), MUMBAI

1. The learned First Appellate Authority erred in confirming the assessment order wherein the Ld. Assessing Authority erred in disallowing the claim of expenditure in the nature of commercial service charges amounting Rs. 1,01,84,508/- on the ground that TDS is not deducted and further, erred in disallowing the same u/s 40(a)(ia) under the Income Tax Act though appellant had claimed that no TDS is deductible on the said charges and further, erred in not appreciating the argument advanced which is supported with necessary evidences.

On appeal before the ld. CIT(A), both the addition/disallowances were upheld. Thus, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before this Tribunal.

We have heard the submission of ld. Authorized Representative (AR) of the assessee and ld. Department Representative (DR) for the revenue and perused the material available on record. The ld. AR of the assessee submits that assessee is a real estate agent and appointed a Sub-Agent in Dubai and paid commission for procuring/arranging customers to invest in real estate in India and claimed deduction of expenditure. The agent of assessee in Dubai is independent non-resident, who has no permanent establishment in India. The services provided by Non-resident Agent are in the nature of technical services as prescribed under section 9(1)(vi) of Income-tax Act. The NRI Agent is not liable to pay tax in India as he has no permanent establishment. The income was not earned or arises in India by said Agent. The expenditure is commercial in nature. The details which were furnished to the Assessing Officer as well as ld. CIT(A). The ld. AR of the assessee further submits that Article-5 of India-UAE Double Taxation Avoidance Agreement (India-UAE DTAA)

The ld. AR of the assessee further submits that the Assessing Officer relied upon the CBDT Circular No. 33 of 1982 and held that on lack of specific article in Tax Treaty, fees for technical services, the benefit cannot be granted by relying upon the decision of Madras Tribunal in TVS Electronics Ltd. in ITA No. 811/MDS/2010. The ld. AR of the assessee submits that the ratio of said decision is not applicable on the facts of the present case. The decision in TVS Electronics Ltd. (supra) is no more a good law as the same has been reversed by Hon’ble Madras High Court in Bangkok Glass Industries Company Ltd. The Bangalore Tribunal in ABBFZ (LLC) in dated 28.10.2016 it was held that in absence of proviso in Tax Treaty to tax fees for technical services, the same would be taxed as per Article-7 of Treaty applicable for business profit and in absence of Permanent Establishment, the income is not chargeable to tax in India.

On the other hand, the ld. DR for the revenue supported the order of lower authorities. The ld. DR further submits that the services rendered by independent agent namely Sternon Real Estate Dubai (SRED) cannot fall under “Professional Services” as defined under Explanation to section 194J, which covers services rendered by specific professional in the field of legal, medical, engineering, architectural accountancy and interior decoration. The nature of services prevailed over the nomenclature. The services rendered are purely technical in nature.

We have considered the rival submission of the parties and have gone through the orders of authorities below. We have also deliberated on various case laws relied by lower authorities as well as by ld. representative of the assessee. During the assessment, the Assessing Officer noted that assessee entered into deals with various Indian Builders and then booked the shop/flat on behalf of NRI in India and abroad. The assessee incurred expenses on advertisement, business promotion and travelling for promoting the product of builders. The assessee also appointed Agent in India/foreign countries on commission basis for exploring clients and for making collection from the client who 5 have booked the flat or who have made booking. The assessee debited a sum of Rs. 1,01,84,508/- on marketing expenses and claimed that payments were made to SRE, Dubai. The assessee was asked to explain the nature of services rendered and why TDS was not deducted. The assessee filed his reply dated 11.03.2015. In the reply, the assessee stated that he has paid commission on service charge of Rs.1,01,84,508/- to SRE, Dubai who arranged overseas client and convinced them for investing in India. Being an independent entity SRE, Dubai arranged seminar to make aware about the property details in India. They arranged monthly charges being built by them by way of commercial services. So far as TDS is concerned, as per provision of Tax Treaty between India-UAE, there is no specific services being defined in agreement, hence, same is considered to be part of Article-7 (Business Profit) based on this Article tax is payable by other contracting state and no TDS is required to be deducted while making payment to vendor in UAE, especially that SRE /vendor does not have any permanent establishment in India. The assessee again vide reply dated 16.03.2015 explained the number of days of stay of the person in India for Financial Year 2009-10, 2010-11 & 2011-12 and the amount paid during the Assessment Year 2008-09 to 2012-13 which has been recorded by Assessing Officer in para-5.3 of his order. The assessee further explained that both the parties are unrelated and independent third 6 parties. SRE, Dubai is merely a marketing agent for assessee. The contention of assessee was not accepted by Assessing Officer. The Assessing Officer concluded that assessee made the payment on account of commercial services without deducting TDS under section 195.

Ground No. 2 relates to the disallowance of travelling expenses. The ld AR for the assessee neither argued anything nor filed any written 8 submissions nor any documentary evidences are filed to substantiate this ground of appeal, thus, this ground is treated as not pressed. Perusal of the order of the lower authorities reveals that the expenses disallowed by the assessing officer only with regards to expenses incurred on the travelling of wife and son of the assessee. In absence of any submissions and the evidences that travelling expenses were incurred wholly and exclusively for the purpose of business, the same is not allowable deductions. In the result the ground No. 2 of the appeal is dismissed.

In the result the appeal of the assessee is partly allowed.