ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(1), AHMEDABAD, AHMEDABAD vs. MS. JAGSON COLORCHEM LIMITED, PHASE -II GIDC ESTATE VATVA

Per contra, Shri Karan Shah, the Ld. AR of the assessee submitted that the decision of Hon’ble Supreme Court in the case of Transmission Corporation of AP Limited (supra) was on completely different facts. He submitted that identical issue was involved in assessee’s own case in A.Y. 2013-14 which was decided by the Co-ordinate bench of this Tribunal in dated 08.02.2019 and relief was allowed to the assessee. The ld. AR also relied upon the decision of the Supreme Court in the case of Vedanta Limited (146 Taxmann.com 34) (SC). The ld. A.R submitted that the assessee was no liable to deduct TDS on commission payments to the foreign agents, as the services were rendered outside India and no part of income had arisen in India. Under the circumstances, when the assessee was not liable to deduct TDS u/s 195 of the Act, no disallowance u/s 40(a)(i) could have been made by the AO.

We have considered the rival submissions. The AO had disallowed commission payment of Rs.5,63,28,206/- to foreign agents u/s 40(a)(i) of the Act for the reason that no tax was deducted thereon. It will be relevant here to reproduce the said provision which is as under:

It is found that identical issue was involved in assessee’s own case in the A.Y. 2013-14 which was decided by the Co-ordinate bench of this Tribunal in dated 08.02.2019. The finding given by the Tribunal in that order is reproduced below:

The Hon’ble Supreme Court in the case of GE India Technology CEN (Pvt.) Ltd. (193 Taxmann 234)(SC) had held that where payment to non-resident is made, obligation to deduct tax at source does not arise at the moment a remittance is made to a non-resident; rather it arises only when such remittance is a sum chargeable under the Act, i.e. chargeable ACIT vs. Ms. Jagson colorchem limited, AY- 2018-19 6 under sections 4, 5 and 9 of the Act. This decision was given after considering the earlier judgment of the Apex Court in the case of Transmission Corporation of AP Ltd. (supra), which has been relied upon by the Revenue. In view of this ratio, the AO could not have invoked the provision of section 40(a)(i) of the Act merely because the assessee had made payment to non-residents and not deducted tax thereon u/s 195 of the Act. The AO was first required to establish that the remittances made by the assessee was chargeable to tax under the provisions of section 4, 5 or 9 of the Act.

In the case of Vedanta Limited (supra), the AO had made disallowance of commission paid to non-resident agents on the ground that the assessee had failed to deduct tax at source. The Hon’ble Bombay High Court had held that since the non-resident agents were carrying on business of selling Indian goods outside India, commission so earned by them could not be said to be income which had accrued and/or arisen in India and, thus, the assessee was not liable to deduct TDS on payment of commission and demurrage. The Hon’ble Supreme Court, while dismissing the SLP, had observed on this issue as under:

The principle as laid down in the above referred judgements are squarely applicable to the facts of the present case. The contention of the assessee that the commission paid by the assessee to the foreign agents ACIT vs. Ms. Jagson colorchem limited, AY- 2018-19 was not chargeable to tax in India was not controverted by the Revenue. No finding was given that the foreign agents had rendered any service in India or that the payments made to then was chargeable to tax in India for any other reason. Once the income is not chargeable to tax in India, the question of deducting TDS thereon under the provision of section 195 of the Act and disallowance of the entire payment under the provisions of section 40(a)(i) of the Act does not arise. Accordingly, the ground taken by the Revenue is devoid of merit and is, therefore, dismissed.

In the result, the appeal of the Revenue is dismissed.