Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: Shri G Manjunatha & Shri Ravish Sood
O R D E R Per G Manjunatha, AM : This appeal filed by the revenue is directed against order of the CIT(A)-5, Mumbai dated 19-12-2017 and it pertains to AY 2014-15. The revenue has raised the following grounds of appeal:-
“1. "On the facts and in the circumstances of (he case and in law, the Ld. CIT(A) has erred in deleting the disallowance u/s 40(a)(i) of commission paid to foreign agents without appreciating the fact that the right to receive the commission arose in India when the order was executed by the assessee and as such was deemed to accrue and arise in India and was consequently taxable as per provisions of sec 5(2)(b) rws 9(1)(i) of the I T Act and the provisions of sec 195" 2. "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 40(a)(i) of commission paid to foreign agents without
2 ITA 7462/Mum/2017 deducting tax at source, ignoring the decision of the Authority for Advance Ruling in the case of SKF Boilers *& Driers Pvt. Ltd. reported in 343 !TR 385".”
The brief facts of the case are that the assessee company is engaged in the business of exporting yarn and cloth. The company is government recognised three star trading house. The assessee has filed its return of income for AY 2014-15 declaring total income of Rs.30,97,480. The case was selected for scrutiny and the assessment has been completed u/s 143(3) of the I.T. Act, 1961 determining the total income at Rs.1,29,82,363 by making disallowance of Rs.98,84,883 towards exports commission paid to foreign agents u/s 40(a)(i) of the Income-tax Act, 1961 for failure to deduct TDS as applicable u/s 195 of the I.T. Act, 1961.
Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before the CIT(A), the assessee submitted that export commission paid to foreign agents outside India and having no permanent establishment in India is not liable to be taxed in India, consequently, provisions of section 195 has no application, thereby no disallowance could be made u/s 40(a)(i) of the I.T. Act, 1961. The Ld.CIT(A), after considering relevant submissions of the assessee and also by following ITAT’s order in assessee’s own case for AY 2010- 11 deleted addition made by the AO. Aggrieved by the order of Ld.CIT(A), the revenue is in appeal before us.
3 ITA 7462/Mum/2017
The Ld.AR for the assessee, at the time of hearing submitted that the issue involved in this appeal is squarely covered in favour of the assessee by the decision of ITAT, Mumbai for AYs 2010-11 to 2012-13, where the co- ordinate bench, after considering relevant facts and also by following the decision of Hon’ble Supreme Court in the case of GVK Industries vs CIT 332 ITR 130(SC) held that export commission paid to foreign agents is not liable to tax in India, consequently, provisions of section 195 have no application.
The Ld.DR, on the other hand, submitted that the AO has rightly disallowed export commission u/s 40(a)(i), because the assessee failed to deduct tax at source even though the amended provisions of section 9(1)(vii) is applicable even to export commission paid to non residents.
We have heard both the parties and perused the materials available on record. The issue involved in this appeal is - whether export commission paid to foreign agents having no permanent establishment in India is chargeable to tax in India thereby requiring the assessee to deduct tax at source on such payment u/s 195 of the I.T. Act, 1961 and consequent disallowance of expenditure u/s 40(a)(i) is no longer a res integra. The co-ordinate bench of ITAT, Mumbai Bench “J” in assessee’s own case for AY 2012-13 in has considered an identical issue in light of provisions of section 9(1)(vii) r.w.s. 195 and by following the decision of Hon’ble Supreme
4 ITA 7462/Mum/2017 Court in the case of GVK Industries vs CIT (supra) held that export commission paid to non residents is not liable to tax in India; consequently, provisions of section 195 and 40(a)(i) are not applicable. The relevant observations of the Tribunal are as under:-
“9. We have considered rival contentions, carefully gone through the orders of the authorities below and also deliberated on the judicial pronouncements cited before us in the context of factual matrix of the case. From the record we found that during.the year assessee has paid commission to various non-resident foreign brokers amounting to Rs.92,14,5097- for rendering services outside India in relation to export orders and recovery of the sale proceeds. Nothing was brought on record by the AO to establish that the said non- resident brokers have their place in India because they were operating in their respective countries. The said non-resident brokers are not liable to any tax in India, therefore, neither there was accrual nor receipt of income in India. We found that the non-resident brokers have not rendered any services in India, therefore, commission income neither accrued nor arose in India in view of the decision of the Hon'ble Delhi High Court in the case of Eon echnology Pvt. Ltd., 343 ITR 366 (Del). There is no dispute to the well settled roposition that provisions of Section 195 does not apply when no income is found to be taxable in India, therefore, there was no reason for making any disallowance under provisions of Section 40(a)(i) in view of decision of the Hon'ble Supreme Court in the case of G.E.India Technology Centre Pvt. Ltd., 327 ITR 456. There are also judicial pronouncements supporting this proposition, which are reported in 10 ITR 501(Trib), 86 ITD 102 and 10 ITR 147(Trib).
Payment of brokerage to the said non-resident brokers for non technical services is the business income of the payee and therefore, not liable to tax in India as was held in the case of Sri Subharaman Subramanian, 30 taxmann.com 236 (Bang.). We do not find any merit in the contention of the learned DR that brokerage so paid to the nonresident brokers was fee for technical services. Our view is supported by the decision of the Delhi Bench of the tribunal in the case of Adidas Sourcing Ltd., 28 taxrpann.com 267 (Del). Even the amended section 9 applies only to technical services and not to brokerage, Accordingly, the payment of brokerage to non-resident did not attract the provisions of section 9 r.w.s.195 as was held by the Delhi Bench in the case of Angelique International Ltd., 28 taxmann.com 219 (Del) and Allahabad Bench of the Tribunal in the case of Model Exims, 42 taxmann.com 446 (All).
5 ITA 7462/Mum/2017
In view of the above, we can safely conclude that merely because payments have been made from India, the same cannot be made liable to be taxed in India insofar as payment was made to non-resident for the services rendered outside India as was held in the case of Dr.Reddy’s Laboratory, 58 ITD 104(Hyd).”
In this view of the matter and consistent with the view taken by the co-ordinate bench, we are of the considered view that the provisions of section 195 has no application to export commission paid to non residents having no permanent establishment in India. The Ld.CIT(A), after considering relevant facts has rightly deleted addition made by the AO. We do not find any error in the findings of the Ld.CIT(A) and hence, we are inclined to uphold findings of Ld.CIT(A) and dismiss appeal filed by the revenue.
In the result, appeal filed by the revenue is dismissed. Order pronounced in the open court on 01 -02-2019.