ITO 2(1)(2), MUMBAI vs. CITY CAT OVERSEAS CHEMICALS LTD, MUMBAI
In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.
What did the Tribunal hold?
The Tribunal upheld the CIT(A)'s order, following its own previous decisions in the assessee's own case for earlier years. It was held that commission paid to foreign agents for services rendered outside India, without any business connection or permanent establishment in India, is not taxable in India, and thus TDS is not required.
What were the facts?
The Revenue appealed against the deletion of disallowance made under Section 40(a)(i) for foreign agent commission. The Assessing Officer disallowed the commission for non-deduction of TDS, considering it income accrued in India. The assessee contended that the commission was for services rendered outside India and not taxable in India.
What were the issues?
Whether TDS was required to be deducted on commission paid to foreign agents for services rendered outside India. Whether such commission income accrued or arose in India.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “L” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI RAM LAL NEGI, JM
Heard together (2 matters)
Read from the judgment's own cause title. This page is filed under one of them.
: 13.08.2018 Date of Hearing : 23.10.2018 Date of Pronouncement O R D E R Per Shamim Yahya, A. M.: This appeal by the Revenue and the cross objection (CO for short) by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals)-3, Mumbai (‘ld.CIT(A) for short) dated 15.11.2016 and pertains to the assessment year (A.Y.) 2013-14.
The grounds of appeal read as under:
1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) was right in deleting the disallowance made u/s. 40(a)(i) of the I. T.
Income Tax Act, 1961 of Rs.67,19,913/- made on account of foreign agent commission without appreciating that the income has accrued and arisen in India and was liable for TDS. 2. For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the A.O. be restored.
Brief facts of the case are that during the year the assessee has claimed expenses towards foreign agent commission of Rs.67,19,913/-. On Assessing Officer’s (A.O.) query as to why TDS has not been deducted, the assessee stated that the commission is not fee for technical service u/s. 9(1)(vii) of the Act and the same being in the nature of the business income of the recipient is also not taxable in India vide section 9(1) in case of absence of business communication in India. Furthermore, it was submitted that the ITAT in assessee’s own case has decided the issue in favour of the assessee. However, the A.O. rejected this contention on the ground that the department has not accepted the decision and the matter is before the Hon'ble Bombay High Court.
Upon the assessee’s appeal, the ld. CIT(A) noted that for A.Ys. 2010-11 and 2011-12, the ld. CIT(A)’s order was upheld by the ITAT and it was held that no TDS was required to be deducted on commission paid to the agent. Accordingly, the ld. CIT(A) decided the issue in favour of the assessee.
Against the above order, the Revenue is in appeal before us.
We have heard both the counsel and perused the records. The ld. Departmental Representative (ld. DR for short) placed reliance upon the decision of the Authority for Advance Rulings (Income Tax), New Delhi (in AAR No. 983-984 of 2010 vide order dated 22.02.2012).
Upon careful consideration, we note that this issue has been decided in favour of the assessee by the ITAT in assessee’s own case for earlier years in for A.Y. 2010-11 vide order dated 07.08.2015, the Tribunal has observed as under:
6. Having considered the rival submissions as well as relevant material on record, we find that the A.O. has accepted that the payment made by the assessee is on account of commission and compensation tot eh foreign agent and therefore it is not the case of the A.O. that the payment in question is either fee for technical service or royalty which could be taxed in India as per provisions of sec. 9(1) of the Income Tax Act, 1961. We further note that the A.O. has supported his finding by citing the reason that commission income arises in India because right to receive commission arises when the order is executed by the assessee in India. In our view, this logic and contention of the A.O. is absolutely erroneous and based on misinterpretation of the term ‘ accrue or arise in India’ as per the provisions of sec. 9(1) of the Act. The commission is paid to foreign agent for services rendered by the agent outside India and the agent has no business link or source of income in India. Therefore, in absence of any business connection or source of income and consequently any permanent establishment in India, the said income in the hands of the foreign agent is not taxable in India.
Thereafter, the Tribunal has referred to the ITAT decision in the case of ACIT vs. Vilas N. Tamhankar (in vide order dated 21.11.2014) and reproduced the order therein and had concluded that following the above decision of the co-ordinate bench, no infirmity was found in the order of the ld. CIT(A). We find that the Tribunal in assessee’s own case had also followed the same in other years. It is not the case that the Hon'ble jurisdictional High Court has reversed the ITAT decision. In view of the ITAT decision in assessee’s own case which has not been reversed by the Hon'ble Bombay High Court yet, the decision of AAR referred by the ld. DR is not applicable. Accordingly, following the precedent in assessee’s own case, we uphold the order of the ld. CIT(A).
The assessee’s cross objection is only supportive of the order of the ld. CIT(A).
Since we have already upheld the order of the ld. CIT(A) in Revenue’s appeal, this C.O. has become infructuous and hence the same is dismissed as infructuous.
In the result, the Revenue’s appeal is dismissed and the assessee’s cross objection is dismissed as infructuous. Order pronounced in the open court on 23.10.2018
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