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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: Shri Chandraiah B Kalal,
This appeal by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-44, Mumbai [in short CIT(A)], in appeal No. CIT(A)-44/ACIT-32(1)/ITA.417/15-16 dated 26.05.2016. The Assessment was framed by the ACIT, Circle-32(1), Mumbai (in short ‘ACIT’) for the A.Y. 2012-13 vide order dated 27.03.2015 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of Revenue is against the order of CIT(A) deleting the disallowance of commission paid to foreign agents without deduction of TDS under section 195 of the Act. For this Revenue has raised the following two grounds: -
“1. On the facts and in the circumstances of the case, and in law, the Ld.CIT(A), erred in deleting the disallowance of commission paid to foreign agents amounting to Rs.40,38,388/- without considering the fact that the assessee failed to provide any valid explanation in support of its claim for non-deduction of TDS on commission payment made to foreign agents.
2. On the facts and in the circumstances of the case, and in law, the Ld.CIT(A) erred in deleting the disallowance commission paid to foreign agents, thereby overlooking the business connection between assessee and foreign agents.”
Briefly stated facts are that the assessee firm is dealer of pharmaceuticals ingredients in local and export markets. The AO during the course of assessment proceedings noticed from the accounts of the assessee that it had deposited a sum of ₹ 40,38,388/- under the head commission paid in the P & L account. According to AO, the commission has been paid to 6 overseas agents. Since, no TDS was deducted by the assessee under section 195 read with section 40(a)(i) of the Act, the AO disallowed the commission paid amounting to ₹ 40,38,388/-. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) relying on the earlier years decision in assessee’s own case for AY 2010-11 and also on the decision of Hon’ble Bombay High Court in the case of DIT vs. Wizcraft International Entertainment Pvt. Ltd (2014) 364 ITR 227 (Bom.) deleted the disallowance by observing that the commission paid to non- resident agents outside India for procuring export orders for overseas buyers, the income is not assessable in India chargeable to tax in India. Accordingly, following the decision of Hon’ble Supreme Court in the case of GE India Technology Cen. P Ltd. vs. CIT 327 ITR 456 (2010)(SC) by observing in Para 4.5 to 4.7 deleted the disallowance by observing as under : -
“4.5 I have carefully studied the assessment order. I have also perused the written submission of the appellant as well as details filed. 'From the assessment order it is obvious that the AO has not appreciated the fact that the definition of business connection described in the judgments cited by him has no relevance in the case of the appellant because the cases cited by the AO are relevant for a non-resident assessee who is carrying on activities in India. However, the appellant is a resident assessee who is merely utilizing the services of unconnected persons for procuring orders for its business. It is also seen from record that on exactly similar facts the appeal filed by the appellant for the AY 2010-11 was decided in favour of the appellant by my Id. Predecessor. While deciding the appeal the then CIT(A) had made the following observations.
"1 have gone through the facts of the case and the legal position in this regard. The moot question to be decided is whether the commission paid to non-resident agents for the services provided in the foreign country is taxable in India. The facts of the case are that the non-resident agents were operating in their own respective countries and they procured orders for taxpayers from the parties outside India and the commission was paid to them outside India in foreign currency. The foreign agents did not have any business connection nor do they have any place of business in India. What clearly emerges is that the agents in this case being located out of India and having their operations entirely out of India, would not fall in the ambit of concept of "business connection". The decision of the Hon 'ble Apex Court in the case of CIT Vs. Toshoku Ltd. (125 ITR 525) is directly applicable in understanding the taxability of commission agent who does not carry out any business operations in India for the purpose of understanding the applicability of the Explanation to Section 9(1)(i) of the Act. The same principle has beet? recognized in the decision of the Hon'ble Mumbai High Court in the case of Ardeshi B. Cursetfee & Sons Ltd (2008) 115 TO 916, had held that commission paid to nonresident agents outside India for the services rendered outside India was not chargeable to tax in India. Such commission payment was not taxable in India as the conditions specified in Section 9(1)(i) of the Act, were not fulfilled. Besides, the provisions of Section 9(1)(ii) (iv), (v), (vi) and (vii) of the Act were also not applicable in the present case. The Explanation to Section 9(2) inserted by the Finance Act with retrospective effect from 1.1.1976 was also not applicable since the said Explanation was not applicable to Section 9(1)(i) of the Act. This has been held by the Hon'ble Mumbai Tribunal in the case of Gujarat Reclaim and Rubber Products Ltd. ITA No.8868/Mum/2010. Therefore, keeping in view the facts and legal position in this regard, this ground is al/owed."
4.6 The Bombay High Court in the case of DIT(IT)Vs Wizcraft International Entertainment Pvt. Ltd. (2014) 364 ITR 227 (BOM) observed that where the assessee simply paid a commission simpliciter to non-resident agent outside India for procuring export orders from overseas buyers and the non-resident agent did not provide any technical services for purposes of running business of assessee in India, assessee was not liable to deduct tax at source on such commission paid. Similarly, the Hon'ble Supreme Court in the case of GE India Technology Cen. P. Ltd. Vs CIT (2010) 327 ITR 456 (SC) observed that a payer is bound to deduct tax at source only if the sum paid is chargeable to tax in India.
4.7 After considering the facts of the case, decision of my Id predecessor as well as the position of law coming out of the above cited judgments I have come to a conclusion that there is no justification for the AD to disallow Rs 40,38,388/- u/s 40(a)(i) r.w.s. 195 of the IT Act. The grounds of appeal nos. 3 & 4 are accordingly allowed and the addition of Rs 40,38,388/- is deleted.”
Aggrieved, now Revenue came in second appeal before Tribunal.
We have heard the learned Senior Departmental Representative and gone through the facts and circumstances of the case. We find that the payment of commission is not in doubt. The only issue for disallowing is that the assessee has not deduct TDS under section 195 of the Act in respect of commission paid to foreign agents for procuring export orders from overseas buyers. It is not disputed that the payment payments have been made to overseas non-resident agents and overseas buyers. Admittedly, these non-resident agents are not assessed to tax in India because no payment is made in India. Accordingly, the assessee is not deducted tax at source because the sum paid is not chargeable to tax in India in term of section 195 of the Act. Accordingly following the decision of Hon’ble Supreme Court in the GE India Technology Cen. P Ltd. (supra), we confirm the order of CIT(A) by deleting the disallowance. The appeal of the Revenue is dismissed.
In the result, the appeal Revenue is dismissed.
Order pronounced in the open court on 11-05-2018.