ITO 8(2)(1), MUMBAI vs. SHAMROCK PHARMACHEMI P. LTD., MUMBAI

The grounds of appeal raised by the Revenue reads as under: - “1. The Learned CIT(A) has erred on facts and in law in deleting the disallowance made by the AO of Rs.1,05,30,824/-, under section 40(a)(ia) for not deducting the TDS as per the provisions of Sec.195 of the Income Tax Act, without properly appreciating the factual and legal matrix as clearly brought out by the Assessing Officer in the assessment order.

The brief facts of the case are that during the course of assessment proceedings the AO observed that the assessee has debited overseas commission amounting to `1,05,30,824/- to recipients in four countries. The AO was of the opinion that the assessee has not followed the provisions of Section 195 of the Income Tax Act (hereinafter “the Act”) and has not deducted any tax at source at the time of credit. The assessee’s contention that the payment was made to overseas recipients and was not taxable under the DTAA with the respective countries was rejected by the AO. Upon assessee’s appeal the learned CIT(A) directed for deletion of the addition by holding that it was not necessary to deduct tax at source when the said income was exempt in the hands of the recipients. Against this order the Revenue is in appeal before us.

We have heard both the parties and perused the record. We find that in this case overseas commission has been paid to recipients in several countries. The assessee’s claim is that the said payment is exempt under the DTAA. We find that neither the AO nor the CIT(A) has examined the nature of services against which the commission has been paid. We also note that there is no reference to the relevant clause of the DTAA under which the payment has been claimed to be exempt. The learned counsel for the assessee was also not in a position to explain as to what were the nature of services for which the commission was paid. In our considered opinion it is necessary in this case to examine the nature of services rendered by the overseas parties for which commission has been paid. It is only after examining the nature of services, the exemption or otherwise of the payment from TDS provisions can be examined. Both the counsel fairly agreed that in such situation it is necessary to restore the issue to the file of the AO. Accordingly the issue is remitted to the file of the AO for proper finding. The AO is directed to examine the nature of services for which commission has been paid. He will also examine the relevant provisions of DTAA with respective countries and thereafter decide the issue as per law.

In the result, the appeal filed by the Revenue is allowed for statistical purposes.