ALPHA FOAM LTD.,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX,

आदेश / ORDER

PER VIKAS AWASTHY, JM

This appeal by assessee is directed against the order of Commissioner of Income Tax (Appeals)-9, Pune dated 26.05.2016 for the assessment year 2010- 11.

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appearing on behalf of assessee stated at the Bar that he is not pressing

ground No. 1 and 3. Thus, the only ground left for adjudication is ground No.

2 and the same reads as under:

“2. The learned CIT(A) erred in confirming the disallowance made u/s.40(a)(ia) in respect of commission and brokerage expenses paid to Mr. Mohd. Iqbal, resident of Oman on the ground that the assessee had failed to deduct TDS in respect of the said payment. 2.1 The learned CIT(A) failed to appreciate that the assessee was not liable to deduct tax u/s.195 in respect of the payment of commission made to a non resident in Oman for in services rendered outside India and hence, the disallowance u/s.40(a)(ia) was not justified on the facts of the case. 2.2 The learned CIT(A) ought to have appreciated that the commission paid by the assessee to the non-resident individual was not taxable in India and therefore, the appellant company was not liable to deduct any TDS on the said payment and therefore, the disallowance made u/s. 40(a)(ia) is not justified”.

is engaged in the business of manufacturing of P.U. Foam, Automobile Seat

assembly, Vacuum formed parts, Chemical PVC, ABS, PP Sheets etc. The

assessee is also exporting its products. During the period relevant to

assessment year under appeal, the assessee paid commission to one Mohd.

Iqbal of Oman for procuring orders. On the said commission paid, no tax was

deducted by the assessee. During scrutiny assessment proceedings, the

Assessing Officer made disallowance of the entire amount of commission

Rs.5,04,977/-u/s.40(a)(ia) of the Income Tax Act, 1961 (hereinafter referred to

as ‘the Act’).

appeal before the Commissioner of Income Tax (Appeals). The First Appellate

Authority rejected the contention of the assessee and confirmed disallowance

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u/s.40(a)(ia) of the Act. Now, the assessee is in second appeal before the

Tribunal assailing the findings of Authorities below.

commission to Mohd. Iqbal for procuring orders outside India. Thus, the

services were rendered by him outside India and he is not having permanent

establishment in India. The commission paid to him is not chargeable to tax

in India, therefore, no tax was deducted on the payment of commission to

Mohd. Iqbal. The ld. AR further submitted that Commissioner of Income Tax

(Appeals) primarily rejected assessee’s plea on the ground that CBDT circular

of 1969 was withdrawn on 22nd October, 2009 vide circular No.7/2009. After

withdrawal of circular, assessee was required to deducted tax at source on the

payment made to non-resident. The ld. AR pointed that even after withdrawal

of circular No. 23 dated 23.07.1969, the various Benches of Tribunal have

held that commission paid to non-residents for rendering services abroad

where such non-residents has no permanent establishment in India, no TDS

is to be deducted on payment of commission to such non- resident. In support

of his submissions, ld. AR placed reliance on the following decisions:

i. Assistant Commissioner of Income Tax Vs, S.K. International reported as 56 taxmann.com 215 (Lucknow-Trib.) ii. Lucid Colloids Ltd. Vs. ACIT, in ITA No.2349/Mum/2014 for assessment year 2010-11 decided on 20.04.2017.

vehemently defended the order of Commissioner of Income Tax (Appeals) in

upholding the disallowance made u/s.40(a)(ia) of the Act in respect of payment

made by the assessee to non-resident without deduction of tax at source. The

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assessee was under obligation to deduct tax at source on the payment of

commission to the non-resident.

and have perused the orders of Authorities below. The solitary issue raised

before us, in appeal by the assessee is disallowance u/s. 40(a)(ia) of the Act in

respect of commission paid to Mohd. Iqbal of Oman. It is the contention of

assessee that commission has been paid to a non-resident for the services

rendered outside India. The overseas party has no permanent establishment

in India, therefore, payment of commission is not chargeable to tax in India,

hence, no TDS was deducted.

ltd. vs. CIT reported as 327 ITR 456 has held that mere remittance to non-

resident would not attract provision for deduction to tax at source. The duty to

deduct tax at source arise where remittance are wholly or partially taxable in

India. If, tax is not assessable, there is no question of tax at source being

deducted.

International (supra.) held that where assessee paid commission on sales to

foreign nationals for procuring orders from customers outside country, TDS

was not required to be deducted on said payment. The relevant extract of

findings of the Tribunal read as under:

“6. Now, we examine other contentions raised by the Revenue in its grounds. In ground No.6, the Revenue has raised the issue regarding applicability of the explanation in sub section (2) of section 9 inserted by Finance Act, 2010 with effect from 01/06/96. We have considered this

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explanation and we find that as per this explanation, income of non- resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) of section 9 of the Act even if the non-resident does not have a residence or place of business or. business connection in India and non-resident has not rendered services in India. As per this explanation in sub section (2) of section 9, only those incomes which are covered by clause (v), (vi) and (vii) of section 9 (1) are affected. Clause (v) of section 9(1) is regarding interest income and therefore, this clause is not applicable. Clause (vi) is regarding income by way of royalty and clause (vii) is regarding income by way of fees for technical services (FTS). In the present case, the dispute is not regarding payment of royalty or FTS but the dispute is regarding payment of commission and therefore, these clauses are not applicable and as a consequence, explanation to section 9(2) has no relevance.

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present case, no TDS was required to be deducted because as per this circular in the case of payment of commission to foreign agents, nothing was required to be seen and examined and it could be concluded that no TDS was required to be deducted. Now in the absence of this circular, such decision has to be taken after examining these aspects as to whether the services were rendered in India or outside India and whether the payment was made in India or outside etc. Since, in the present case, this is not a case of the revenue that the services were rendered in India or the payment was made in India and the incomes in the hands of the non resident agent can be considered as deemed to accrue or arise in India by way of operation of section 9(1), no disallowance can be made u/s.40(a)(i) of the Act. We have also considered the explanation to section 9(2) and have seen that this explanation also has no relevance in the present case and therefore, we decline to interfere in the order of CIT(A).”

In the aforesaid decision, the Tribunal has also dealt with the objection

raised by the Revenue with respect to withdrawal of Circular No. 23 dated

23.07.69 and circular No.786 dated 07.02.2000. The withdrawal of circular

has not charged the taxability of non-resident where services are rendered

outside India and non-resident has no permanent establishment in India.

Similar view has been taken by Mumbai Bench of the Tribunal in the case of

Lucid Colloids Ltd. Vs. ACIT (supra.)

submissions of the assessee that Mohd. Iqbal of Oman has rendered services

to the assessee outside India and that he has no permanent establishment in

India. The commission has been paid to him for the services rendered to

assessee outside India. Thus, in view of the undisputed facts of the case and

the decisions discussed above, we are of considered view that commission paid

to Mohd. Iqbal was not chargeable to tax in India. Therefore, there was no

question of deducting tax at source on the payments made to him by assessee.

We find merit in the submissions of the assessee. Accordingly, ground No. 2

raised in appeal by assessee is allowed.

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Order pronounced on Friday, the 29th day of June, 2018.

Sd/- Sd/- (डी. क�णाकरा राव/D. KARUNAKARA RAO) (�वकास अव�थी /VIKAS AWASTHY) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER

पुणे / Pune; �दनांक / Dated : 29th June, 2018 SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT (Appeals)-9, Pune. 4. The Pr. CIT-5, Pune. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” ब�च, पुणे / DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

// True Copy // आदेशानुसार / BY ORDER,

�नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.