P.MURALI,CHENNAI vs. DCIT, CHENNAI

This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 10, Chennai, dated 10.09.2015 relevant to the assessment year 2011-12. The only effective ground raised in the appeal of the assessee is that the ld. CIT(A) has erred in confirming the disallowance of foreign agency commission payments under section 40(a)(i) r.w.s. 195 of the Income Tax Act, 1961 [“Act” in short].

Brief facts of the case are that the assessee is engaged in the business of leather tannery and exports and filed its return of income on 30.09.2011 admitting total income of ₹.63,25,660/-. The return filed by the assessee was processed under section 143(1) of the Act and the case was selected for scrutiny and notice under section 143(2) and 142(1) of the Act were issued on the assessee. Assessment under section 143(3) of the Act was completed by assessing total income of the assessee at ₹. 89,30,235/- after making various disallowances.

The assessee carried the matter in appeal before the ld. CIT(A) and challenged the disallowance of export commission paid to the non-resident. After considering the submissions of the assessee, the ld. CIT(A) has confirmed the addition made by the Assessing Officer.

On being aggrieved, the assessee is in appeal before the Tribunal and the ld. Counsel for the assessee has submitted that the issue is squarely covered in favour of the assessee by the decision in the case of Faizon Shoes Pvt. Ltd. 367 ITR 155 (Mad) and prayed that the same should be followed.

On the other hand, the ld. DR has supported the orders of authorities below.

We have heard both sides, perused the materials available on record and gone through the orders of authorities below. With regard to the issue as to whether the TDS has to be deducted or not when the commission payment made to the overseas agents, we find that the issue is squarely covered in favour of the assessee by the decision of the Hon’ble Jurisdictional High Court in the case of CIT v. Faizan Shoes Pvt. Ltd. [2014] 367 ITR 155, wherein by dismissing the appeal of the Revenue, the Hon’ble High Court has held as under: “Held, dismissing the appeal, that on a reading of section 9(1)(vii), commission paid by the assessee to the non-resident agents would not come under the term "fees for technical services". For procuring orders for leather business from overseas buyers, wholesalers or retailers, as the case may be, the non-resident agent was paid 2.5 per cent commission on free on board basis. This was a commission simpliciter. What was the nature of technical service that the non-resident agents had provided abroad to the assessee was not clear from the order of the Assessing Officer. The Opening of letters of credit for the purpose of completing the export obligation was an incident of export and, therefore, the non-resident agent was under an obligation to render such services to the assessee, for which commission was paid. The non-resident agent did not provide technical services for the purposes of running of the business of the assessee in India. Therefore, the commission paid to the non-resident agents would not fall within the definition of 'Tees for technical services" and the assessee was not liable to deduct tax at source on payment of commission.”

In the result, the appeal filed by the assessee is allowed. Order pronounced on the 23rd June, 2017 at Chennai.