INCOME TAX OFFICER, WARD-2(1)(1), BENGALURU vs. G. TEX INC, BENGALURU

Aggrieved by the assessment completed u/s. 143(3) r.w.s 148 of the IT Act, 1961, the assessee preferred an appeal before the Ld.CIT(A). The Ld.CIT(A) relying the judgment of Hon’ble Apex Court in the case of Commissioner of Income Tax vs. Thoshoku Ltd, Equivalent citation: 1981 AIR 148, 1981, SCR (1) 587 as well as following few Tribunal decisions concluded that the assessee paid commission to the foreign agent is not the income chargeable to tax in India and once an income is not chargeable to tax in India, then the question of deducting TDS under the provision of section 195 of the Act does not arise and accordingly, allowed the appeal of assessee.

Aggrieved by the order of Ld.CIT(A), the revenue has filed the present appeal before the Tribunal.

The solitary issue that is raised whether the Ld.CIT(A) is justified in allowing the appeal of the assessee without accepting the fact that assessee has claimed the expenses of Rs.3,00,25,255/- under the head payment of overseas commission in his profit and loss account without having made any actual payments & even without deducting Tax at Source U/s 195(1) of the Act which is nothing but an arrangement to avoid payment of taxes.

Before us, the Ld.AR supported the order of the first appellate authority and submitted that in the original assessment proceeding, the Ld.AO has duly verified the profit and loss account and allowed the overseas commission expenses of Page 4 of Rs.3,00,25,255/- but on the change of opinion, the Ld.AO initiated the proceeding u/s. 148 of the IT Act which is not permissible under the law. Further, the Ld.AR of the assessee vehemently argued that since the commission to the foreign agent is not the income chargeable to tax in India, then the question of deducting TDS under the provisions of section 195 of the IT Act does not arise. Further, the Ld.AR in support of his claim produced paper book containing 24 pages enclosing therein the copies of the following documents during the course of hearing before us. a) Memo for Production of Documents b) Copy of the acknowledgment downloaded from the income tax e-filing portal for having been submitted the documents and judgments before the Learned Commissioner Appeals c) Sample copies of the purchase order received through email. d) List depicting the details of overseas commissions e) Sample copies of export invoices, along with shipping bill for export and Bank Certificate for export and realisation.

Further, the Ld.AR of the assessee also submitted the memo for production of documents containing 792 pages which were submitted before the National Faceless Appeal Centre during the first appeal proceedings. The Ld. DR on the other hand, vehemently submitted that no agreement between the agent and the assessee were produced either before the assessing authority or at the first appellate stage. Further the Ld.DR also submitted that as per the provision of section 9(1)(i) of the Act, all income accruing or arising, whether directly or indirectly through or from any business connection in India, the income is said to be Page 5 of India. Accordingly, the Ld.AO has rightly disallowed the overseas commission of Rs.3,00,25,255/- as there was non-compliance of the provisions of section 195(1) of the Act and accordingly disallowed the payment of overseas commission as per the provisions of section 40(a)(i) of the IT Act, 1961.

We have heard the rival submissions and perused the material available on record.

On perusal of the record submitted by the AR of the Assessee we find that the assessee had made payment to overseas commission agents amounting to Rs.3,00,25,255/- which were in the nature of commission billed along with the garments exported from India . We also find that these commissions were not paid by the appellant company directly to the agent but instead paid by the customers / purchasers of the appellant company outside India. The overseas commission agents are non-resident and also do not have any permanent establishments (PE) or dependent personal agencies in India. The Ld.AO also could not bring any material on record that the services for which the commission is paid or rendered in India or the overseas commission agents having any permanent establishments (PEs) in India. Therefore we are of the opinion that as the overseas commission agents are non-residents and they do not have PE in India and also the services are not rendered in India, the commission income in the hands of the overseas commission agents is not chargeable to tax in India. Once an income is not Page 6 of India, the question of deducting TDS under the provisions of section 195 of the IT Act does not arise. We are also of the opinion that the principles laid down by Hon’ble Apex Court in the case of Commissioner of Income Tax vs. Thoshoku Ltd. reported in 125 ITR 525 (SC) is squarely applicable in the case of the Appellant. The Hon’ble Apex Court has held that the commission amount which were earned by the non-resident assessee for services rendered outside India cannot, therefore be deemed to be income which have either accrued or arisen in India. Further, relying on the decision in the case of DCIT, Cir - 2(1)(1), Ahmedabad. Vs. M/s. Gujarat Microwax Pvt. Ltd., in the the Hon'ble ITAT Ahmedabad has held that “the Commission income in the hands of foreign agent is not chargeable to tax in India in the given facts & circumstances. Once an income is not chargeable to tax in India then the question of deducting TDS under the provision of section 195 of the Act does not arise”.

In the case of ITO, Ward-26(1), New Delhi Vs. Kulbeer Singh, H-432, Vikas Puri, New Delhi in the ITA No.5204/De1/2014. In the page no 35-37 vide paragraph no 7 and 8 the Hon'ble ITAT, Delhi has held that "In the present case, the commission is paid to the two parties for export sales. The foreign agents are non - resident and the services have been rendered undisputedly by them outside India. The commission payment was also supported by the copy of the agreement and confirmation of commission paid. The copy of the passport of the commission agents were also submitted along with the party wise and invoice wise details

Similar view has been taken by the Hon'ble ITAT, Kolkata in the case of M/s Bengal Tea & Fabrics Ltd., Vs. DCIT, Circle-4, in the ITA No.1667/KOL/2016.

Therefore relying upon the above decisions we are of the opinion that as the appellant has never made payment to the commission agent directly and in fact the commission amount were paid by the Foreign buyer / purchaser on behalf of the appellant company and even commission agents are different and also belongs to various countries without having any PE in India, the provision of TDS itself will not attract in the appellant case. In view of the aboe, we do not find any infirmity in the decision taken by the Ld.CIT(A) in deleting the additions. Accordingly, we confirm his order.