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Facts
The revenue appealed the deletion of disallowances made by the Assessing Officer (AO) for foreign commission payments and sample/development charges. The AO had disallowed these payments under Section 40(a)(i) of the Income Tax Act, treating them as income subject to TDS for non-resident entities.
Held
The CIT(A) deleted the disallowances, relying on judicial precedents that foreign agents without a Permanent Establishment (PE) in India did not necessitate TDS deduction. For sample charges, the CIT(A) considered the amendment to Section 9 by the Finance Act, 2010, was not yet in statute at the time of payment.
Key Issues
Whether disallowance under Section 40(a)(i) is applicable for foreign commission payments and sample development charges to non-resident entities without a PE in India, and if the amendment to Section 9 by the Finance Act, 2010 impacts the requirement of TDS for sample charges.
Sections Cited
40(a)(i), 195, 9
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Income Tax Appellate Tribunal, “DB” BENCH, AGRA
Before: HON’BLE SHRI SATBEER SINGH GODARA, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
(िनधा�रणवष� / Assessment Year:2010-11) बनाम/ ACIT-Circle-1, M/s. Dawar Footwear Industries Agra. 53, T.P. Nagar, Agra. Vs. �थायीलेखासं./जीआइआरसं./PAN/GIR No. AAAFD-6003-E (अपीलाथ�/Appellant) : (� थ� / Respondent) अपीलाथ�कीओरसे/ Appellant by : Dr. Arun Kumar Yadav – Ld. CIT-DR � थ�कीओरसे/Respondent by : Sh. Rajendra Sharma, Adv. – Ld. AR सुनवाईकीतारीख/Date of Hearing : 19-02-2025 घोषणाकीतारीख /Date of Pronouncement : 22.04.2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeals by revenue for Assessment Year (AY) 2010-11 arises out of an order passed by learned Commissioner of Income Tax (Appeals)-I, Agra [CIT(A)] on 31-03-2015 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 18-03- 2013. Both sides made vehement arguments. Having heard rival submissions and upon perusal of case records, the appeal is disposed- off as under. The sole grievance of the revenue is deletion of disallowance u/s 40(a)(i) against foreign commission payments and sample and development charges as paid by the assessee to non- resident entities. The assessee derived income from manufacturing and trading of footwear.
The assessee paid commission to non-resident agents for export orders. No tax was deducted against the same on the ground that the payment was not for managerial and technical services. No part of services was rendered in India. None of the payee was stated to be having any permanent establishment in India. However, Ld. AO made disallowance u/s 40(a)(i) for Rs.288.47 Lacs. The assessee also paid sample design development expenses to foreign parties which was similarly disallowed for Rs.36.15 Lacs.
The Ld. CIT(A), inter-alia, relied on the decision of Hon’ble Delhi High Court in the case of EON Technology Pvt. Ltd. (343 ITR 366) as well as the decision of Hon’ble High Court of Madras in the case of Faizan Shoes Pvt. Ltd. (48 Taxmann.com 48) to hold that where foreign agents had no PE in India, no part of their services would be rendered in India and therefore, there would be no obligation to deduct TDS u/s 195. On the issue of sample charges, it was held that when the payment was made, the amendment made below Sec.9 by Finance Act, 2010 was not in statute and therefore, there was impossibility of performance as held by Agra bench of Tribunal in the case of Metro & Metro (39 Taxmann.com26).Accordingly, the impugned disallowances were deleted against which the revenue is in further appeal before us.
It could very well be seen that the adjudication of Ld. CIT(A) is based on binding judicial precedents. No contrary decision has been shown to us. This being the case, we confirm impugned order, on both the issues.
The appeal stands dismissed.
Order pronounced u/r 34(4) of Income Tax (Appellate Tribunal) Rules, 1963.