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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI A.K. GARODIA & SHRI VIJAY PAL RAO
per Article 7 of DTAA between India and Qatar, the profits of an enterprise of contracting State shall be chargeable only in that State, unless the enterprise carries on business in other contracting State through a Permanent Establishment (PE) situated therein. It was further submitted that it is nobody’s case that the agents to whom commission was paid were having PE in India. It was also submitted that the relevant provisions of DTAA between India and Republic of South Africa are available at pages 40 to 61 of PB; between India and Kingdom of Spain at pages 62 to 87 of PB; between India and Govt. of USA at pages 88 to 115 of PB; between India and Singapore at pages 116 to 132 of PB; and between India and Govt. of Argentina Republic at pages 133 to 144 of PB. It was also submitted that in all these DTAAs, the provisions are same and therefore, the commission income earned by non-resident agents is not liable to tax in India and as a consequence, no TDS is deductible from such payment of commission u/s. 195 of the Act.
Regarding reliance placed by the ld. CIT (Appeals) on two decisions of AAR, it was submitted that the facts in those cases are different and therefore, these Rulings of AAR are not applicable to the present case. In particular, the ld. AR of assessee drew our attention to page 6 of Written Submissions being reproduction of Ruling of AAR in the case of Rajiv Malhotra, 284 ITR 564 (AAR) and he pointed out that in this order, AAR has referred to its own another Ruling in Ind. Telesoft P. Ltd., 267 ITR 725 (AAR) and it is stated that in that case, agents were securing business from outside India and this Ruling was distinguished by AAR in the case of Rajiv Malhotra (supra) by stating that the facts in that case are different, because in that case, the non-resident agents secured business from persons abroad who are to be persuaded to book the space and participate in the exhibition and to pay charges therefor. It was submitted that in the present case, the facts are similar to the facts in the case of Ind. Telesoft P. Ltd. (supra) and this Ruling of AAR is in favour of assessee. It was submitted that the ld. CIT (Appeals) was not justified in following the Ruling of AAR in the case of Rajiv Malhotra (supra) and not following the Ruling in the case of Ind. Telesoft P. Ltd. (supra).
Regarding another Ruling of AAR rendered in the case of SKF.
Boilers & Driers (P.) Ltd., 345 ITR 385 (AAR), the ld. AR of assessee submitted that in that case, benefit under the provisions of DTAA was not claimed by the assessee, whereas in the present case, the assessee is claiming benefit under DTAA and therefore, this Ruling is also not applicable in the present case.
The ld. DR supported the orders of revenue authorities.
We have considered the rival submissions. First of all, we will examine the validity of the action taken by the Assessing Officer. AO has proceeded on this basis that as per Explanation 2 to section 9(1) (i), business connection shall include any business activity which is carried out through a person acting on behalf of non-resident, as noted by AO in para 16 of his order. In the present case, the non-resident commission agent is carrying out business outside India on behalf of resident assessee and therefore, in our considered opinion, this Explanation 2 to section 9(1) (i) is not applicable in the present case.
Now, we will examine the applicability of DTAA between India and various countries i.e., Qatar, South Africa, Spain, USA, Singapore and Argentina. Article 7 in the DTAAs regarding business profits is similar in all these DTAAs and as per the same, profits of an enterprise of a contracting State shall be taxable only in that State, unless the enterprise carries on business in the other contracting States through a PE situated therein.
Therefore, in the absence of a finding that commission agents are having PE in India as per Article 7 of DTAAs between India and these countries, the business profit of commission agents cannot be brought to tax in India and as per section 90(2), if DTAA is more beneficial than the domestic laws, then DTAA has to prevail.
In this view of the matter, the order of AO and CIT (Appeals) are not sustainable because in the facts of the present case and legal position as discussed above, commission payment made by the assessee to these commission agents outside India for procuring export orders cannot be brought to tax in India and as a consequence, TDS is not deductible. We order accordingly.
In the result, all these appeals of assessee are allowed.
Pronounced in the open court on this 29th day of April, 2016.