SHRI VENUE EXPORTS,MUMBAI vs. ITO 17(2)(3), MUMBAI

Brief facts are, the assessee a partnership firm is exporter of food grain, spices, masalas, general consumables, etc. During the 2 M/s. Shri Venue Exports assessment proceedings, the Assessing Officer while verifying the information submitted by the assessee with regard to TDS on brokerage and commission paid to parties found that TDS was not deducted on the following payments.

He, therefore, called upon the assessee to explain why the amount should not be disallowed for non–deduction of tax in terms of section 195. In response, it was submitted by the assessee that these commissions were paid to foreign nationals for services rendered by them in procuring export sale orders in foreign countries. It was submitted, since commission paid to them is not income arising or accruing to them in India, there is no requirement to deduct tax at source under section 195 of the Act. The Assessing Officer observed, since the assessee made payment of commission to various parties without deducting tax at source, the entire commission paid is liable to be disallowed as per section 40(a)(ia) of the Act. Accordingly, he made the disallowance. Being aggrieved of such disallowance, assessee

Learned Authorised Representative submitted, the assessee has engaged foreign agents to procure export orders for sale of goods and merchandise in foreign countries. He submitted, all the agents are non–residents and reside in foreign countries and are carrying on activities in their country of residence. He submitted, as the agents are neither resident of India nor have a business connection or P.E. in India, the income received by them by way of commission from the assessee does not accrue or arise in India, hence, there is no burden on the assessee in terms of section 195 of the Act to deduct tax at source at the time of payment of commission. In support of such of such contention, he relied upon a decision of the Tribunal, Mumbai Bench, in Gujarat Reclaim and Rubber Products Ltd. v/s ACIT, ITA no.8868/Mum./2010, etc., order dated 19th April 2013. He submitted,

Learned Departmental Representative relied upon the decision of the Assessing Officer and the learned Commissioner (Appeals).

We have considered the submissions of the parties and perused the material available on record. As could be seen from the discussions made by the Assessing Officer in Para–4.3 of the assessment order, the assessee in response to the show cause notice had specifically stated that not only the payees are foreign residents but they have 5 M/s. Shri Venue Exports rendered services for procuring sales orders for the assessee in foreign countries. Therefore, the entire activity having been carried out by them outside India, the payment made to them towards commission is not taxable as income in their hands. The Assessing Officer without examining the exact nature of payment or controverting the claim of the assessee factually that the payment did not attract the provisions of section 195 has simply disallowed the commission paid by invoking the provisions of section 40(a)(ia). Same is the case with the learned Commissioner (Appeals). It is evident, the learned Commissioner (Appeals) has taken note of the fact in the assessment year 2009–10 his predecessor–in–office deleted similar disallowance in assessee’s own case on the finding that such payments were made to foreign parties for securing export sale orders for the assessee and the commission was paid to them in abroad directly and they do not have any P.E. in India. He had also agreed that the facts and issue in the impugned assessment year is identical to assessment year 2009–10. However, he refused to follow the order of the learned Commissioner (Appeals) in assessment year 2009–10 on the reasoning that as per Explanation–2 to section 195, introduced with retrospective effect from 1st April 1962, irrespective of the fact whether the non–resident has a place of business in India or business connection in India or any other presence in any manner in India, still the payents to them would be 6 M/s. Shri Venue Exports subjected to TDS in terms of section 195. When it is a fact on record that the commission payments made to the non–resident agents were towards procuring of export sale orders in foreign countries and who have no P.E. or business connection in India, we do not find the necessity for deduction of tax at source on such payment. There is nothing on record to suggest that while procuring such export sale orders, the foreign agents had rendered any technical or advisory services to the assessee. A careful reading of the provisions of section 195(1) would suggest that the person is required to deduct tax at source on payment made to a non–resident which is chargeable under the provisions of the Act. Therefore, unless the payment at the hands of the resident is chargeable to tax under the provisions of the Act, there is no requirement for deduction of tax. In the present case, there is no finding by the Assessing Officer or the learned Commissioner (Appeals) that the commission payment are chargeable to tax at the hands of the recipients under the provisions of the Income Tax Act. As far as applicability of the provisions of Explanation–2 to section 195(1) is concerned, though, it speaks of applicability of section 195(1) of the Act, irrespective of the fact whether the non–resident has place of business or business connection in India or have any other presence in any manner in India, however, the basic condition of the provisions of section 195(1) that the payment made should be chargeable under the 7 M/s. Shri Venue Exports provisions of the Act still remains. Even otherwise also, as could be seen, Explanation to section 195(1) was brought to the statute by Finance Act, 2012, with retrospective effect from 1st April 1962. Therefore, even assuming that in terms of the said Explanation,, assessee was required to deduct tax under section 195(1), however, it is a fact that at the time of payment of commission, the said Explanation was not introduced to the statute book. Therefore, the assessee could not have foreseen the introduction of the said provisions in section 195 and deducted tax at source in compliance thereto. As far as the decision of the Tribunal, Panaji Bench, referred to by the learned Commissioner (Appeals), we are unable to examine applicability of the said decision to the fact of the present case, as the learned Departmental Representative has not placed a copy of the said decision before us. Therefore, it is difficult for us to fathom under what facts and circumstances the decision was rendered and their applicability to the present case. Therefore, we are not in a position to express much on the said decision of the Tribunal, Panaji Bench. Thus, on overall consideration of the facts and circumstances of the case, we are of the considered view that the commission payment made by the assessee to foreign nationals for procuring export sales online for the assessee does not attract provisions of section 195(1). Accordingly, we

In the result, appeal stands allowed. Order pronounced in the open Court on 18.11.2016