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Income Tax Appellate Tribunal, MUMBAI BENCHES “SMC”, MUMBAI
Before: Shri Joginder Singh,
आदेश / O R D E R
The assessee is aggrieved by the impugned order dated 19/09/2014 of the Ld. First Appellate Authority, Mumbai. The only ground raised in the present appeal pertains to disallowing commission of Rs.26,48,222/- u/s 40(a)(ia) of the Income Tax Act, 1961 (hereinafter the Act).
During hearing of this appeal, the ld. counsel for the assessee Shri Uttam Chand Bothra, filed an affidavit, explaining the reasons by claiming that the persons to whom commission was paid were residing abroad and it is merely an overseas commission paid for the services rendered/provided outside India for booking of orders for supply of goods outside India and none of the partners have met any of the recipients in India to whom overseas commission was paid. It was explained that one of the partners of the assessee firm Shri Piyush K Shah, whenever used to visit countries of the respective recipients, to whom overseas commission were paid used to contact them personally in their respective country.
2.1. On the other hand, the ld. DR, Shri Shrikant Namadev, defended the addition but did not controvert the submissions of the assessee which are supported by an affidavit of one of the partner.
2.2. I have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is in partnership firm declaring income of Rs.21,73,710/- in its return filed on 14/10/2010. The assessee filed the necessary details before the ld. Assessing Officer. The assessee claimed overseas commission of Rs.26,48,222/- paid to none residence who provided services, outside India and have no permanent place of business/establishment in India. Before this Tribunal, the assessee has challenged the disallowance of expenditure made to such overseas recipients who rendered services to the assessee abroad. The assessee was directed by the Bench to establish whether the recipient of the commission are having permanent establishment in India or they used to visit India during the relevant period. The assessee has filed an affidavit duly sworn by Shri Bimal R Shah, one of the partner and has sworn on oath that the commission of Rs.26,48,222/- was paid to the service providers, outside India, for booking orders for supply of goods (outside India). Considering the contents of the affidavit of the assessee, we find merit in the contention of the assessee because the payments to a non-resident, being covered u/s 195 of the Act and the decision from Hon’ble Apex Court in G.E. India Technology (2010) 327 ITR 456 (SC), the ratio laid down in transmission corporation of AP Ltd. vs CIT (1999) 239 ITR 587, Since, the payees have no place of business in India or otherwise any presence whatsoever in India and since the services by the payees were rendered outside India, in fact no charge by the Revenue of the payee having any place of business/business connection in India, the explanation be of no consequence, thus, there is no obligation on the part of the assessee to deduct tax at source. Section 195 of the Act and the relevant part thereof is reproduced hereunder:-
“Other sums. 195. (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) orsection 194LD or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode : Provided further that no such deduction shall be made in respect of any dividends referred to in section 115-O. Explanation 1.—For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. Explanation 2.—For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has— (i) a residence or place of business or business connection in India; or (ii) any other presence in any manner whatsoever in India. (2) Where the person responsible for paying any such sum chargeable under this Act (other than salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable.”
The ratio laid down in CIT vs M/s Parida leather Company (Tax Case Appeal No.484 of 2015) order dated 20/01/2016, the Hon’ble Madras High Court on identical issue and applicability of section 40(a)(ia), following the decision from Hon’ble Apex Court in G.E. India Technology Cen. P. Ltd. (Supra) duly considered explanation-4 to section 9(1)(i) and explanation 2 to section 195(1) of the Act, which was introduced by the Finance Act, 2012, also considered the decision in CIT vs Faizan Shoes Pvt. Ltd. along with the decision in CIT Kikani Exports Pvt. Ltd. (2014) 369 ITR 96 (Mad.) dismissed the appeal of the Revenue by confirming the order of the Tribunal. Identical ratio was laid down by Hon’ble jurisdictional High Court at Goa in M/s Sesa Resources Ltd. vs DCIT (Tax Appeal No.11 of 2016) order dated 07/03/2016 decided in favour of the assessee. Considering the totality of facts circumstances and the judicial pronouncements discussed hereinabove, the appeal of the assessee is allowed.
Finally, the appeal of the assessee is allowed.
This order was pronounced in the open in the presence of ld. representative from both sides at the conclusion of the hearing on 27/06/2016.