Appeal details
Counselvise Citation
[2016] 112 COUNSELVISE.COM (IT) 4221 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 6 month(s) 23 day(s)
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
16-08-2016
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
B
Next Hearing Date
11-08-2016
Assessment Year
2009-2010
Appeal Filed On
23-01-2014
Judgement Text
CO NO. 13/AHD/2014 I.T.A. NO.2028AHD/2013 ASSESSMENT YEAR: 2009 - 10 PAGE 1 OF 14 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND S S GODARA JM ] I.T.A. NO . 2028/AHD/13 ASSESSMENT YEAR: 2009 - 10 DEPUTY COMMISSIONER OF INCOME TAX (OSD) CIRCLE 8, AHMEDABAD ........ APPELLANT VS. TROIKAA P HARMACEUTICALS LIMITED .. .RESPONDENT 3011, COMMERCE HOUSE NO. 1, OPP RAJVANSH APARTMENTS JUDGES BUNGALOW ROAD, AHMEDABAD 380054 [PAN: AAABCT0228K ] CO NO. 13 /AHD/201 4 ARISING OUT OF I.T.A. NO. 2028 AH D/201 3 ASSESSMENT YEAR: 2009 - 10 T ROIKKA PHARMACEUTIC ALS LIMITED ... CROSS OBJECTOR 3011, COMMERCE HOUSE NO. 1, OPP RAJVANSH APARTMENTS JUDGES BUNGALOW ROAD, AHMEDABAD 380054 [PAN: AAABCT0228K] VS. DEPUTY COMMISSIONER OF INCOME TAX (OSD) CIRCLE 8, AHMEDABAD .. . RESPONDENT APPEARANCES BY: JAMES KU R IAN FOR THE APPELLANT ASSESSING OFFICER KARAN SHAH AND JWALIN NANAVATI FOR THE RESPONDENT ASSESSEE DATE OF CONCLUDING THE HEARING : AUGUST 11 , 2016 DATE OF PRONOUNC ING THE ORDER: AUGUST 16, 2016 ORDER PER PRAMOD KUMAR , AM : 1. THIS APPEAL, FILED BY THE AS SESSING OFFICER, SEEKS TO CHALLENGE THE ORDER DATED 9 TH MAY 2013 PASSED BY THE CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2009 - 10 . 2. IN THE FIRST GROUND OF APPEAL, THE ASSESSING OFFICER HA S RAISED THE FOLLOWING GRIEVANCE: CO NO. 13/AHD/2014 I.T.A. NO.2028AHD/2013 ASSESSMENT YEAR: 2009 - 10 PAGE 2 OF 14 THE LEARNED CIT(A) HAS ERRED, IN LAW AND ON FACTS, IN DELETING THE DISALLOWANCE OF RS 37,67,237 MADE ON ACCOUNT OF FOREIGN COMMISSION. 3. SO FAR AS THIS GRI EVANCE IS CONCERNED, LEARNED REPRESENTATIVES FAIRLY AGREE THAT T HE ISSUE IS COVERED BY THE DECISION OF A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF ITO VS EXCEL CHEMICALS INDIA PVT LTD (ITA NO 5/AHD/16; ORDER DATED 29 TH JUNE 2016). LEARNED COUNSEL, HOWEVER, HASTENS TO PLACE HIS RELIANCE ON THE STAND OF THE ASSES SING OFFICER, AND THAT, IN THE PRESENT CASE, RELIANCE HAS BEEN PLACED ON SECTION 9(1)(VII) RATHER THAN 9 (1)(I) AS WAS THE CASE IN THE EXCEL CHEMICALS (SUPRA). 4. AS LEARNED COUNSEL RIGHTLY POINTS OUT, THE ISSUE, AS TO WHETHER THE COMMISSION PAID TO NON R ESIDENT AGENTS COULD BE DISALLOWED WHEN IT WAS PAID WITHOUT DEDUCTION OF TAX AT SOURCE UNDER SECTION 195, CAME UP FOR CONSIDERATION IN THE CASE OF EXCEL CHEMICALS (SUPRA). REJECTING THE CONTENTIONS OF THE REVENUE, THE COORDINATE BENCH, INTER ALIA, OBSERVED AS FOLLOWS: 3. TO ADJUDICATE ON THIS APPEAL, ONLY A FEW MATERIAL FACTS NEED TO BE TAKEN OF. THE ASSESSEE BEFORE US IS A RESIDENT COMPANY ENGAGED IN THE BUSINESS OF TRADING IN CHEMICALS. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESS ING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF RS 58,73,635 IN RESPECT OF THE COMMISSION PAID, OUT OF WHICH SUMS AGGREGATING TO RS 51,79,355 WERE PAID TO BE NON - RESIDENT ENTITIES WITHOUT ANY TAX WITHHOLDING AT SOURCE. IN RESPONSE TO THE ASS ESSING OFFICER S REQUISITION TO SHOW CAUSE AS TO WHY THESE PAYMENTS NOT BE DISALLOWED UNDER SECTION 40(A)(I), FOR WANT OF APPROPRIATE TAX WITHHOLDING AT SOURCE, IT WAS EXPLAINED BY THE ASSESSEE THAT THE SALE COMMISSION WAS PAID IN RESPECT OF SERVICES RENDE RED ABROAD, AND, AS SUCH, NO TAX WAS DEDUCTIBLE AT SOURCE. SINCE THERE WAS NO TAX DEDUCTION AT SOURCE IN REQUIREMENT, ACCORDING TO THE ASSESSEE, THERE COULD NOT HAVE BEEN ANY OCCASION TO INVOKE DISALLOWANCE UNDER SECTION 40(A)(I). THE ASSESSEE ALSO REFERRE D TO, AND RELIED UPON, CERTAIN JUDICIAL PRECEDENTS IN SUPPORT OF THE PROPOSITION THAT UNLESS THE RECIPIENT OF COMMISSION IS CARRYING ON BUSINESS IN INDIA, THROUGH A PERMANENT ESTABLISHMENT, THE SALES COMMISSION SO PAID TO NON - RESIDENT ENTITIES IS NOT TAXAB LE IN INDIA. NONE OF THESE SUBMISSIONS, HOWEVER, IMPRESSED THE ASSESSING OFFICER. THE ASSESSING OFFICER NOTED THAT UNDER SECTION 5(2)(B) OF THE ACT, A NON - RESIDENT ASSESSEE IS TAXABLE IN INDIA IN RESPECT OF ALL HIS INCOMES ACCRUING OR ARISING IN INDIA AN D INCOMES DEEMED TO ACCRUE OR ARISE IN INDIA, AND THAT, BY THE VIRTUE OF DEEMING FICTION UNDER SECTION 9(1)(I), INCOME ACCRUING OR ARISING IN CO NO. 13/AHD/2014 I.T.A. NO.2028AHD/2013 ASSESSMENT YEAR: 2009 - 10 PAGE 3 OF 14 INDIA, DIRECTLY OR INDIRECTLY THROUGH ANY BUSINESS CONNECTION IN INDIA OR THROUGH ANY SOURCE OF INCOME IN INDIA, S HALL BE DEEMED TO ACCRUE OR ARISE IN INDIA. HE THEN REFERRED TO A RULING OF HON BLE AUTHORITY FOR ADVANCE RULING, IN THE CASE OF SKF BOILERS AND DRIERS PVT LTD IN RE [(2012) 343 ITR 385 (AAR)] IN SUPPORT OF THE PROPOSITION THAT COMMISSION REMITTED ABROAD TO NON - RESIDENT AGENT RENDERING SERVICES ABROAD, WAS INCOME ACCRUING OR ARISING IN INDIA, AND THE FACT THAT THE NON - RESIDENT AGENT RENDERED SERVICES ABROAD WAS WHOLLY IRRELEVANT FOR THE PURPOSE OF DETERMINING SITUS OF THEIR INCOME. IT WAS ALSO, ACCORDING T O THE ASSESSING OFFICER, HELD IN THE SAID CASE THAT SINCE THE RIGHT TO COMMISSION AROSE IN INDIA, FOR THE SIMPLE REASON THAT THE ORDERS WERE EXECUTED IN INDIA. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE FACTS OF THE ASSESSEE S CASE ARE IDENTICAL TO T HE AFORE CITED CASE SINCE ASSESSEE WAS LIABLE TO PAY THE EXPORT COMMISSION TO NON - RESIDENT FOR EXPORT ORDER FROM ABROAD, BUT THE ORDERS WERE EXECUTED FROM INDIA . A REFERENCE WAS THEN MADE TO EXPLANATION 4 TO SECTION 9(1)(I), INTRODUCED BY THE FINANCE ACT 2012 W.R.E.F 1 ST APRIL 1962, THAT THE EXPRESSION THROUGH SHALL MEAN TO INCLUDE, AND SHALL ALWAYS BE DEEMED TO HAVE INCLUDED, BY MEANS OF , IN CONSEQUENCE OF AND BY REASON OF . THE CLAIM OF THE ASSESSEE THAT THE INCOME DID NOT ACCRUE OR ARISE IN IN DIA WAS THUS REJECTED. AS REGARDS THE RELIANCE ON THE CERTIFICATE ISSUED BY THE CHARTERED ACCOUNTANT, CERTIFYING THAT NO TAX DEDUCTION AT SOURCE WAS WARRANTED FROM THE REMITTANCES FOR COMMISSION, THE ASSESSING OFFICER RELIED UPON DECISION OF THE TRIBUNAL, IN THE CASE OF DCIT VS REDIFF.COM INDIA LIMITED [(2011) 47 SOT 310 (MUM)] IN SUPPORT OF THE PROPOSITION THAT SUCH A CERTIFICATE CANNOT BE CONCLUSIVE DETERMINATION OF TAXABILITY IN THE HANDS OF THE RECIPIENT. AS REGARDS ALL THE JUDICIAL PRECEDENTS CITED BY THE ASSESSEE, THE ASSESSING OFFICER REJECTED THE SAME BY OBSERVING THAT VARIOUS DECISIONS CITED BY THE ASSESSEE, CBDT CIRCULAR NO. 786 BY WAY OF NEW CIRCULAR 7 OF 2009 DATED 22/10/2009 WHEREBY ALL THE PAYMENTS TO NON - RESIDENTS WITHOUT DEDUCTION OF TAX AT SOURCE HA VE BEEN WITHDRAWN . ON THE BASIS OF THIS LINE OF REASONING, THE ASSESSING OFFICER HELD THAT THE COMMISSION PAID TO NON - RESIDENT AGENTS, AMOUNTING TO RS 51,79,355, IS TO BE DISALLOWED UNDER SECTION 40(A)(I). AGGRIEVED, ASSESSEE CARRIED THE MATT ER IN APPEAL BEFORE THE CIT(A) WHO DELETED THE DISALLOWANCE BY HOLDING THAT THE INCOME WAS NOT TAXABLE IN INDIA, AS NO OPERATIONS WERE CARRIED OUT IN INDIA, AND THAT, SINCE NO INCOME WAS TAXABLE IN INDIA, THERE COULD NOT HAVE BEEN ANY OCCASION TO DEDUCT TAX AT SOURCE FROM THE REMITTANCES IN QUESTION. LEARNED CIT(A) FURTHER HELD THAT THE ADVANCE RULING RELIED UPON BY THE ASSESSING OFFICER, I.E. SKF BOILERS (SUPRA) AND RAJEEV MALHOTRA IN RE [(2006) 284 ITR 564 (DEL)] DID NOT APPLY TO THE FACTS OF THIS CASE. TH E DISALLOWANCE WAS THUS DELETED. THE ASSESSING OFFICER IS AGGRIEVED AND IS IN APPEAL BEFORE US. CO NO. 13/AHD/2014 I.T.A. NO.2028AHD/2013 ASSESSMENT YEAR: 2009 - 10 PAGE 4 OF 14 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED THE FACTS OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 5. THE BASIC CONTENTION OF THE ASSESSING OFFICER IS THAT IN VIEW OF THE SCOPE OF DEEMING FICTION UNDER SECTION 9(1)(I) , WHICH INTER ALIA HOLDS THAT ANY INCOME ARISING DIRECTLY OR INDIRECTLY FROM ANY BUSINESS CONNECTION IN INDIA WILL BE DEEMED TO ACCRUE OR ARIS E IN INDIA, READ WITH THE SCOPE OF CHARGING SECTION 5(2), WHICH ENABLES TAXABILITY OF A NON - RESIDENT IN RESPECT OF INCOME ACCRUING OR ARISING OR DEEMED TO ACCRUE OR ARISE, IN INDIA,, INCOME ARISING IN T HE HANDS OF THE NON - RESIDENT COMMISSION AGENT IS TAXA BLE IN INDIA . WHAT HE OVERLOOKS, HOWEVER, IS THE IMPACT OF EXPLANATION 1 TO SECTION 9 (1)(I) WHICH STATES THAT FOR THE PURPOSE OF THIS CLAUSE [I.E. 9(1)(I)], IN THE CASE OF A BUSINESS OF WHICH ALL THE OPERATIONS ARE NOT CARRIED OUT IN INDIA, THE INCOME O F THE BUSINESS DEEMED UNDER THIS CLAUSE TO ACCRUE OR ARISE IN INDIA SHALL BE ONLY SUCH PART OF THE INCOME AS IS REASONABLY ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA . ONLY IF HE WAS TO TAKE INTO ACCOUNT THE SCOPE OF EXPLANATION 1 TO SECTION 9(1)( I), COUPLED WITH THE FACT THAT ADMITTEDLY NO PART OF OPERATIONS OF THE NON - RESIDENT COMMISSION AGENT WERE CARRIED OUT IN INDIA, HE WOULD HAVE REALIZED THAT EVEN THOUGH DEEMING DICTION UNDER SECTION 9(1)( I ) IS TRIGGERED ON THE FACTS OF THIS CASE, ON ACCOUNT OF COMMISSION AGENT S BUSINESS CONNECTION IN INDIA, IT HAS NO IMPACT ON TAXABILITY IN THE HANDS OF COMMISSION AGENT BECAUSE ADMITTEDLY NO BUSINESS OPERATIONS WERE CARRIED OUT IN INDIA, AND, THEREFORE EXPLANATION 1 TO SECTION 9(1)(I) COMES INTO PLAY. THE S EEMINGLY ERUDITE ANALYSIS BY THE ASSESSING OFFICER IS BASED ON A HALF - BAKED LEGAL THEORY, AND THE CONCLUSIONS, THEREFORE, CLEARLY FALLACIOUS. 6. AS FOR THE AAR RULING IN THE CASE OF SKF BOILERS (SUPRA), ON WHICH SO MUCH RELIANCE HAS BEEN PLACED BY THE ASSESSING OFFICER, WE FIND THAT THIS DECISION MERELY FOLLOWS THE EARLIER RULING IN THE CASE OF RAJIV MALHOTRA (SUPRA) WHICH, IN OUR CONSIDERED VIEW, DOES NOT TAKE INTO ACCOUNT THE IMPACT OF EXP LANATION 1 TO SECTION 9(1)(I) PROPERLY . THAT WAS A CASE IN WHI CH THE NON - RESIDENT COMMISSION AGENT WORKED FOR PROCURING PARTICIPATION BY OTHER NON - RESIDENT ENTITIES IN A FOOD AND WINE SHOW IN INDIA, AND THE CLAIM OF THE ASSESSEE WAS THAT SINCE THE AGENT HAS NOT CARRIED OUT ANY BUSINESS OPERATIONS IN INDIA, THE COMMI SSION AGENT WAS NOT CHARGEABLE TO TAX IN INDIA, AND, ACCORDINGLY, THE ASSESSEE HAD NO OBLIGATION TO DEDUCT TAX AT SOURCE FROM SUCH COMMISSION PAYMENTS TO THE NON - RESIDENT AGENT. ON THESE FACTS, THE AUTHORITY FOR ADVANCE RULING, INTER ALIA, OPINED THAT NO DOUBT THE AGENT RENDERS SERVICES ABROAD AND PURSUES AND SOLICITS EXHIBITORS THERE IN THE TERRITORY ALLOTTED TO HIM, BUT THE RIGHT TO RECEIVE THE COMMISSION ARISES IN INDIA ONLY WHEN EXHIBITOR PARTICIPATES IN CO NO. 13/AHD/2014 I.T.A. NO.2028AHD/2013 ASSESSMENT YEAR: 2009 - 10 PAGE 5 OF 14 THE INDIA INTERNATIONAL FOOD & WINE SHOW (TO BE HELD IN INDIA), AND MAKES FULL AND FINAL PAYMENT TO THE APPLICANT IN INDIA AND THAT THE COMMISSION INCOME WOULD, THEREFORE, B E TAXABLE UNDER SECTION 5(2)(B) READ WITH SECTION 9(1)(I) OF THE ACT . THE AUTHORITY FOR ADVANCE RULING ALSO HELD THAT THE FAC T THAT THE AGENT RENDERS SERVICES ABROAD IN THE FORM OF PURSUING AND SOLICITING PARTICIPANTS AND THAT THE COMMISSION IS REMITTED TO HIM ABROAD ARE WHOLLY IRRELEVANT FOR THE PURPOSE OF DETERMINING SITUS OF HIS INCOME . WE DO NOT CONSIDER THIS APPROACH TO B E CORRECT. WHEN NO OPERATIONS OF THE BUSINESS OF COMMISSION AGENT IS CARRIED ON IN INDIA, THE EXPLANATION 1 TO SECTION 9(1)(I) TAKES THE ENTIRE COMMISSION INCOME FROM OUTSIDE THE AMBIT OF DEEMING FICTION UNDER SECTION 9(1)(I), AND, IN EFFECT, OUTSIDE THE A MBIT OF INCOME DEEMED TO ACCRUE OR ARISE IN INDIA FOR THE PURPOSE OF SECTION 5(2)(B). THE POINT OF TIME WHEN COMMISSION AGENT S RIGHT TO RECEIVE THE COMMISSION FRUCTIFIES IS IRRELEVANT TO DECIDE THE SCOPE OF EX PLANATION 1 TO SECTION 9(1)(I), WHICH IS WH AT IS MATERIAL IN THE CONTEXT OF THE SITUATION THAT WE ARE IN SEISIN OF. THE REVENUE S CASE BEFORE US HINGES ON THE APPLICABILITY OF SECTION 9(1)(I) AND, IT IS, THEREFORE. IMPORTANT TO ASCERTAIN AS TO WHAT EXTENT WOULD THE RIGOUR OF SECTION 9(1)(I) BE RELA XED BY EXPLANATION 1 TO SECTION 9(1)(I). WHEN WE EXAMINE THINGS FROM THIS PERSPECTIVE, THE INEVITABLE CONCLUSION IS THAT SINCE NO PART OF THE OPERATIONS OF THE BUSINESS OF THE COMMISSION AGENT IS CARRIED OUT IN INDIA, NO PART OF THE INCOME OF THE COMMISSIO N AGENT CAN BE BROUGHT TO TAX IN INDIA. IN THIS VIEW OF THE MATTER, VIEWS EXPRESSED BY THE HON BLE AAR, WHICH DO NOT FETTER OUR INDEPENDENT OPINION ANYWAY IN VIEW OF ITS LIMITED BINDING FORCE UNDER S. 245S OF THE ACT, DO NOT IMPRESS US, AND WE DECLINE TO B E GUIDED BY THE SAME. THE STAND OF THE REVENUE, HOWEVER, IS THAT THESE RULINGS , BEING FROM SUCH A HIGH QUASI - JUDICIAL FORUM , EVEN IF NOT BINDING, CANNOT SIMPLY BE BRUSHED ASIDE EITHER , AND THAT T HESE RULINGS AT LEAST HAVE PERSUASIVE VALUE. WE HAVE NO QUAR REL WITH THIS PROPOSITION. WE HAVE, WITH UTMOST CARE AND DEEPEST RESPECT, PERUSED THE ABOVE RULINGS RENDERED BY THE HON BLE AUTHORITY FOR ADVANCE RULING. WITH GR E ATEST RESPECT, BUT WITHOUT SLIGHTEST HESITATION, WE HUMBLY COME TO THE CONCLUSION THAT WE ARE NOT PERSUADED BY THESE RULINGS. 7. IN VIEW OF THE ABOVE DISCUSSIONS, IN OUR CONSIDERED VIEW, LEARNED CIT(A) WAS INDEED JUSTIFIED IN HOLDING THAT GIVEN THE UNDISPUTED AND UNCONTROVERTED FACTS OF THIS CASE, THE NON - RESIDENT COMMISSION AGENTS WERE NOT TAXA BLE IN INDIA IN RESPECT OF THEIR COMMISSION EARNINGS FROM ORDERS PROCURED ABROAD. 8. IT IS ALSO NOW WELL SETTLED IN LAW THAT WHEN THE PAYMENT MADE TO A NON - RESIDENT DOES NOT HAVE AN ELEMENT OF INCOME, TAX DEDUCTION SOURCE REQUIREMENTS UNDER SECTION 195(2 ) DO NOT COME INTO PLAY AT ALL. HON BLE SUPREME COURT , IN THE CASE OF G E CO NO. 13/AHD/2014 I.T.A. NO.2028AHD/2013 ASSESSMENT YEAR: 2009 - 10 PAGE 6 OF 14 INDIA TECHNOLOGY CENTRE PVT LTD VS CIT [(2010) 327 ITR 436 (SC)], HAS INTER ALIA OBSERVED AS FOLLOWS: IN OUR VIEW, SECTION 195(2) IS BASED ON THE PRINCIPLE OF PROPORTIONALITY . TH E SAID SUB - SECTION GETS ATTRACTED ONLY IN CASES WHERE THE PAYMENT MADE IS A COMPOSITE PAYMENT IN WHICH A CERTAIN PROPORTION OF PAYMENT HAS AN ELEMENT OF INCOME CHARGEABLE TO TAX IN INDIA. IT IS IN THIS CONTEXT THAT THE SUPREME COURT STATED, IF NO SUCH A PPLICATION IS FILED, INCOME - TAX ON SUCH SUM IS TO BE DEDUCTED AND IT IS THE STATUTORY OBLIGATION OF THE PERSON RESPONSIBLE FOR PAYING SUCH SUM TO DEDUCT TAX THEREON BEFORE MAKING PAYMENT. HE HAS TO DISCHARGE THE OBLIGATION TO TDS . IF ONE READS THE OBSER VATION OF THE SUPREME COURT, THE WORDS SUCH SUM CLEARLY INDICATE THAT THE OBSERVATION REFERS TO A CASE OF COMPOSITE PAYMENT WHERE THE PAYER HAS A DOUBT REGARDING THE INCLUSION OF AN AMOUNT IN SUCH PAYMENT WHICH IS EXIGIBLE TO TAX IN INDIA. IN OUR VIEW, T HE ABOVE OBSERVATIONS OF THIS COURT IN TRANSMISSION CORPORATION CASE (SUPRA) WHICH IS PUT IN ITALICS HAS BEEN COMPLETELY, WITH RESPECT, MISUNDERSTOOD BY THE KARNATAKA HIGH COURT TO MEAN THAT IT IS NOT OPEN FOR THE PAYER TO CONTEND THAT IF THE AMOUNT PAID B Y HIM TO THE NON - RESIDENT IS NOT AT ALL CHARGEABLE TO TAX IN INDIA , THEN NO TDS IS REQUIRED TO BE DEDUCTED FROM SUCH PAYMENT. THIS INTERPRETATION OF THE HIGH COURT COMPLETELY LOSES SIGHT OF THE PLAIN WORDS OF SECTION 195(1) WHICH IN CLEAR TERMS LAYS DOWN THAT TAX AT SOURCE IS DEDUCTIBLE ONLY FROM SUMS CHARGE ABLE UNDER THE PROVISIONS OF THE I.T. ACT , I.E., CHARGEABLE UNDER SECTIONS 4, 5 AND 9 OF THE I.T. ACT. (EMPHASIS BY UNDERLINING SUPPLIED BY US) 9 . CLEARLY, THEREFORE, FOR APPLICATION OF SECTION 19 5, IT IS SINE QUA NON THAT THE PAYMENT TO NO - RESIDENT MUST HAVE AN ELEMENT OF INCOME LIABLE TO BE TAXED UNDER THE INDIAN INCOME TAX ACT, 1961. ON THE FACTS OF THIS CASE, AS WE HAVE ALREADY CONCLUDED, NO PART OF THE REMITTANCE TO THE COMMISSION AGENT WAS T AXABLE IN INDIA. THE ASSESSEE WAS, THEREFORE, NOT UNDER ANY OBLIGATION, ON THE FACTS OF THIS CASE, TO DEDUCT ANY TAX AT SOURCE FROM THE COMMISSION PAYMENTS TO THE NON - RESIDENTS. SINCE THERE WAS NO OBLIGATION TO DEDUCT TAX AT SOURCE, THE VERY FOUNDATION OF IMPUGNED DISALLOWANCE UNDER SECTION 40(A)(I) CEASES TO HOLD GOOD IN LAW. LEARNED CIT(A) WAS, THEREFORE, QUITE JUSTIFIED IN DELETING THE IMPUGNED DISALLOWANCE. WE UPHOLD HIS ACTION, AND DISMISS THE GRIEVANCE RAISED BY THE ASSESSING OFFICER . 5. AS REGARDS T HE REFERENCES TO SECTION 9(1)(VII), AS MADE BY THE ASSESSING OFFICER AND THE LEARNED DEPARTMENTAL REPRESENTATIVE, WE FIND THAT ASPECT OF THE MATTER IS ALSO CO NO. 13/AHD/2014 I.T.A. NO.2028AHD/2013 ASSESSMENT YEAR: 2009 - 10 PAGE 7 OF 14 COVERED, IN FAVOUR OF THE ASSESSEE, BY A LARGE NUMBER OF JUDICIAL PRECEDENTS - INCLUDING HON BLE MADR AS HIGH COURT S JUDGMENT IN THE CASE OF CIT VS FARIDA LEATHER CO. [(2016) 66 TAXMANN.COM 321 (MADRAS)], WHEREIN THEIR LORDSHIPS HAVE, INTER ALIA , OBSERVED AS FOLLOWS: 5. THE MAIN CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE / RESPONDENT IS THAT THE AGENCY COMMISSION / SALES COMMISSION PAID BY THE ASSESSEE TO NON - RESIDENT AGENTS, FOR THE SERVICES RENDERED BY THEM, OUTSIDE INDIA, IN PROCURING EXPORT ORDERS FOR THE ASSESSEE, WOULD NOT ATTRACT OR PARTAKE THE CHARACTER OF 'FEES FOR TECHNICAL SERVICES' AS EXPLAINED IN THE CONTEXT OF 9 (1) (VII) OF THE ACT AND THEREFORE, THERE IS NO SCOPE FOR THE APPLICATION OF THE PROVISIONS OF SECTION 195 OF THE ACT (TAX DEDUCTED AT SOURCE). IT IS ALSO CONTENDED THAT AS THE NON - RESIDENT AGENTS HAVE NEITHER BUSINESS CONNECT ION IN INDIA NOR THEY HAVE PERMANENT ESTABLISHMENT IN INDIA, THEY ARE LIABLE TO BE TAXED IN INDIA. 5.1 YET ANOTHER CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE IS THAT: (A) THE ASSESSEE PAID THE AMOUNT BY WAY OF COMMISSION TO FOREIGN AGENTS FOR THE SERVICES RENDERED OUTSIDE INDIA; (B) THE TAX DEDUCTION AT SOURCE (TDS) IS REQUIRED TO BE MADE ON ALL PAYMENTS TO NON - RESIDENTS, ONLY IF SUCH PAYMENTS ARE LIABLE TO BE TAXED IN INDIA. (C) FOLLOWING THE DECISION OF THIS COURT, CIT V. FAIZAN SHOES (P.) LTD. [ 2014] 367 ITR 155/226 TAXMAN 115/48 TAXMANN.COM 48 (MAD.), THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE, WHEN THE NON - RESIDENT AGENT PROVIDES SERVICES OUTSIDE INDIA ON PAYMENT OF COMMISSION. 5.2 THE CONTENTION OF THE REVENUE IS THAT SUCH SERVICES AR E ATTRACTED BY EXPLANATION (2) TO SECTION 9 (1) (VII) OF THE ACT AND THEREFORE TDS CERTIFICATE IS ESSENTIAL. 6. WHETHER THIS CONTENTION IS CORRECT, IS THE ISSUE TO BE DECIDED. 7. IN ORDER TO APPRECIATE THIS CONTENTION, IT IS NECESSARY TO CONSIDER THE REL EVANT PROVISIONS OF THE ACT: (I) SECTION 40(A)(I) OF THE ACT : 'SECTION 40 - AMOUNTS NOT DEDUCTIBLE: NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER TH E HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', (A) IN THE CASE OF ANY ASSESSEE CO NO. 13/AHD/2014 I.T.A. NO.2028AHD/2013 ASSESSMENT YEAR: 2009 - 10 PAGE 8 OF 14 (I) ANY INTEREST (NOT BEING INTEREST ON A LOAN ISSUED FOR PUBLIC SUBSCRIPTION BEFORE THE 1ST DAY OF APRIL, 1938), ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER THIS ACT, WHICH IS PAYABLE, (A) OUTSIDE INDIA; OR (B) IN INDIA TO A NON - RESIDENT, NOT BEING A COMPANY OR TO A FOREIGN COMPANY, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVIIB AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDU CTION, HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB - SECTION (1) OF SECTION 139: PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCTED DURING THE PREVIOUS YEAR BUT PAID AFTER THE D UE DATE SPECIFIED IN SUB - SECTION (1) OF SECTION 139, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. EXPLANATION: FOR THE PURPOSES OF THIS SUB - CLAUSE, (A) 'ROYALTY' SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE (VI) OF SUB - SECTION (1) OF SECTION 9: (B) 'FEES FOR TECHNICAL SERVICES' SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB - SECTION (1) OF SECTION 9: (IA) THIRTY PER CENT OF ANY SUM PAYABLE TO A RESIDENT, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVIIB AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB - SECTION (1) OF SECTION 139. PROVIDED THAT WHERE IN RESPECT OF ANY SU CH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCTED DURING THE PREVIOUS YEAR BUT PAID AFTER THE DUE DATE SPECIFIED IN SUB SECTION (1) OF SECTION 139 THIRTY PER CENT OF, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. PROVIDED FURTHER THAT WHERE AN ASSESSEE FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII - B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEFA ULT UNDER THE FIRST PROVISO TO SUB - SECTION (1) OF SECTION 201, THEN, FOR THE PURPOSE OF THIS SUB - CLAUSE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFE RRED TO IN THE SAID PROVISO.' (II) EXPLANATION 2 TO SECTION 195(1) OF THE ACT : 'SECTION 195 - OTHER SUMS: (1) ANY PERSON RESPONSIBLE FOR PAYING TO A NON - RESIDENT NOT BEING A COMPANY, OR TO A FOREIGN CO NO. 13/AHD/2014 I.T.A. NO.2028AHD/2013 ASSESSMENT YEAR: 2009 - 10 PAGE 9 OF 14 COMPANY, ANY INTEREST (NOT BEING INTEREST REFERRED TO IN SECTION 194LB OR SECTION 194LC) OR SECTION 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 T HE 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 F URTHER THAT NO SUCH DEDUCTION SHALL BE MADE IN RESPECT OF ANY DIVIDENDS REFERRED TO IN SECTION 115 - O. [EXPLANATION 1] :............... [EXPLANATION 2. - FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE OBLIGATION TO COMPLY WITH SUB - SECTION (1) A ND 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.' EXPLANATION 4 TO SECTION 9 (1) (I) OF THE ACT: 'SECTION 9 - INCOME DEEMED TO ACCRUE OR ARISE IN INDIA (1) THE FOLLOWING INCOMES SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA : (I) ALL INCOME ACCRUING OR ARISING, WHETHER DIRECTLY OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA, OR THROUGH OR FROM ANY PROPERTY IN INDIA, OR THROUGH OR FROM ANY ASSET OR SOURCE OF INCOME IN INDIA, OR THRO UGH THE TRANSFER OF A CAPITAL ASSET SITUATE IN INDIA. ** ** ** EXPLANATION 4. - FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE EXPRESSION 'THROUGH' SHALL MEAN AND INCLUDE AND SHALL BE DEEMED TO HAVE ALWAYS MEANT AND INCLUDED ''BY MEANS OF', 'I N CONSEQUENCE OF' OR 'BY REASON OF'.' 7.1 SECTION 40 OF THE ACT SPELLS OUT WHAT AMOUNTS ARE NOT DEDUCTABLE FROM THE INCOME CHARGED TO TAX UNDER THE PROFITS AND GAINS OF BUSINESS OR PROFESSION. CO NO. 13/AHD/2014 I.T.A. NO.2028AHD/2013 ASSESSMENT YEAR: 2009 - 10 PAGE 10 OF 14 7.2 SECTION 40(A)(I) OF THE ACT DEALS WITH INTEREST AND OTHER SUMS PAYABLE OUTSIDE INDIA. THE PROVISIONS OF THIS SUB - CLAUSE MADE APPLICABLE TO INTEREST HAVE BEEN EXTENDED TO PAYMENT OF ROYALTY, TECHNICAL FEES AND ANY OTHER SUM CHARGEABLE UNDER THIS ACT. THE SECTION PROVIDES THAT THE SUMS COVERED BY THE SUB - CLAUSE, W HICH ARE CHARGEABLE UNDER THE ACT AND ARE PAYABLE OUTSIDE INDIA, SHALL NOT BE ALLOWED AS AN EXPENDITURE TO THE ASSESSEE, UNLESS TAX IS PAID THEREON OR IS DEDUCTED THEREFROM UNDER CHAPTER XVII - B OF THE ACT. 7.3 SECTION 195(1) OF THE ACT DEALS WITH DEDUCTIO N OF TAX FROM PAYMENT TO NON - RESIDENTS AND FOREIGN COMPANIES. SECTION 195(1) OF THE ACT COMES INTO PLAY AT A STAGE WHERE THE PAYER, WHO IS ENJOINED TO DEDUCT THE TAX, EITHER CREDIT SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR MAKE PAYMENT THEREOF, WHETHER IN CASH / CHEQUE / DRAFT OR ANY OTHER MODE. THE TAXABILITY OF SUCH AMOUNT IN THE HANDS OF THE PAYEE OR OCCASIONING OF THE TAXABLE EVENT IS ALIEN FOR THE PURPOSE OF SECTION 195(1) OF THE ACT. 7.4 SECTION 195(2) IS AN ENABLING PROVISION, ENABLING AN ASSESSEE TO FILE AN APPLICATION BEFORE THE ASSESSING OFFICER TO DETERMINE THE APPROPRIATE PROPORTION OF THE SUM CHARGEABLE AND UPON SUCH DETERMINATION, THE TAX HAS TO BE DEDUCTED UNDER SECTION 195(1) OF THE ACT. THE PAYMENT IS MADE CREDITED TO THE ACCOUNT OF THE PA YEE. 8. THE QUESTION NOW IS, WHETHER THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE AS CONTEMPLATED UNDER SECTION 195 OF THE ACT, WHEN THE ASSESSEE PAID COMMISSION TO FOREIGN AGENT. 9. THIS QUESTION HAS BEEN ANSWERED BY THE HON 'BLE SUPREME COURT, IN THE CASE OF G.E.INDIA TECHNOLOGY CENTRE (P.) LTD. (SUPRA), IN WHICH, IT IS VERY CATEGORICALLY HELD THAT THE TAX DEDUCTED AT SOURCE OBLIGATIONS UNDER SECTION 195(1) OF THE ACT ARISES, ONLY IF THE PAYMENT IS CHARGEABLE TO TAX IN THE HANDS OF THE NON - RESIDENT RECIPIENT. 9.1 THEREFORE, MERELY BECAUSE A PERSON HAS NOT DEDUCTED TAX AT SOURCE OR A REMITTANCE ABROAD, IT CANNOT BE INFERRED THAT THE PERSON MAKING THE REMITTANCE, NAMELY, THE ASSESSEE, IN THE INSTANT CASE, HAS COMMITTED A DEFAULT IN DISCHARGING HIS TA X WITHHOLDING OBLIGATIONS BECAUSE SUCH OBLIGATIONS COME INTO EXISTENCE ONLY WHEN THE RECIPIENT HAS A TAX LIABILITY IN INDIA. 9.2 THE UNDERLYING PRINCIPLE IS THAT, THE TAX WITHHOLDING LIABILITY OF THE PAYER IS INHERENTLY A VICARIOUS LIABILITY ON BEHALF OF THE RECEIPIENT AND THEREFORE, WHEN THE RECIPIENT / FOREIGN AGENT DOES NOT HAVE THE PRIMARY LIABILITY TO BE TAXED IN RESPECT OF INCOME EMBEDDED IN THE RECEIPT, THE VICARIOUS LIABILITY OF THE PAYER TO DEDUCT TAX DOES NOT ARISE. THIS VICARIOUS TAX WITHHOLDING LIABILITY CANNOT BE INVOKED, UNLESS CO NO. 13/AHD/2014 I.T.A. NO.2028AHD/2013 ASSESSMENT YEAR: 2009 - 10 PAGE 11 OF 14 PRIMARY TAX LIABILITY OF THE RECIPENT / FOREIGN AGENT IS ESTABLISHED. IN THIS CASE, THE PRIMARY TAX LIABILITY OF THE FOREIGN AGENT IS NOT ESTABLISHED. THEREFORE, THE VICARIOUS LIABILITY ON THE PART OF THE ASSESSEE TO DE DUCT THE TAX AT SOURCE DOES NOT EXIST. 10. FURTHER, JUST BECAUSE, THE PAYER / ASSESSEE HAS NOT OBTAINED A SPECIFIED DECLARATION FROM THE REVENUE AUTHORITIES TO THE EFFECT THAT THE RECIPENT IS NOT LIABLE TO BE TAXED IN INDIA, IN RESPECT OF THE INCOME EMBED DED IN THE PARTICULAR PAYMENT, THE ASSESSING OFFICER CANNOT PROCEED ON THE BASIS THAT THE PAYER HAS AN OBLIGATION TO DEDUCT TAX AT SOURCE. HE STILL HAS TO DEMONSTRATE AND ESTABLISH THAT THE PAYEE HAS A TAX LIABILITY IN RESPECT OF THE INCOME EMBEDDED IN THE IMPUGNED PAYMENT. 11. IN THE INSTANT CASE, IT IS SEEN, ADMITTEDLY THAT THE NONRESIDENT AGENTS WERE ONLY PROCURING ORDERS ABROAD AND FOLLOWING UP PAYMENTS WITH BUYERS. NO OTHER SERVICES ARE RENDERED OTHER THAN THE ABOVE. SOURCING ORDERS ABROAD, FOR WHICH PAYMENTS HAVE BEEN MADE DIRECTLY TO THE NON - RESIDENTS ABROAD, DOES NOT INVOLVE ANY TECHNICAL KNOWLEDGE OR ASSISTANCE IN TECHNICAL OPERATIONS OR OTHER SUPPORT IN RESPECT OF ANY OTHER TECHNICAL MATTERS. IT ALSO DOES NOT REQUIRE ANY CONTRIBUTION OF TECHNICAL KNOWLEDGE, EXPERIENCE, EXPERTISE, SKILL OR TECHNICAL KNOW - HOW OF THE PROCESSES INVOLVED OR CONSIST IN THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR DESIGN. THE PARTIES MERELY SOURCE THE PROSPECTIVE BUYERS FOR EFFECTING SALES BY THE ASSESSEE, AND IS A NALOGOUS TO A LAND OR A HOUSE / REAL ESTATE AGENT / BROKER, WHO WILL BE INVOLVED IN MERELY IDENTIFYING THE RIGHT PROPERTY FOR THE PROSPECTIVE BUYER / SELLER AND ONCE HE COMPLETES THE DEAL, HE GETS THE COMMISSION. THUS, BY NO STRETCH OF IMAGINATION, IT CANN OT BE SAID THAT THE TRANSACTION PARTAKES THE CHARACTER OF 'FEES FOR TECHNICAL SERVICES' AS EXPLAINED IN THE CONTEXT OF SECTION 9(1)(VII) OF THE ACT. 12. AS THE NON - RESIDENTS WERE NOT PROVIDING ANY TECHNICAL SERVICES TO THE ASSESSEE, AS HELD ABOVE AND AS H ELD BY THE COMMISSIONER OF INCOME TAX (APPEALS), THE COMMISSION PAYMENT MADE TO THEM DOES NOT FALL INTO THE CATEGORY OF 'FEES OF TECHNICAL SERVICES' AND THEREFORE, EXPLANATION (2) TO SECTION 9(1)(VII) OF THE ACT, AS INVOKED BY THE ASSESSING OFFICER, HAS NO APPLICATION TO THE FACTS OF THE ASSESSEE'S CASE. 13. IN THIS CASE, THE COMMISSION PAYMENTS TO THE NON RESIDENT AGENTS ARE NOT TAXABLE IN INDIA, AS THE AGENTS ARE REMAINING OUTSIDE, SERVICES ARE RENDERED ABROAD AND PAYMENTS ARE ALSO MADE ABROAD. 14. THE CONTENTION OF THE LEARNED COUNSEL FOR THE REVENUE IS THAT THE TRIBUNAL OUGHT NOT TO HAVE RELIED UPON THE DECISION CO NO. 13/AHD/2014 I.T.A. NO.2028AHD/2013 ASSESSMENT YEAR: 2009 - 10 PAGE 12 OF 14 G.E.INDIA TECHNOLOGY'S CASE, CITED SUPRA, IN VIEW OF INSERTION OF EXPLANATION 4 TO SECTION 9(1)(I) OF THE ACT WITH CORRESPONDING INTRODUCTION OF EXPLANATION 2 TO SECTION 195(1) OF THE ACT, BOTH BY THE FINANCE ACT, 2012, WITH RETROSPECTIVE EFFECT FROM 01.04.1962. 15. THE ISSUE RAISED IN THIS CASE HAS BEEN THE SUBJECT MATTER OF THE DECISION, IN THE RECENT CASE, CIT V. KIKANI EXPORTS (P.) LTD. [20 14] 369 ITR 96/[2015] 232 TAXMAN 255/49 TAXMANN.COM 601 (MAD.) WHEREIN THE CONTENTION OF THE REVENUE HAS BEEN REJECTED AND ASSESSEE HAS BEEN UPHELD AND THE RELEVANT OBSERVATION READS AS UNDER: '... THE SERVICES RENDERED BY THE NON - RESIDENT AGENT COULD AT BEST BE CALLED AS A SERVICE FOR COMPLETION OF THE EXPORT COMMITMENT AND WOULD NOT FALL WITHIN THE DEFINITION OF 'FEES FOR TECHNICAL SERVICES' AND, THEREFORE, SECTION 9 WAS NOT APPLICABLE AND, CONSEQUENTLY, SECTION 195 DID NOT COME INTO PLAY. THEREFORE, TH E DISALLOWANCE MADE BY THE ASSESSING OFFICER TOWARDS EXPORT COMMISSION PAID BY THE ASSESSEE TO THE NON - RESIDENT WAS RIGHTLY DELETED.' 16. WHEN THE TRANSACTION DOES NOT ATRACT THE PROVISIONS OF SECTION 9 OF THE ACT, THEN THERE IS NO QUESTION OF APPLYING EX PLANATION 4 TO SECTION 9 OF THE ACT. THEREFORE, THE REVENUE HAS NO CASE AND THE TAX CASE APPEAL IS LIABLE TO BE DISMISSED. 6. CLEARLY, THEREFORE, THE PAYMENT OF COMMISSION IN THE HANDS OF THE NON - RESIDENT AGENT, AS LONG AS SUCH AN AGENT CARRIES OUT ITS AC TIVITIES OUTSIDE INDIA, DOES NOT RESULT IN TAXABILITY IN THE HANDS OF THE AGENT IN INDIA. ACCORDINGLY, THE PROVISIONS OF SECTION 195, AND, THEREFORE, 40(A)(I), DONOT COME INTO PLAY. LEARNED CIT(A) WAS THUS QUITE JUSTIFIED IN GRANTING THE IMPUGNED RELIEF. W E UPHOLD HIS ORDER ON THIS ISSUE AND DECLINE TO INTERFERE IN THE MATTER. 7. GROUND NO. 1 IS THUS DI S MISSED. 8. IN GROUND NO. 2 , THE ASSESSING OFFICER IS AGGRIEVED OF LEARNED CIT(A) S DELETING THE DISALLOWANCE OF RS 30,86,537 MADE ON ACCOUNT OF PRODUCT R EGISTRATION FEES . 9. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS INCURRED AN EXPENDITURE OF RS 38,78,253 IN REGISTRATION OF PATENTS OF ASSESSEE COMPANY S PRODUCTS WITH VARIOUS GOVERNMENT A UTHORITIES IN THE RESPECTIVE COUNTRIES, AND REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY THIS EXPENDITURE, WHICH RESULTS IN SUBSTANTIAL AND ENDURING BENEFITS TO THE ASSESSEE, NOT BE TREATED AS CAPITAL EXPENDITURE. IT WAS EXPLAINED BY THE CO NO. 13/AHD/2014 I.T.A. NO.2028AHD/2013 ASSESSMENT YEAR: 2009 - 10 PAGE 13 OF 14 ASSESSEE THAT THE EXPENDITURE IS ROUTINE MARKETING EXPENSES AS IT IS MANDATORY TO OBTAIN REGISTRATION OF PRODUCTS IN THE COUNTRIES IN WHICH THESE PRODUCTS ARE SOLD, AND THAT, EVEN AFTER PAYING THIS REGISTRATION FEES - WHICH IS VALID FOR A LIMITED TIME PERIOD, THE FEES IS REQ UIRED TO BE PAID ON RECURRING BASIS. THE ASSESSING OFFICER, HOWEVER, REJECTED THIS EXPLANATION, PROCEEDED TO TREAT THIS AS AN ASSET AS THE REGISTRATION OF PRODUCT ENTITLES THE ASSESSEE FOR A BENEFIT OF ENDURING NATURE IN THE FORM OF MARKETING RIGHT (INTAN GIBLE ASSET) IN THAT COUNTRY , GRANT DEPRECIATION IN RESPECT OF THE SAME, AND DISALLOW THE BALANCE AMOUNT WHICH WORKED OUT TO RS 30,86,537. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) WHO DELETED THIS DISALLOWANCE. THE ASSESSING OFFI CER IS AGGRIEVED AND IS IN APPEAL BEFORE US. 10. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERIAL ON RECORD, WE FIND THAT THIS ISSUE IS NOW COVERED, IN FAVOUR OF THE ASSESSEE, BY HON BLE JURISDICTIONAL HIGH COURT S JUDGMENTS IN THE CASE S OF CIT VS TORRENT PHARMACEUTICALS LTD [(2013) 29 TAXMANN.COM 405 (GUJ)] AND CIT VS CADILA HEALTHCARE LTD [(2013) 31 TAXMANN.COM 300 (GU J)] WHEREIN THEIR LORDSHIPS HAVE, INTER ALIA, HELD THAT THE PRODUCT REGISTRATION EXPENSES IS ELIGIBLE FOR DEDUCTION AS REVENUE EXPENDITURE. RESPECTFULLY FOLLOWING ESTEEMED VIEWS OF HON BLE JURISDICTIONAL HIGH COURT, WE APPROVE THE CONCLUSIONS ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 11, GROUND NO. 2 IS ALSO DISMISSED. 1 2 . IN GROUND NO. 3, THE ASS ESSING OFFICER IS AGGRIEVED THAT THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS 10,66,974 MADE ON ACCOUNT OF ELECTRIC INSTALLATIONS . 1 3 . LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS ALSO COVERED, IN FAVOUR OF THE ASSESSEE, BY OR DER DATED 9 TH JULY 2010 OF A COORDINATE BENCH, IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2005 - 06. LEARNED CIT(A) HAS MERELY FOLLOWED THIS DECISION. RESPECTFULLY FOLLOWING T HIS BINDING JUDICIAL PRECEDENT, WE APPROVE THE CONCLUSIONS ARRIVED AT BY THE CI T(A) AND DECLINE TO INTERFERE IN THE MATTER. 1 4 . GROUND NO. 3 IS ALSO DISMISSED. 1 5 . IN THE RESULT, THE APPEAL IS DISMISSED. CO NO. 13/AHD/2014 I.T.A. NO.2028AHD/2013 ASSESSMENT YEAR: 2009 - 10 PAGE 14 OF 14 1 6 . THE CROSS OBJECTION FILED BY THE ASSESSEE MERELY SUPPORTS THE CONCLUSIONS ARRIVED AT BY THE CIT(A). IN ANY EVENT, LEARNED CO UNSEL SPECIFICALLY STATED THAT HE DOES NOT WISH TO PURSUE THE CO. IT IS, THEREFORE, DISMISSED AS INFRUCTUOUS. 17. IN THE RESULT , THE APPEAL AS ALSO THE CROSS OBJECTIONS ARE DISMISSED. PRONOUNCED IN THE OPEN COURT TODAY ON 16 TH DAY OF AUGUST , 2016. SD/ - SD/ - S S GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: 16 TH DAY OF AUGUST , 2016. COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL R EPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD
