SUBHASH CHAND GUPTA, Jaipur V. ACIT, Alwar

ITA 1122/JPR/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1809 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 19-05-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 16-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA CIT DHK
• Assessee Lawyers: S L PODDAR; ISHA KANOONGO
• Keywords: Double taxation relief; Retrospective amendment; Permanent establishment; Non-deduction of tax
• Section: 143(3); 10; 2

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH HKKXPAN] YS[KK LNL; ,OA JH DQY HKKJR ] U;KF;D LNL; DS LE{K BEFORE: SHRI BHAGCHAND, AM & SHRI KUL BHARAT, JM VK;DJ VIHY LA-@ ITA NO. 1122/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2013-14 SUBHASH CHAND GUPTA, M/S R.K. EXPORTS, BABA SHYAM COLONY, SHAHPURA, JAIPUR- 303103. CUKE VS. A.C.I.T., CIRCLE-2, ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: ABQPG 5724 L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI S.L. PODDAR & MS. ISHA KANOONGO (ADV) JKTLO DH VKSJ LS@ REVENUE BY : SHRI R.A. VERMA (ADDL.CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 25/10/2017 MN?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 26/12/2017 VKNS'K@ ORDER PER: BHAGCHAND, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE EMANATES FR OM THE ORDER OF THE LD. CIT(A), ALWAR, DATED 03/10/2016 FOR THE A.Y. 2013-14. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFA CTURING AND TRADING OF GRANITES AND OTHER STONES. THE ASSESSEE FILED HIS RETURN OF INCOME ON 25/09/2013 DECLARING TOTAL INCOME OF RS. 26,64,780/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND THE A SSESSMENT WAS ITA 1122/JP/2016_ SUBHASH CHAND GUPTA VS ACIT 2 COMPLETED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) ON 15/11/2011 DETERMINING THE INCOME OF THE ASSESSEE A T RS. 63,74,430/- BY MAKING VARIOUS ADDITIONS. THE LD. CIT(A) HAS CONFIRME D THE ADDITION. 3. NOW THE ASSESSEE IS IN APPEAL BEFORE THE ITAT BY T AKING FOLLOWING GROUNDS OF APPEAL: 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 37,09,646/- U/S 40(A)(IA) OF THE INCOME TAX ACT, 19 61 WITHOUT CONSIDERING THE SUBMISSION OF THE ASSESSEE THAT THE PAYMENT OF COMMISSION WAS MADE TO NRI. 2. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 37,09,646/- U/S 40(A)(IA) OF THE INCOME TAX ACT, 19 61 WITHOUT CONSIDERING THE SUBMISSION OF THE ASSESSEE THAT THE PAYMENT WAS NOT MADE AS FEES FOR TECHNICAL SERVICES . 4. BOTH THESE GROUNDS OF THE APPEAL ARE INTERLINKED AND IS AGAINST CONFIRMING THE DISALLOWANCE OF RS. 37,09,646/- U/S 4 0(A)(IA) OF THE ACT. THE LD CIT(A) HAS UPHELD THE ACTION OF THE ASSESSING OFFICER BY HOLDING AS UNDER: 5.3 I HAVE GONE THROUGH THE ASSESSMENT ORDER AS WE LL AS SUBMISSIONS MADE BY THE APPELLANT. 1. THAT THE APPELLANT IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF GRANITES AND OTHER STONES. ITA 1122/JP/2016_ SUBHASH CHAND GUPTA VS ACIT 3 2. THAT DURING THE YEAR UNDER CONSIDERATION THE APP ELLANT HAD DECLARED A GROSS RECEIPTS OF RS.8.27ERORES (APPROX) DECLARING NET PROFIT OF RS.25,53,873/- FOR THE YEAR UNDER CONSIDERATION. 3. THAT DURING THE UNDER CONSIDERATION THE APPELLAN T HAD CLAIMED COMMISSION EXPENDITURES OF RS.37,09,646/-. 4. THAT THE SAID COMMISSION WAS PAID TO SH SALWA MO HAMMAD ABDUL REHMAN OF JEDDAH, SAUDI ARABIA. HOWEVER, THE APPELL ANT HAS NOT DEDUCTED ANY TAX BEFORE REMITTING THE COMMISSION AM OUNT TO THE NRI. 5. THAT THE APPELLANT HAS CLAIMED BEFORE THE AO THA T SINCE THE INCOME OF COMMISSION IN THE HAND OF THE NRI IS NOT TAXABLE IN INDIA THEREFORE THERE WAS NO REQUIREMENT TO DEDUCT ANY TDS. 6. THAT THE A.O HAD CITED CBDTS CIRCULAR IN THIS R EGARD RELIED ON EXPLANATION 2 TO SECTION 9(1))(VII)(B) OF THE ACT A ND REJECTED THE ASSESSEES CLAIM, RESULTING IN AN ADDITION OF RS.37 ,09,646/- UNDER SECTION 40-(A)(IA) OF THE ACT. 5.3.2 I HAVE CONSIDERED THE ABOVE MENTIONED FACTS. THE APPELLANT HAS CITED HONBLE ITAT, JAIPUR BENCH JUDGMENT IN APPELLANTS OWN CASE FOR A.Y 2004- 05 TO 2007-08, WHERE ON SIMILAR ISSUE THE HONBLE I TAT HAD GIVEN RELIEF TO THE ASSESSEE. HOWEVER, IT IS IMPORTANT TO NOTE HERE THAT THE FINANCE ACT 2010 HAS INSERTED AN EXPLANATION TO THE SECTION 9(2 ) OF THE ACT W.E.F. 01/04/1976 WHICH IS GIVEN BELOW: EXPLANATION.FOR THE REMOVAL OF DOUBTS, IT IS HEREB Y DECLARED THAT FOR THE PURPOSES OF THIS SECTION, INCOME OF A NON-RESIDENT SHALL BE DEEMED T O ACCRUE OR ARISE IN INDIA UNDER CLAUSE (V) OR CLAUSE (VI) OR CLAUSE (VII) OF SUB-SECTION ( 1) AND SHALL BE INCLUDED IN THE TOTAL INCOME OF THE NONRESIDENT, WHETHER OR NOT , (I) THE BUSINESS OR BUSINESS CONNECTION IN INDIA; OR (II) THE NON-RESIDENT HAS RENDERED SERVICES IN IND IA. ITA 1122/JP/2016_ SUBHASH CHAND GUPTA VS ACIT 4 IN VIEW OF THE EXPLANATION INSERTED IN THE SECTION 9(2) WITH REGARD TO NRI, THE HONBLE ITAT, JAIPUR BENCH JUDGMENT IN THE APPE LLANTS CASES FOR PRIOR YEARS WILL NOT BE APPLICABLE FOR YEAR UNDER CONSIDE RATION. I HAVE FURTHER CONSIDERED THE FOLLOWING POINTS; FEE FOR TECHNICAL SERVICES(FTS) IS DEFINED IN EXPL ANATION 2 TO SECTION 9(1) (VII) OF THE ACT TO MEAN 'ANY CONSIDERATION (INCLUDING AN Y LUMP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TE CHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUC TION, ASSEMBLY MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDE RATION WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER HEAD 'SALA RIES'. AS PER ARTICLE 12(A) OF THE DTAA, THE TERM FTS MEA NS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THROUGH THE PROVISI ON OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) IF SUCH SERVICES: A) ARE ANCILLARY AND SUBSIDIARY ....; OR B) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESSES OR CONSISTS OF THE DEVELOPMENT AND TRANSF ER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. THEREFORE, TAKING INTO ACCOUNT FACTUAL MATRIX OF T HE CASE, IT IS MY CONSIDERED VIEW THAT THE A.O IS JUSTIFIED IN DISALL OWING THE PAYMENT AS IT HAD ATTRACTED PROVISION OF SECTION 195 OF THE ACT, WHICH THE APPELLANT HAD FAILED TO DEDUCT TAX AT SOURCE. ACCORDINGLY, THE DISALLOWANCE OF RS. 37,09,646/ ON ACCOUNT OF COMMISSION PAID FOR CONSUL TANCY/MANAGERIAL SERVICES UNDER SECTION 40(A)(IA) OF THE ACT IS SUST AINED. APPELLANTS GROUND OF APPEAL IS DISMISSED. ITA 1122/JP/2016_ SUBHASH CHAND GUPTA VS ACIT 5 5. WHILE PLEADING ON BEHALF OF THE ASSESSEE, THE LD AR HAS SUBMITTED AS UNDER: 1. THAT DURING THE YEAR UNDER CONSIDERATION ASSESSE E HAS CLAIMED EXPENSES UNDER THE HEAD OF COMMISSION OF RS. 37,09,646/- TO FOREIGN PARTIES, I.E. SALWA MOHAMMAD ABDUL REHMAN, JEDDAH, KINGDOM OF SAU DI ARABIA AND NOT DEDUCTED TDS WITH REFERENCE TO CIRCULAR NO. 876 DATED 07.02.2000. THE LEARNED ASSESSING OFFICER MADE THE ADDITION ON THE GROUND THAT CIRCULAR NO. 876 DATED 07.02.2000 HAS BEEN WITHDRAW N VIDE CIRCULAR NO.7/2009 DATED 22.10.2009 ISSUED BY CBDT. HENCE CO MMISSION PAID TO NRI IS ALSO NOT ALLOWABLE EXPENSES AS PER SECTION 1 95 R.W.S. 195 WITH SECTION 40(A)(IA) OF THE ACT. 2. COMMISSION PAYMENT MADE TO NRI/FOREIGN PARTIES - DEDUCTION OF TAX NOT REQUIRED BY VIRTUE OF CIRCULAR NO. 876 DATED 07.02. 2000 IT IS SUBMITTED THAT THE ASSESSEE HAS MADE PAYMENT TO THE FOREIGN PARTIES, HENCE HE IS NOT LIABLE FOR DEDUCTION OF TA X BY VIRTUE OF CIRCULAR NO. 876 DATED 07.02.2000. SECTION 195 OF INCOME TAX ACT, 1961 ALSO PROVIDES FOR DEDUCTION OF TAX FROM AMOUNTS PAYABLE TO A FOREIGN COMPANY OR A NRI ONLY IF THE SAME IS TAXABLE ENTITY IN INDIA AND LIABLE FOR PAYMENT OF TAX OR FILING OF IT RETURN. THE ASSESSEE HAS CLAIMED THAT THE SERVICES ARE RENDERED FROM OUT OF INDIA AND OUTSIDE INDIA, AND THE PERSON BY WHOM THESE SERVICES ARE RENDERED IS ALSO NRI AND NOT LIABLE FOR FILING RETURN OF INCOME IN INDIA AND THE COMMISSION ON SAL ES WAS ALSO PAID OUTSIDE INDIA. THE MAIN ISSUE INVOLVED IN THE SAID TRANSACTION IS THAT WHETHER SALES COMMISSION PAID TO A NON-RESIDENT PERSON FOR THE SE RVICES IN THE FOREIGN COUNTRY I.E. OUTSIDE INDIA IS TAXABLE IN INDIA WITH REGARD TO SECTION 195 OF THE ACT? ITA 1122/JP/2016_ SUBHASH CHAND GUPTA VS ACIT 6 THE LD. AO HAS REJECT THE ASSESSEE CLAIM AND DISAL LOWANCE OF PAYMENT OF SALES COMMISSION TO NRI WITHOUT DEDUCTING TDS BY TA KING A VIEW THAT CIRCULAR 7/2009 DATED22-10-2009 (WITHDRAWALS OF CIR CULAR NO.23 & 786 HAS BEEN WITHDRAWN BY THE CBDT) AND TREATING THE SA LES COMMISSION AS FEE FOR TECHNICAL SERVICES (FTS) WHICH WAS GIVEN FO R SECURING THE EXPORT ORDER OUTSIDE INDIA. TO RESOLVE THE ABOVE ISSUE WE HAVE TO FIRST GO THR OUGH TO THE SECTION 5' SCOPE OF TOTAL INCOME' & SECTION 9 'INCOME DEEMED T O ACCRUE OR ARISE IN INDIA' OF THE ACT' SECTION 5 (1) OF THE ACT SUBJECT TO THE PROVISIONS OF THIS ACT, THE TOTAL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A RE SIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCES DERIVED WHICH (A) -IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR O N BEHALF OF SUCH PERSON ; OR (B) ACCRUES OR ARISES OR IS DEEMED TO A CCRUE OF ARISE IN INDIA DURING SUCH YEAR ; OR (C) ACCRUES OR ARISE TO HIM O UTSIDE INDIA DURING SUCH YEAR: PROVIDED THAT, IN THE CASE OF A PERSON NOT ORDINAR ILY RESIDENT IN INDIA WITHIN THE MEANING OF SUB SECTION(6) OF SECTION 6, THE INCOME WHICH ACCRUES OR ARISES TO HIM OUTSIDE INDIA SHALL NOT BE SO INCLUDED UNLESS IT IS DERIVED FROM A BUSINESS CONTROLLED IN OR A PROFESSI ON SET UP IN INDIA. (2) SUBJECT TO THE PROVISION OF THIS ACT, THE TOTA L INCOME OF ANY PREVIOUS YEAR OF A YEAR WHO IS A NON RESIDENT INCLUDES ALL I NCOME FROM WHATEVER SOURCES DERIVED WHICH- (A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON ; OR (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OF ARISE TO HIM IN INDIA DUR ING SUCH YEAR ITA 1122/JP/2016_ SUBHASH CHAND GUPTA VS ACIT 7 MEANING THEREBY THAT IF A NRI DERIVES ANY INCOME W HICH IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA OR ANY INCOME WHICH ACCRUES OR ARISES IN INDIA CAN ONLY BE LIABLE TO TAX IN INDIA' IN CASE WHEREIN THE AGENT IS OPERATING IN HIS OWN RESPECTIVE COUNTRY AND THE COMMISSION WAS PAID TO HIM FOR PROCURING THE EX PORT ORDER FOR THE ASSESSEE FROM OUTSIDE INDIA AND THE FOREIGN AGENTS HAD NO BUSINESS CONNECTION IN INDIA. IN SUCH A SITUATION THE COMMIS SION PAID TO HIM IS TOTALLY OUT OF SCOPE OF SECTION 5 OF THE ACT AND TH EREFORE, COMMISSION EARNED BY HIM IS NOT TAXABLE IN INDIA. SECTION 9 (I) (I) DOES NOT SEEK TO BRING IN TO THE TAX NET THE PROFITS OF A NON - RESIDENT WHICH CANNOT REASONABLY BE ATTRIBUTED TO OPERATIONS CARRIED OUT IN INDIA. IT IS ONLY THAT PORTION OF THE PROFIT WHICH CAN REASONABLY BE ATTRIBUTED TO THE OPERATIONS OF THE BUSINESS CARRIE D OUT IN INDIA WHICH IS LIABLE TO TAX IN INDIA IN OUR CASE THE ASSESSEE HAD PAID COMMISSION TO A NON RESIDENT AGENT FOR RENDERING SERVICES IN RESPECT OF PROCURING EXPORT O RDERS FROM OUTSIDE INDIA. THE COMMISSION PAID TO THE NON RESIDENTS WAS TOWARDS SERVICES RENDERED BY HIM IN COUNTRY OUTSIDE INDIA. THE ASSES SEE HAD NOT DEDUCTED TAX AT SOURCE WHILE REMITTING THE COMMISSION TO THE FOREIGN AGENTS SINCE THE AGENT WAS NOT HAVING ANY BUSINESS CONNECTION IN INDIA & COMMISSION EARNED BY HIM IS NOT TAXABLE IN INDIA. PROVISION OF SECTION 195 OF THE ACT ARE ALSO NOT A PPLICABLE IN OUR CASE SINCE IT STIPULATES THAT - ANY PERSON RESPONSIBLE F OR PAYING TO NON - RESIDENT, NOT BEING A COMPANY, OR TO A FOREIGN COMP ANY, ANY INTEREST (NOT BEING INTEREST REFERRED TO IN SECTION 194LB OR SECT ION 194LC OR SECTION 194LD) OR ANY OTHER SUM CHARGEABLE UNDER THE PROVIS ION OF THE IS ACT (NOT BEING INCOME CHARGEABLE UNDER THE HEAD 'SALARIES') SHALL, AT THE TIME OF ITA 1122/JP/2016_ SUBHASH CHAND GUPTA VS ACIT 8 CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE O R 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 RATE IN FORCE. THE PROVISION OF THE SAID SECTION CAN BE ELABORATE AS - THAT A PERSON IS LIABLE TO TDS ONLY WHEN THE SERVICES ARE RENDERED W ITHIN THE TERRITORY OF INDIA OR PAID WITHIN INDIA. IN THIS REGARD WE WOULD LIKE TO SUBMIT AS UNDER: - 3. NO TDS TO BE DEDUCTED IF COMMISSION PAID TO FORE IGN AGENTS FOR RENDERING SERVICES ABROAD ITAT CHENNAI BENCH RECENTLY HELD THAT ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE FOR MAKING PAYMENT TO ITS FOREIGN AGENTS FOR RENDERING SERVICES ABROAD, IF THE FOREIGN AGENT DOES NOT HAVE A PERMAN ENT ESTABLISHMENT IN INDIA AND THE SERVICE RENDERED IS NOT IN THE NATURE OF TECHNICAL SERVICE. FACTS OF THE CASE: THE ASSESSEE, A PRIVATE LIMITED COMPANY, MANUFACTU RES AND EXPORTS LEATHER GARMENTS AND INCURRED EXPENDITURE TOWARDS C OMMISSION PAID TO NON-RESIDENTS FOR THE PURPOSE OF PROCURING ORDERS A BROAD. THE A.O DISALLOWED THE SAME, BY OBSERVING THAT SECTION 9 OF THE ACT APPLIED IN THIS CASE AS THE COMMISSION AMOUNT HAD ACCRUED TO A NONR ESIDENT/ PAYEE PRINCIPALLY ON ACCOUNT OF A BUSINESS ACTIVITY IN IN DIA WHICH REQUIRED TDS DEDUCTION. THE ASSESSING OFFICER FURTHER HELD THAT THE CERTIFICATE UNDER SECTION 195(2) OF THE ACT HAD ALSO NOT BEEN PRODUCE D. ACCORDINGLY, HE DISALLOWED/ADDED THE COMMISSION AMOUNT IN ASSESSEE' S INCOME. THE APPELLATE TRIBUNAL HELD THAT: ITA 1122/JP/2016_ SUBHASH CHAND GUPTA VS ACIT 9 THE REVENUE'S ONLY GRIEVANCE IS THAT THE AFORESAID FOREIGN AGENCY COMMISSION PAID BY THE ASSESSEE TO THE NON RESIDENT S/PAYEE ATTRACTS DISALLOWANCE UNDER SECTION 40 (A)(I) FOR NON DEDUCT ION OF TDS. IT IS MADE CLEAR THAT IN SUPPORT OF THIS PLEA, NO COGENT EVIDE NCE HAS BEEN PRODUCED. IT TRANSPIRES FROM THE CASE FILE THE ASSESSEE HAS P AID FOREIGN EXCHANGE COMMISSION TO ITS NON-RESIDENT AGENT WHO DO NOT HAV E ANY PERMANENT ESTABLISHMENT IN INDIA. THERE IS NO MATERIAL TO PRO VE THAT THESE PAYMENT HAVE ARISEN OUT OF AN AGREEMENT EXECUTED IN INDIA. NOR THERE IS ANY EVIDENCE TO CONCLUDE THAT THE NONRESIDENT/PAYEE HAS RENDERED ANY TECHNICAL SERVICE TO THE ASSESSEE. THE REVENUE ALSO FAILS TO PROVE THE PAYMENTS TO HAVE BEEN ACCRUED, ARISEN OR PAID IN IN DIA SO AS TO MAKE IT TAXABLE UNDER PROVISION OF THE ACT. TAKING INTO CONSIDERATION ALL THESE CIRCUMSTANCES, CIT(A) HELD THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TDS ON ABOVE STAT ED COMMISSION PAID TO ITS NON-RESIDENT PAYEES AND WHICH WAS SUBSEQUENT LY CONFIRMED BY THE HON'BLE ITAT. THEREFORE THE ISSUE IN THIS APPEAL IS SQUARELY COVERED AND THE AMENDMENT MADE IN SECTION 9(2) OF THE ACT RETRO SPECTIVELY BY THE FINANCE ACT, 2010 HAS ALSO BEEN CONSIDERED AND FOUN D NOT APPLICABLE IN THE CASE OF THE ASSESSEE. SIMILAR VIEW WAS ALSO EXPRESSED IN THE LATEST JUDG MENT OF MADRAS HIGH COURT IN THE CASE OF CIT CHENNAI V/S FARIDA LEATHER COMPANY WHERE IN THE DECISION OF THE RECENT CASE, REPORTED IN (2014) 369 I.T.R. 96 (MAD) (COMMISSIONER OF INCOME TAX V. KIKANI EXPORTS PVT. LTD.) WAS FOLLOWED WHEREIN THE CONTENTION OF THE REVENUE HAS BEEN REJE CTED AND ASSESSEE HAS BEEN UPHELD AND THE RELEVANT OBSERVATION READS AS UNDER:- '... THE SERVICES RENDERED BY THE NON-RESIDENT AGENT COULD A T BEST BE CALLED AS A SERVICE FOR COMPLETION OF THE EXPORT COMMITMENT AND WOULD NOT FALL WITHIN THE DEFINITION OF 'FEES FOR TECHNICAL SERVIC ES' AND, THEREFORE, ITA 1122/JP/2016_ SUBHASH CHAND GUPTA VS ACIT 10 SECTION 9 WAS NOT APPLICABLE AND, CONSEQUENTLY, SEC TION 195 DID NOT COME INTO PLAY. THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TOWARDS EXPORT COMMISSION PAID BY THE ASSESSEE TO T HE NON-RESIDENT WAS RIGHTLY DELETED.' WHEN THE TRANSACTION DOES NOT ATTRACT THE PROVISIO NS OF SECTION 9 OF THE ACT, THEN THERE IS NO QUESTION OF APPLYING EXPLANAT ION 4 TO SECTION 9 OF THE ACT. THEREFORE, THE REVENUE HAS NO CASE AND THE TAX CASE APPEAL IS LIABLE TO BE DISMISSED. THEREFORE THE ISSUE IN PRESENT CASE IS SQUARELY CO VERED BY THIS DECISION. THE SCOPE OF EXPLANATION 2 TO SECTION 9(L)(VII) OF THE ACT BY THE FINANCE ACT, 2010 WAS ALSO EXAMINED BY THE ALLAHABAD HIGH C OURT IN THE CASE OF CIT VS. MODEL EXIMS (358 ITR 2) WHICH WAS FOLLOWED BY THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE IMMEDIATELY PRECEDING Y EAR. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE EXTRACTED HEREUNDE R FOR THE SAKE OF REFERENCE:- 'THE ID. COUNSEL FOR THE ASSESSEE HAS C ONTENDED THAT THIS ISSUE IS COVERED BY THE ORDER OF THE JURISDICTIONAL HIGH COURT AND VARIOUS ORDERS OF THE TRIBUNAL, PARTICULARLY IN THE CASE OF ACIT VS. M/S MODEL EXIMS, KANPUR IN I.T.A. NO. 697/LKW/2013 IN THE LIG HT OF CBDT CIRCULAR AND AMENDMENTS. WE FIND THAT THE VIEW TAKEN BY THE TRIBUNAL HAS BEEN APPROVED BY THE HON'BLE HIGH COURT OF ALLAHABAD IN THE CASE OF CIT VS. M/S MODEL EXIMS, 358 ITR 2 (ALLD). ' THE RELEVANT OBSERVATIONS OF THE HON'BLE HIGH COUR T ARE EXTRACTED HEREUNDER:- 'WE FIND THAT ALL THE QUESTIONS AS FRAMED BY THE D EPARTMENT ARE COVERED BY OUR JUDGMENT IN CIT V. M/S MODEL EXIMS, KANPUR, INCOME TAX APPEAL (DEF.) NO.164 OF 2011, DECIDED IN FAVOUR OF THE ASS ESSEE AND AGAINST THE REVENUE ON 10.09.2013 AND DIE JUDGMENT IN CIT, KANP UR V. M/S ALLIED ITA 1122/JP/2016_ SUBHASH CHAND GUPTA VS ACIT 11 EXIMS, INCOME TAX APPEAL NO.313 OF 2013 DECIDED ON 13.11.2013. IN BOTH THESE JUDGMENTS WE HAVE HELD, THAT A.O. DID NOT BRI NG ANYTHING ON RECORD, WHICH COULD DEMONSTRATE THAT NON-RESIDENT A GENTS WERE APPOINTED AS SELLING AGENTS, DESIGNERS OR TECHNICAL ADVISERS. THE PAYMENT OF COMMISSION TO FOREIGN AGENTS DID NOT ENTITLE SUC H FOREIGN AGENTS TO PAY TAX IN INDIA AND THUS THE TDS WAS NOT LIABLE TO BE DEDUCTED UNDER SECTION 195 OF THE ACT. THE DISALLOWANCE MADE BY A.O. UNDER SECTION 40 (A) (I) FOR NON-DEDUCTION OF TAX AT SOURCE UNDER SECTION 195 WE RE NOT JUSTIFIED.' THIS JUDGEMENT WAS ALSO FOLLOWED BY ITAT LUCKNOW B ENCH IN THE CASE OF NORTHERN TANNERY CASE IN ITA NO. 636/LKW/2013 ORDER DATED 18 JUNE 2015 COPY OF WHICH IS SUBMITTING HERE WITH. THEREFO RE THE ADDITION SO CONFIRMED BY THE LEARNED. CIT APPEAL DESERVES TO BE DELETED. 6. ON THE OTHER HAND, THE LD SR. DR HAS RELIED ON T HE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. DURI NG THE YEAR, THE ASSESSEE HAS PAID COMMISSION OF RS. 37,09,646/- TO SALWA MOHAMMAD ABDUL REHMAN, JEDDAH, KINGDOM OF SAUDI ARABIA AND N O TDS WAS DEDUCTED. THE LOWER AUTHORITIES HAS SUSTAINED THE DI SALLOWANCE OF PAYMENT OF SALES COMMISSION TO AN NRI WITHOUT DEDUCT ING TDS BY TAKING A VIEW THAT CIRCULAR HAS BEEN WITHDRAWN AND TREATING TH E SALES COMMISSION AS FEE FOR TECHNICAL SERVICES. IT IS PERTINENT TO N OTE THAT THIS COMMISSION WAS GIVEN FOR PROCURING THE EXPORT ORDERS FROM OUTSI DE INDIA. SOURCING ORDERS ABROAD FOR WHICH PAYMENT HAD BEEN MADE DIRECT LY TO THE ITA 1122/JP/2016_ SUBHASH CHAND GUPTA VS ACIT 12 NONRESIDENT DOES NOT FALL IN THE CATEGORY OF TECHNI CAL SERVICES AND TRANSACTIONS DO NOT PARTAKES THE CHARACTER OF FEE F OR TECHNICAL SERVICES AS EXPLAINED IN SECTION 9(II)(VII) OF THE ACT. THUS TH E COMMISSION HAS BEEN PAID FOR THE SERVICES RENDERED OUTSIDE THE INDIA. TH E PERSON TO WHOM THE COMMISSION PAID WAS NOT HAVING ANY BUSINESS CONNECTI ON IN THE INDIA AND COMMISSION SO EARNED BY HIM IS NOT TAXABLE IN THE I NDIA. THEREFORE, THE PROVISIONS OF SECTION 195 OF THE ACT ARE NOT APPLIC ABLE. THE HONBLE MADRAS HIGH COURT IN ITS ORDER DATED 20/1/2016 IN TAX CASE APPEAL NO. 484 OF 2015 HAS HELD AS UNDER: 9. THIS QUESTION HAS BEEN ANSWERED BY THE HON'BLE SUPREME COURT, IN THE CASE OF G.E. INDIA TECHNOLOGY CENTRE PVT. LTD. V. C IT (2010) 327 I.T.R. 456, IN WHICH, IT IS VERY CATEGORICALLY HELD THAT THE TA X 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 DED UCTED TAX AT SOURCE OR A REMITTANCE ABROAD, IT CANNOT BE INFERRED THAT THE P ERSON MAKING THE REMITTANCE, NAMELY, THE ASSESSEE, IN THE INSTANT CA SE, HAS COMMITTED A DEFAULT IN DISCHARGING HIS TAX WITHHOLDING OBLIGATI ONS BECAUSE SUCH OBLIGATIONS COME INTO EXISTENCE ONLY WHEN THE RECIP IENT HAS A TAX LIABILITY IN INDIA. 9.2 THE UNDERLYING PRINCIPLE IS THAT, THE TAX WITHH OLDING LIABILITY OF THE PAYER IS INHERENTLY A VICARIOUS LIABILITY ON BEHALF OF THE R ECIPIENT 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 ITA 1122/JP/2016_ SUBHASH CHAND GUPTA VS ACIT 13 OF THE PAYER TO DEDUCT TAX DOES NOT ARISE. THIS VIC ARIOUS TAX WITHHOLDING LIABILITY CANNOT BE INVOKED, UNLESS PRIMARY TAX LIA BILITY 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 DEDUCT THE TAX AT SOURC E DOES NOT EXIST. 10. FURTHER, JUST BECAUSE, THE PAYER/ASSESSEE HAS N OT OBTAINED A SPECIFIED DECLARATION FROM THE REVENUE AUTHORITIES TO THE EFF ECT THAT THE RECIPENT IS NOT LIABLE TO BE TAXED IN INDIA, IN RESPECT OF THE INCOME EMBEDDED IN THE PARTICULAR PAYMENT, THE ASSESSING OFFICER CANNOT PR OCEED ON THE BASIS THAT THE PAYER HAS AN OBLIGATION TO DEDUCT TAX AT S OURCE. 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 TH AT THE NONRESIDENT AGENTS WERE ONLY PROCURING ORDERS ABROAD AND FOLLOWING UP PAYMENTS WITH BUYERS. NO OTHER SERVICES ARE RENDERED OTHER THAN T HE ABOVE. SOURCING ORDERS ABROAD, FOR WHICH PAYMENTS HAVE BEEN MADE DI RECTLY TO THE NON- RESIDENTS ABROAD, DOES NOT INVOLVE ANY TECHNICAL KN OWLEDGE 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 B UYERS FOR EFFECTING SALES BY THE ASSESSEE, AND IS ANALOGOUS TO A LAND O R A HOUSE/ REAL ESTATE AGENT / BROKER, WHO WILL BE INVOLVED IN MERELY IDEN TIFYING THE RIGHT PROPERTY FOR THE PROSPECTIVE BUYER / SELLER AND ONC E HE COMPLETES THE DEAL, HE GETS THE COMMISSION. THUS, BY NO STRETCH O F IMAGINATION, IT CANNOT BE SAID THAT THE TRANSACTION PARTAKES THE CH ARACTER OF 'FEES FOR ITA 1122/JP/2016_ SUBHASH CHAND GUPTA VS ACIT 14 TECHNICAL SERVICES' AS EXPLAINED IN THE CONTEXT OF SECTION 9 (1) (VII) OF THE ACT. 12. AS THE NON-RESIDENTS WERE NOT PROVIDING ANY TEC HNICAL SERVICES TO THE ASSESSEE, AS HELD ABOVE AND AS HELD BY THE COMMISSI ONER OF INCOME TAX (APPEALS), THE COMMISSION PAYMENT MADE TO THEM DOES NOT FALL INTO THE CATEGORY OF 'FEES OF TECHNICAL SERVICES' AND THEREF ORE, EXPLANATION (2) TO SECTION 9 (1) (VII) OF THE ACT, AS INVOKED BY THE A SSESSING OFFICER, HAS NO APPLICATION TO THE FACTS OF THE ASSESSEE'S CASE. 13. IN THIS CASE, THE COMMISSION PAYMENTS TO THE NO NRESIDENT AGENTS ARE NOT TAXABLE IN INDIA, AS THE AGENTS ARE REMAINING OUTSI DE, SERVICES ARE RENDERED ABROAD AND PAYMENTS ARE ALSO MADE ABROAD. 14. THE CONTENTION OF THE LEARNED COUNSEL FOR THE R EVENUE IS THAT THE TRIBUNAL OUGHT NOT TO HAVE RELIED UPON THE DECISION REPORTED IN 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 INT RODUCTION OF EXPLANATION 2 TO SECTION 195 (1) OF THE ACT, BOTH BY THE FINANC E ACT, 2012, WITH RETROSPECTIVE EFFECT FROM 01.04.1962. 15. THE ISSUE RAISED IN THIS CASE HAS BEEN THE SUBJ ECT MATTER OF THE DECISION, IN THE RECENT CASE, REPORTED IN (2014) 369 I.T.R. 96 ( MAD) (COMMISSIONER OF INCOME TAX V. KIKANI EXPORTS PVT. LTD.) WHEREIN THE CONTENTION OF THE REVENUE HAS BEEN REJECTED AND ASSESSEE HAS BEEN UPH ELD AND THE RELEVANT OBSERVATION READS AS UNDER:- '... THE SERVICES RENDERED BY THE NON-RESIDENT AGEN T COULD AT BEST BE CALLED AS A SERVICE FOR COMPLETION OF THE EXPORT CO MMITMENT AND WOULD NOT FALL WITHIN THE ] DEFINITION OF 'FEES FOR TECHN ICAL SERVICES' AND, THEREFORE, SECTION 9 WAS NOT APPLICABLE AND, CONSEQ UENTLY, SECTION 195 DID NOT COME INTO PLAY. THEREFORE, THE DISALLOWANCE MAD E BY THE ASSESSING ITA 1122/JP/2016_ SUBHASH CHAND GUPTA VS ACIT 15 OFFICER TOWARDS EXPORT COMMISSION PAID BY THE ASSES SEE TO THE NON- RESIDENT WAS RIGHTLY DELETED.' 16. WHEN THE TRANSACTION DOES NOT ATTRACT THE PROVI SIONS OF SECTION 9 OF THE ACT, THEN THERE IS NO QUESTION OF APPLYING EXPLANAT ION 4 TO SECTION 9 OF THE ACT. THEREFORE, THE REVENUE HAS NO CASE AND THE TAX CASE APPEAL IS LIABLE TO BE DISMISSED. 17. IN THE RESULT, THIS TAX CASE APPEAL IS DISMISSE D. THE ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL IS CONFIRMED. CONSIDERING THE DECISION OF THE HONBLE MADRAS HIGH COURT AND THE ALSO THE FACTUAL ASPECT OF THE CASE, WE ALLOW THE APPEAL O F THE ASSESSEE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26/12/2017. SD/- SD/- DQY HKKJR HKKXPAN (KUL BHARAT) (BHAGCHAND) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 26 TH DECEMBER, 2017 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- SHRI SUBHASH CHAND GUPTA, JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- THE A.C.I.T., CIRCLE-2, ALWAR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 1122/JP/2016) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR