Ananth Technologies Limited., Hyderabad. V. Dy. Commissioner of Income Tax, Circle-1(1)., Hyderabad.

ITA 1246/Hyd/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6496 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 18-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N SWAPNA
• Assessee Lawyers: A V RAGHURAM
• Keywords: Double taxation relief; Services rendered outside India; Deemed to accrue or arise in india; Permanent establishment; Advance ruling

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NO. 1246/HYD/2017 ASSESSMENT YEAR: 2013-14 M/S. ANANTH TECHNOLOGIES LIMITED, HYDERABAD [PAN: AABCA7289D] VS DY.CIT, CIRCLE-1(1), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI A.V. RAGHURAM, AR FOR REVENUE : SMT. N. SWAPNA, DR DATE OF HEARING : 16-07-2018 DATE OF PRONOUNCEMENT : 20-07-2018 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-1, HYDERABAD D ATED 30-05-2017. THE ISSUE IN THIS APPEAL IS WITH REFERE NCE TO DISALLOWANCE U/S. 40(A)(I) OF THE INCOME TAX ACT [A CT] MADE ON THE REASON THAT TDS WAS NOT MADE ON THE COMMISSION PAID TO FOREIGN ENTITY FOR THE SERVICES RENDERED ABROAD. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE, INVOLVE D IN THE BUSINESS OF DESIGN, MANUFACTURE, TESTING AND SUPPL YING OF I.T.A. NO. 1246/HYD/2017 :- 2 - : DIGITAL SYSTEMS, HAS ENTERED INTO AN AGREEMENT WITH M/S. TM INDIA LLC, HOUSTON AS ITS COLLECTION AGENT FOR FOLLOWI NG UP WITH ITS CUSTOMERS FOR PROCUREMENT OF ORDERS AND RECOVERY O F AMOUNT. AN AMOUNT OF RS. 13,73,133/- WAS PAID TO THE SAID CONCERN WHICH WAS CLAIMED AS AN EXPENDITURE IN THE P& L A/C. AO HAS ASKED ASSESSEE TO EXPLAIN WHY TDS WAS NOT AFFE CTED ON THESE PAYMENTS. ASSESSEE SUBMITTED THAT THE SAID AGENT HAS RENDERED SERVICES ABROAD ONLY AND HAS NOT RENDERED A NY TECHNICAL OR OTHER SERVICES AND THE AGENT HAS NO PER MANENT ESTABLISHMENT IN INDIA, BEING A NON-RESIDENT AND HAVIN G COVERED BY DTAA INDIA AND USA. THE COMMISSION PAID TO THE SAID AGENT FOR THE SERVICES RENDERED OUTSIDE INDIA AR E NOT TAXABLE IN INDIA AS PER THE PROVISIONS OF SECTION 9 AN D HENCE NO TDS IS REQUIRED TO BE DEDUCTED. AO, HOWEVER, CONT ENDED THAT AS PER THE PROVISIONS OF SECTION 9(1)(I) OF THE ACT, INCOME ACCRUING OR ARISING DIRECTLY OR INDIRECTLY THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA OR SOURCE OF INCOME IN INDIA SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA. AO RELIED ON THE DECISION OF THE AUTHORITY FOR ADVANCE RULING (AAR) IN THE CASE OF SKF BOILERS AND DRIERS (P.) LTD., IN AAR NOS. 983 & 984 OF 2010 [343 ITR 385] TO CONCLUDE THAT THE COMMISSION PAI D TO FOREIGN AGENT IS DEEMED TO ACCRUE OR ARISE IN INDIA A ND ACCORDINGLY, THE PROVISIONS OF SECTION 195 ARE APPLIC ABLE. AS ASSESSEE HAS FAILED TO DEDUCT TAX, AO WAS OF THE OPINIO N THAT THE SAME IS DISALLOWABLE U/S. 40(A)(I). 3. BEFORE THE LD.CIT(A), ASSESSEE CONTENDED THAT IT HAS ENGAGED ONE AGENT WHO HAS NOT RENDERED ANY TECHNIC AL OR OTHER SERVICES IN INDIA AND HAS ONLY RENDERED SERVIC E IN I.T.A. NO. 1246/HYD/2017 :- 3 - : FOLLOWING UP WITH ITS CUSTOMERS FOR PROCUREMENT OF OR DERS AND RECOVERY OF AMOUNTS ABROAD. IT WAS SUBMITTED THAT THE AGE NT HAS NO PERMANENT ESTABLISHMENT IN INDIA AND SINCE THE PROVISIONS OF SECTION 9 ARE NOT APPLICABLE, THERE IS N O REQUIREMENT OF TDS TO BE MADE. ASSESSEE RELIED ON TH E JUDGMENT IN THE CASE OF M/S. GE INDIA TECHNOLOGY CENTR E (P) LTD., VS. CIT [327 ITR 456] (SC). HOWEVER, LD.CIT(A ) TOOK AN ALTOGETHER DIFFERENT STAND AND REJECTED THE CONTENTIONS OF ASSESSEE BY STATING AS UNDER: 5.4. APPELLANT HAD ENTERED INTO AN AGREEMENT WITH TM INDIA LLC, TEXAS TO PAY A COMMISSION. HOWEVER, THIS DOCUMENT I S NOT REGISTERED OR ON A STAMP PAPER. THE TM INDIA LLC IS A COMPANY BASED IN HOUSTON, TEXAS, USA AND THE MANAGEMENT OF THIS COMP ANY INCLUDES: A) DR. SUBBA RAO PAVULURI, MD OF M/S. ANANTH TECHNOLOG IES LIMITED B) SRI TREVOR GOSNEY, MANAGING PARTNER OF TM INDIA LLC IS RESPONSIBLE FOR THE DAY-TO-DAY BUSINESS OF THE ALLI ANCE. C) SRI MIKE GARODIA, DEVELOPMENT DIRECTOR OF TM INDIA BASED IN OREGON AND CALCUTTA MANAGES THE LIAISON BETWEEN THE ALLIANCE PARTNERS. HE IS ALSO THE PRESIDENT OF M/S. MAGNA CO MMERCIAL, AN INTERNATIONAL TRADING CONSULTANCY COMPANY. TM INDIA LLC WAS ESTABLISHED IN HOUSTON, TEXAS, USA IN 2006 TO PROVIDE ENGINEERING SUPPORT SERVICES WITH ITS ALLIA NCE PARTNER, M/S.ANANTH TECHNOLOGY LTD OF HYDERABAD, INDIA. THAT IS TO SAY THAT THE COMPANY HAS SUBSIDIARY IN USA MANAGED BY DR. SU BBA RAO PAVULURI WHO IS MD OF BOTH THE COMPANIES. SINCE THE OTHER TWO PARTNERS ARE INDULGED IN MANAGING THE LIAISON AND D AY-TO-DAY BUSINESS OF THE ALLIANCE PARTNERS. HENCE, IT IS CLE AR THAT M/S. TM INDIA LLC IS NOT A SEPARATE ENTITY BUT IT IS A SUBS IDIARY OF THE APPELLANT COMPANY. HENCE THE COMMISSION PAID TO M/S . TM INDIA LLC, USA OF RS.13,73,133/- IS LIABLE TO DEDUCT TAX AS PER THE PROVISIONS OF SECTION 195. HOWEVER, THE COMMISSION PAID TO THE FOREIGN AGENT BY IT IS DEEMED TO ACCRUE OR ARISE IN INDIA, IS TAXABLE AND SO THE PROVISIONS OF THE SECTION 195 IS APPLICA BLE. IN VIEW OF THE ABOVE, I UPHOLD THE ADDITION MADE BY THE ASSESSING OFFICER. I.T.A. NO. 1246/HYD/2017 :- 4 - : 4. REFERRING TO THE ORDER OF LD.CIT(A), IT WAS SUBMITTE D THAT LD.CIT(A) HAS WRONGLY CONSIDERED THAT DR. SUBBA RA O PAVULURI IS MD OF BOTH THE COMPANIES. IT WAS SUBMITTED THAT MR. TREVOR GOSNEY IS THE MANAGING PARTNER OF THE NON- RESIDENT AGENT AND NOT DR. SUBBA RAO. IT WAS FURTHER SUBMITTED THAT TM INDIA LLC IS A SEPARATE ENTITY AND NOT A SUBSIDIAR Y OF ASSESSEE. 5. COMING TO THE ISSUE OF PAYMENT OF COMMISSION, LD . COUNSEL RELIED ON THE DECISION OF THE CO-ORDINATE BENC H IN THE CASE OF DCIT VS. DIVIS LABORATORIES LTD., [131 ITD 2 71], WHICH IS DIRECTLY ON THE ISSUE ALONG WITH ANOTHER CO-ORDINATE BENCH DECISION IN THE CASE OF EUROFLEX TRANSMISSIONS (INDI A) PVT. LTD., VS. ACIT IN ITA NO. 1773/HYD/2014, DT. 01-04-2015 AN D ANOTHER CO-ORDINATE BENCH DECISION IN THE CASE OF DY .CIT VS. M/S. LINKWELL TELESYSTEMS (P.) LTD., [2014 SCC ONLINE ITAT 9568], FOR THE PROPOSITION THAT THE SERVICES RENDERED OU TSIDE INDIA ARE NOT TAXABLE IN INDIA AND ACCORDINGLY, NO TAX WILL BE DEDUCTED U/S. 195 OF THE ACT. LD. COUNSEL ALSO RELIE D ON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT AT H YDERABAD IN THE CASE OF CIT VS. SRI AUROBINDO IMPEX COMPANY, ITTA NO. 24/2015, DT. 20-02-2017, IN WHICH ALSO SIMILAR ISSUE S WERE RAISED AND HON'BLE HIGH COURT HAS GIVEN DECISION IN FAVOUR OF ASSESSEE. THE PROVISIONS OF SECTION 5(2)(A) ARE NOT A TTRACTED JUST BECAUSE THE AMOUNTS ARE PAID THROUGH A BANK IN IN DIA TO A NON-RESIDENT, WHO HAS NOT RENDERED ANY SERVICES IN INDIA. 6. LD.DR, HOWEVER, EXPLAINED THE FACTS OF THE CASE AN D RELIED ON THE OPINION EXPRESSED BY THE AAR IN THE CASE OF SKF I.T.A. NO. 1246/HYD/2017 :- 5 - : BOILERS AND DRIERS (P.) LTD., (SUPRA) TO SUBMIT THAT SE CTION 5 AND 9 PROCEED ON THE ASSUMPTION THAT INCOME HAS A SITUS AND THE SITUS HAS TO BE DETERMINED ACCORDING TO THE GENERA L PRINCIPLES OF LAW. IT WAS ALSO SUBMITTED THAT THE FACT THAT THE AGENTS FOR RENDERED SERVICES ABROAD IN THE FORM OF SO LICITING THE ORDERS AND THE COMMISSION IS TO BE REMITTED TO THEM ABR OAD ARE WHOLLY IRRELEVANT FOR THE PURPOSE OF DETERMINING THE SITUS OF THE INCOME. IT WAS SUBMITTED THAT THE PROVISIONS OF SE CTION 195 WOULD APPLY AND ACCORDINGLY THE DISALLOWANCE U/S . 40(A)(I) ARE VALIDLY MADE BY THE AO. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE DOCUMENTS PLACED ON RECORD ALONG WITH THE CASE LAW RELIED UPON. THERE IS NO DISPUTE THAT ASSESSEE HA S ENTERED INTO AN AGREEMENT FOR FOLLOWING UP WITH THE CUSTOMERS I N USA AND HAS AGREED TO PAY COMMISSION TO THE NON-RESIDENT AGENT FOR THE SERVICES RENDERED THERE ONLY. THERE IS NO DIS PUTE THAT THE SAID COMPANY HAS NOT RENDERED ANY SERVICES IN IND IA. IT IS ALSO NOT DISPUTED THAT THE SAID COMPANY HAS NO PERMANEN T ESTABLISHMENT IN INDIA. THE ONLY ISSUE RAISED BY AO I S THAT SINCE THE COMMISSION HAS BEEN PAID FROM THE BANK ACCO UNT IN INDIA AND HAS BEEN ACCOUNTED IN THE BOOKS OF ACCOUNT OF ASSESSEE THAT HAS TO BE CONSIDERED AS DEEMED TO ARISE O R ACCRUE IN INDIA. SIMILAR ISSUE HAS BEEN CONSIDERED BY THE CO-ORDINATE BENCH IN THE CASE OF CIT VS. SRI AUROBIND O IMPEX COMPANY, (SUPRA), THE HON'BLE JURISDICTIONAL HIGH CO URT HAS RENDERED THE JUDGMENT FOLLOWING THE PRINCIPLES LAID D OWN BY THE HON'BLE AP HIGH COURT IN THE CASE OF SRI RAM REFR EGERATION INDUSTRIES VS. ITO [361 ITR 119] (AP). FURTHER, THE H ON'BLE I.T.A. NO. 1246/HYD/2017 :- 6 - : HIGH COURT ALSO HELD THAT FOLLOWING THE PRINCIPLES LA ID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. TOSHO KU LTD., [125 ITR 525] (SC) THAT MAKING UP OF THE ENTRIES IN THE BOOKS OF ACCOUNT OF ASSESSEE CANNOT BE TAKEN INTO BE R ECEIPT ACTUAL OR CONSTRUCTIVE BY THE NON-RESIDENT SALES AGENTS. IN VIEW OF THAT, PRIMA-FACIE, THE AMOUNTS PAID FROM INDIA DOES NOT ESTABLISH THAT INCOME HAS ACCRUED OR ARISEN IN INDIA AS THE SERVICES ARE NOT RENDERED IN INDIA AT ALL AND ASSESSE E HAS NO BUSINESS CONNECTION. THIS ISSUE WAS CONSIDERED BY THE CO- ORDINATE BENCH IN THE CASE OF DCIT VS. DIVIS LABORATO RIES LTD., [131 ITD 271], WHEREIN IT WAS HELD AS UNDER: THE MAIN THRUST IN SUCH A SITUATION IS WHETHER THE COMMISSION MADE TO OVERSEAS AGENTS, WHO ARE NON-RESIDENT ENTITIES, AND WHO RENDER SERVICES ONLY AT SUCH PARTICULAR PLACE, IS ASSESSAB LE TO TAX. SEC. 195 VERY CLEARLY SPEAKS THAT UNLESS THE INCOME IS LIABL E TO BE TAXED IN INDIA, THERE IS NO OBLIGATION TO DEDUCT TAX. NOW, I N ORDER TO DETERMINE WHETHER THE INCOME COULD BE DEEMED TO BE ACCRUED OR ARISEN IN INDIA, S. 9 IS THE BASIS. THIS SECTION DOES NOT PROVIDE SC OPE FOR TAXING SUCH PAYMENT BECAUSE THE BASIC CRITERIA PROVIDED IN THE SECTION IS ABOUT GENESIS OR ACCRUING OR ARISING IN INDIA, BY VIRTUE OF CONNECTION WITH THE PROPERTY IN INDIA, CONTROL AND MANAGEMENT VESTE D IN INDIA, WHICH ARE NOT SATISFIED IN THE PRESENT CASES. UNDER THESE CIRCUMSTANCES, WITHDRAWAL OF EARLIER CIRCULARS ISSUED BY THE CBDT HAS NO ASSISTANCE TO THE DEPARTMENT, IN ANY WAY, IN DISALLOWING SUCH EXPENDITURE. IT APPEARS THAT AN OVERSEAS AGENT OF AN INDIAN EXPORTE R OPERATES IN HIS OWN COUNTRY AND NO PART OF HIS INCOME ARISES IN IND IA AND HIS COMMISSION IS USUALLY REMITTED DIRECTLY TO HIM BY W AY OF TT OR POSTING OF CHEQUES/DEMAND DRAFTS IN INDIA AND THERE FORE THE SAME IS NOT RECEIVED BY HIM OR ON HIS BEHALF IN INDIA AND S UCH AN OVERSEAS AGENT IS NOT LIABLE TO INCOME-TAX IN INDIA ON THESE COMMISSION PAYMENTS. IT IS PERTINENT TO NOTE THAT S. 195 HAS T O BE READ ALONG WITH THE CHARGING SS. 4, 5 AND 9. ONE SHOULD NOT READ S. 195 TO MEAN THAT THE MOMENT THERE IS A REMITTANCE, THE OBLIGATION TO TDS AUTOMATICALLY ARISES. IF THE CONTENTION OF THE DEPARTMENT IS TO B E TAKEN AS CORRECT, THAT ANY PERSON MAKING PAYMENT TO A NON-RESIDENT IS NECESSARILY REQUIRED TO DEDUCT TAX, THEN THE CONSEQUENCE WOULD BE THAT THE DEPARTMENT WOULD BE ENTITLED TO APPROPRIATE THE MON IES DEPOSITED BY THE PAYER EVEN IF THE SUM PAID IS NOT CHARGEABLE TO TAX BECAUSE THERE I.T.A. NO. 1246/HYD/2017 :- 7 - : IS NO PROVISION IN THE IT ACT BY WHICH A PAYER CAN OBTAIN REFUND. AS PER S. 237 R/W S. 199 ONLY THE RECIPIENT OF THE SUM I.E., PAYEE WOULD SEEK A REFUND. IN VIEW OF THE ABOVE, HENCE, NO TAX IS DEDUCTIBLE UNDER S. 195 ON COMMISSION PAYMENTS AND CONSEQUENTLY THE EXPENDITURE ON EXPORT COMMISSION PAYABLE TO NON-RESIDENT FOR SERVI CES RENDERED OUTSIDE INDIA BECOMES ALLOWABLE EXPENDITURE AND THE SAME IS OUTSIDE RIGOURS OF THE S. 40A(IA). THE REQUIREMENT OF SERVI CES OF THE NON- RESIDENT BEING RENDERED IN INDIA AND BEING UTILIZED IN INDIA IS STILL VALID, DESPITE WITHDRAWAL OF EARLIER CIRCULARS ISSU ED ON THIS SUBJECT BY CBDT.CIT VS. TOSHOKU LTD. (1980) 19 CTR (SC) 192 : (1980) 125 ITR 525 (SC) AND GE INDIA TECHNOLOGY CENTRE (P) LTD. VS . CIT & ANR. (2010) 234 CTR (SC) 153 : (2010) 44 DTR (SC) 201 : (2010) 327 ITR 456 (SC) RELIED ON. 7.1. SIMILARLY IN THE CASE OF EUROFLEX TRANSMISSION S (INDIA) PVT. LTD., VS. ACIT IN ITA NO. 1773/HYD/2014, DT. 01- 04-2015, ON SIMILAR ISSUE THE CO-ORDINATE BENCH HAS H ELD AS UNDER: 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WE LL AS OTHER MATERIALS ON RECORD. WE HAVE ALSO CAREFULLY APPLIED OUR MIND TO THE DECISIONS CITED AT THE BAR. ON A PERUSAL OF THE ASSESSMENT ORDER, IT IS VERY MUCH EVIDENT THAT AO H AS NOT DISPUTED THE FACT THAT COMMISSION PAYMENTS WERE MAD E TO NON-RESIDENT AGENTS WHO NOT ONLY WERE CARRYING ON T HEIR BUSINESS ACTIVITIES OUTSIDE INDIA, BUT, THE COMMISS ION PAYMENTS WERE ALSO RELATED TO SERVICES PROVIDED BY THOSE AGENTS OUTSIDE INDIA. IT IS ALSO NOT DISPUTED THAT NONE OF THE COMMISSION AGENTS HAVE ANY PERMANENT ESTABLISHMENT OR PERMANENT BUSINESS PLACE IN INDIA. AO HAS ALSO NOT DISPUTED THE FACT THAT COMMISSION AMOUNTS WERE REMITTED TO N ON- RESIDENTS DIRECTLY OUTSIDE INDIA. HOWEVER, AO HAS H ELD THAT ASSESSEE IS LIABLE TO DEDUCT TAX U/S 195(1) ON THE REASONING THAT AS PER THE DECISIONS OF THE AAR, REFERRED TO B Y HIM, INCOME IS DEEMED TO ACCRUE OR ARISE IN INDIA WHEN R IGHT TO RECEIVE IT COMES INTO EXISTENCE. LD. CIT(A) HAS CON FIRMED THE VIEW EXPRESSED BY AO WITHOUT ASSIGNING ANY REASON O F HIS OWN. IT IS TO BE NOTED THAT INCASE OF RAJEEV MALHOT RA(SUPRA), AAR HAS COME TO ITS CONCLUSION BY REFERRING TO THE PROVISIONS CONTAINED U/S 6 AND 9 OF THE IT ACT. HOWEVER, A CA REFUL READING OF SECTION 9 OF THE ACT WOULD MAKE IT CLEAR THAT UNDER EXPLANATION 1(A) TO SECTION 9(1), IT HAS BEEN PROVI DED THAT IN I.T.A. NO. 1246/HYD/2017 :- 8 - : CASE OF A BUSINESS OF WHICH ALL THE OPERATIONS ARE NOT CARRIED OUT IN INDIA, THE INCOME OF SUCH BUSINESS ONLY RELA TING TO SUCH PART OF THE INCOME AS IS REASONABLY ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA. IN THE PRESENT CASE, AO HAS NOT BRO UGHT ANY MATERIAL ON RECORD TO ESTABLISH THAT NON-RESIDENT A GENTS HAVE CARRIED OUT ANY PART OF THEIR BUSINESS IN INDIA. 8. MOREOVER, SECTION 195(1) ENVISAGES THAT TAX IS T O BE DEDUCTED AT SOURCE ON INCOME WHICH IS CHARGEABLE UN DER THE PROVISIONS OF IT ACT. THE HONBLE SUPREME COURT WHI LE INTERPRETING THE EXPRESSION CHARGEABLE UNDER THE P ROVISIONS OF THIS ACT AS EMPLOYED U/S 195(1) OF THE ACT HAS HELD IN CASE OF GE INDIA TECHNOLOGY CENTRE P. LTD. (SUPRA) THAT THE SAID EXPRESSION WOULD MEAN THAT THE REMITTANCE HAS GOT TO BE OF A TRADING RECEIPT, THE WHOLE OR PART OF WHICH IS LIABLE TO TAX IN INDIA. HOWEVER, IF THE PAYMENTS MADE TO NON-RESI DENTS ARE NOT CHARGEABLE TO TAX UNDER THE PROVISIONS OF IT AC T, THEN, THE PROVISIONS OF SECTION 195 WOULD NOT APPLY. THE HON BLE SUPREME COURT FURTHER OBSERVED THAT IF THE SCOPE OF SECTION 195 IS ENLARGED TO THAT EXTENT, THEN, IT WOULD RESU LT IN A SITUATION WHERE, EVEN THOUGH, THE INCOME WILL HAVE NO TERRITORIAL NEXUS WITH INDIA OR IS NOT CHARGEABLE I N INDIA, THE GOVT. WOULD NONETHELESS COLLECT TAXES. IN THE PRESE NT CASE, ON A PERUSAL OF THE ASSESSMENT ORDER OR THE ORDER OF L D. CIT(A), WE DO NOT FIND ANY CONCLUSIVE FINDING GIVEN BY THE AUTHORITIES CONCERNED THAT THE PAYMENTS MADE TO NON-RESIDENTS A RE CHARGEABLE TO TAX UNDER THE IT ACT. APPLYING THE P RINCIPLES LAID DOWN BY THE HONBLE SUPREME COURT AS AFORESAID , IT IS TO BE HELD THAT THE PROVISIONS OF SECTION 195 WOULD NO T BE APPLICABLE TO PAYMENTS MADE BY ASSESSEE TO NON-RESI DENT AGENTS. THIS VIEW IS ALSO SUPPORTED BY THE FOLLOWIN G DECISIONS: 1. CIT VS. MODEL EXIMS KANPUR, [2013] 358 ITR 72 (A LL.) 2. CIT VS. FAIZAN SHOES PVT. LTD., [2014] 367 ITR 155 (MAD.) 9. FURTHER, THE COORDINATE BENCH WHILE EXAMINING ID ENTICAL NATURE OF DISPUTE IN CASE OF AROBINDO PHARMA LTD. ( SUPRA) HELD IN THE FOLLOWING MANNER: 25. AS FAR AS THE AMOUNT PAID AS SALES COMMISSION I S CONCERNED, THIS ISSUE HAS ALREADY BEEN DECIDED BY T HE COORDINATE BENCH IN ASSESSEE'S OWN CASE FOR THE A.Y . 2002- I.T.A. NO. 1246/HYD/2017 :- 9 - : 2003 AND 2004-2005 IN ITA.NO.415 & 999/HYD/2007 BY ORDER DATED 25.06.2010. THE COORDINATE BENCH HAS HELD AS UNDER : '2. . . .. . WE FIND THAT AS PER CIRCULAR 786 DATED 17.2.2000, COMMISSION PAID BY THE ASSESSEE COMPANY DIRECTLY TO NON-RESIDEN T AGENTS FOR RENDERING SERVICES ABROAD ARE NOT LIABLE FOR DEDUCT ION OF TDS UNDER SECTION 195 OF THE ACT. ACCORDINGLY, THE PROVISIONS O F SECTION 40(A)(IA) OF THE ACT ARE NOT APPLICABLE. THE CASE LAW RELIED ON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE IN THE CASE OF TRANSMISSI ON CORPORATION OF A.P. LIMITED REPORTED IN 239 ITR 587 (SC) AND THE DEC ISION OF THIS TRIBUNAL IN THE CASE OF CHEMINOR DRUGS VS. ITO IS NOT APPLICABLE TO THE FACTS OF THE CASE UNDER CONSIDERATION, AS IN THIS CAS E, THE ASSESSEE MADE THE PAYMENT DIRECTLY TO THE NON-RESIDENT AGENTS FOR R ENDERING SERVICES ABROAD. IN VIEW OF THE ABOVE, WE DO NOT SEE ANY INFI RMITY IN THE ORDER OF THE CIT(A) ON THIS ISSUE AND THE SAME IS UPHELD.' 7.2. THE RATIO LAID DOWN BY THE CO-ORDINATE BENCHES SQUARELY APPLIES TO THE FACTS OF THE PRESENT CASE AND RESPECTFULLY FOLLOWING THE PRINCIPLES LAID DOWN IN T HE JUDICIAL PROCEEDINGS REFERRED TO HEREIN ABOVE, WE THEREFORE HO LD THAT THE PROVISIONS OF SECTION 195 WOULD NOT BE APPLICABLE TO THE COMMISSION PAYMENTS MADE BY ASSESSEE TO NON-RESIDENT AGENT WHO HAS NOT DONE ANY SERVICE IN INDIA AND AS SUCH IN COME IS NOT CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT A S THERE IS NO REQUIREMENT TO DO ANY TDS U/S. 195, THE DISALLO WANCE MADE U/S. 40(A)(I) OF THE ACT IS ALSO NOT SURVIVE. 7.3. WE ARE SURPRISED TO NOTE THAT LD.CIT(A) WITHOUT UNDERSTANDING THE INTERNATIONAL LAW HAS SIMPLY HELD THA T A FOREIGN AGENT AND THE INDIAN COMPANY ARE SISTER CONCER NS AND ACCORDINGLY THE AMOUNTS ARE TAXABLE. EVEN IF ONE WERE TO CONSIDER THAT OTHER COMPANY IS A SISTER CONCERN OF ASSE SSEE, HOW THE PROVISIONS OF SECTION 195 OR SECTION 5 AND SEC TION 9 ARE APPLICABLE HAS NOT BEEN DISCUSSED BY THE LD.CIT (A) AT ALL. I.T.A. NO. 1246/HYD/2017 :- 10 -: MOREOVER, THE PROVISIONS OF DTAA BETWEEN INDIA AND USA ALSO GIVES THE RIGHT TO TAX THE AMOUNT IN THE HANDS OF FOREIGN ASSESSEE IF THE SAME IS CONSIDERED AS BUSINESS INCOM E WHEN THERE IS NO PERMANENT ESTABLISHMENT IN INDIA. SINCE THE NON- RESIDENT HAS NO PERMANENT ESTABLISHMENT IN INDIA, THE QUESTION OF TAXING THE AMOUNT DOES NOT ARISE AS THE PROVI SIONS OF DTAA WHICH OVER RIDES THE PROVISIONS OF INCOME TA X ACT. IN VIEW OF THAT, THE ORDER OF CIT(A) CANNOT BE UPHELD. SI MILAR VIEW WAS ALSO EXPRESSED BY THE CO-ORDINATE BENCH IN TH E CASE OF DY.CIT VS. M/S. LINKWELL TELESYSTEMS (P.) LTD., W HEREIN ALSO COMMISSION WAS PAID TO NON-RESIDENTS FOR THE SERVICES RENDERED ABROAD AND WAS HELD NOT TAXABLE. IN VIEW OF THAT, WE CANNOT UPHOLD THE ORDERS OF AO DISALLOWING THE AMOUN T U/S. 40(A)(I). GROUNDS RAISED BY ASSESSEE ARE ALLOWED. 8. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH JULY, 2018 SD/- SD/- (CHALLA NAGENDRA PRASAD) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 20 TH JULY, 2018 TNMM I.T.A. NO. 1246/HYD/2017 :- 11 -: COPY TO : 1. M/S. ANANTH TECHNOLOGIES LIMITED, C/O. A.V. RAGH U RAM, P. VINOD & M. NEELIMA DEVI, ADVOCATES, 610, BABUKHAN ESTATE, BASHEERBAGH, HYDERABAD. 2. THE DY.CIT, CIRCLE-1(1), HYDERABAD. 3. CIT (APPEALS)-1, HYDERABAD. 4. PR.CIT-1, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.