The ACIT, Circle-2, Bharuch V. M/s. Ramdev Chemical Industries, Ankleshwar

ITA 1256/AHD/2016

• Counselvise Citation: [2018] 111 COUNSELVISE.COM (IT) 1927 (ITAT-SURAT)
• Duration Of Justice: 1 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 13-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R KAVITHA
• Assessee Lawyers: MUKUND BAKSHI C A
• Keywords: Capital asset; Double taxation relief; Source of fund; Services rendered outside India; Deemed to accrue or arise in india; Retrospective amendment; Permanent establishment; Non-deduction of tax; TDS
• Section: 5(2); 40(a)(ia); 195; 13; 22; 12; 90

Judgement Text

ACIT-2 BHARUCH V. RAMDEV CHEMICAL INDUSTRIES /I.T.A. NO.1256/AHD/2016/A.Y.:11-12 PAGE 1 OF 20 , , IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT . . [ , . . , BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . . ./ I.T.A NO. 1256/AHD/2016 [ [ / A.Y.:2011-12 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -2 BHARUCH V S . M/S. RAMDEV CHEMICAL INDUSTRIES, 3441-B, GIDC, INDUSTRIAL ESTATE ANKLESHWAR PAN: AACFR3839A APPELLANT /RESPONDENT [ /ASSESSEE BY SHRI MUKUND BAKSHI CA, A.R. /REVENUE BY MS. R. KAVITHA, JCIT, SR. D.R. / DATE OF HEARING: 07.03.2018 /PRONOUNCEMENT ON 22.03.2018 /O R D E R PER O. P. MEENA, ACCOUTANT MEMBER: 1. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)3, VADODARA [IN SHORT THE CIT(A)] DATED 01.02.2016 PERTAINING TO ASSESSMENT YEAR 2011-12, WHICH IN TURN HAS ARISEN FROM THE ACIT-2 BHARUCH V. RAMDEV CHEMICAL INDUSTRIES /I.T.A. NO.1256/AHD/2016/A.Y.:11-12 PAGE 2 OF 20 ORDER DATED 10.03.2014 PASSED BY THE DCIT CIRCLE BHARUCH (IN SHORT THE AO ) UNDER SECTION 143 (3) OF INCOME TAX ACT,1961 ( IN SHORT THE ACT). 2. GROUND NO. 1 IS AGAINST THE DELETION OF RS. 23,00,761 BEING REACH REGISTRATION CHARGES DISREGARDING THE FACT THAT PAYMENT WAS FOR 10 YEARS OUT OF WHICH 9/10 TH OF THE PAYMENT IS FOR OTHER YEARS WHICH OUGHT TO HAVE ALLOWED IN RESPECTIVE YEARS. 3. THE LD. SR. DR SUBMITTED THAT THE ASSESSEE HAS DEBITED AMOUNT OF RS. 32.12 LAKHS UNDER REGISTRATION, EVOLUTION, AUTHORIZATION AND RESTRICTION OF CHEMICALS (IN SHORT REACH) FEES TO EUROPEAN COUNTRIES PARLIAMENT AND COUNCIL OF EU ON THE BASIS OF COMMITMENT OF QUANTITY FOR EXPORT GOODS. THE EXPENDITURE OF RS. 25,56,401 HAS BEEN INCURRED FOR PURCHASE OF LETTER OF ACCESS (LOA) AS PER AGREEMENT EXECUTED BETWEEN MOMAJA S. R. O. TRADING AS ELC GROUP AND THE ASSESSEE. BY ACIT-2 BHARUCH V. RAMDEV CHEMICAL INDUSTRIES /I.T.A. NO.1256/AHD/2016/A.Y.:11-12 PAGE 3 OF 20 THIS AGREEMENT, THE ASSESSEE HAS BEEN SELECTED MOMAJA S. R. O. TRADING ELC TO ACT AS ITS REPRESENTATIVE UNDER REACH FOR 10 YEARS I.E. FROM 2008 TO 2018. THEREFORE, 1/10 TH OF THAT EXPENSES PERTAINS TO CURRENT YEAR AND BALANCE FOR 9/10 TH PREPAID FOR NEXT 9 YEARS. THEREFORE, THE AO HAS RIGHTLY DISALLOWED 9/10 THAT EXPENSES AT RS. 23,00,761. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD PAID RS. 25,56,401 IN PURSUANCE OF E. C. REGULATION DTD. 19.07.2006. ACCORDING TO WHICH, IT IS COMPULSORY TO REGISTER A CHEMICAL PRODUCT FOR ENTRY OF SUCH CHEMICAL GOODS INTO EUROPE FROM ANYWHERE IN THE WORLD. AS PER THE REGULATIONS, THE EXPORTER WHO IS RESIDENT OUT SIDE EU IS REQUIRED TO COMPLY WITH THE SAID REGULATION. IN SUCH TERMS OF AGREEMENT, THE ASSESSEE HAS ENTERED IN TO AGREEMENT ENTITLED AS REACH WITH MOMAJA S.R.O AS ELC GROUP. AS PER THE AGREEMENT THE ASSESSEE REPRESENTATIVE IS OBLIGED TO PERFORM ACIT-2 BHARUCH V. RAMDEV CHEMICAL INDUSTRIES /I.T.A. NO.1256/AHD/2016/A.Y.:11-12 PAGE 4 OF 20 FUNCTION AS SPECIFIED IN CLAUSE 2 OF THE AGREEMENT IN CONSIDERATION OF THE REMUNERATION QUANTIFIED ON ESTIMATED TIME WHICH REPRESENTATIVE EXPECTS TO DEVOTE AND FOR THAT THE SAME FEE IS PAYABLE IN ADVANCE. THEREFORE, THE LD. CIT (A) HAS RIGHTLY HELD IT AS ALLOWABLE EXPENDITURE AS SAME CAN BE SAID TO BE EXPENDITURE INCURRED IN ORDINARY COURSE OF BUSINESS AND CARRYING OUT BUSINESS ACTIVITY. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE EXPENDITURE OF RS. 25,56,401 HAS BEEN INCURRED IN PURSUANCE OF AGREEMENT AND IN ACCORDANCE WITH EU REGULATIONS DTD. 19.07.2006. ACCORDING TO WHICH, THE ASSESSEE IS REQUIRED TO REGISTER ITS CHEMICAL PRODUCT WITH EU FOR ENTERING/EXPORTING THE GOODS TO EU. THEREFORE, EXPENDITURE INCURRED IN PAYING FEES FOR REPRESENTATIVE`S REMUNERATION HAS BEEN INCURRED IN NORMAL COURSE OF BUSINESS ACTIVITY. IF THE ASSESSEE DID NOT COMPLY WITH ACIT-2 BHARUCH V. RAMDEV CHEMICAL INDUSTRIES /I.T.A. NO.1256/AHD/2016/A.Y.:11-12 PAGE 5 OF 20 THE EU REGULATIONS OF THE EUROPEAN UNION, THEN IT CANNOT EXPORT THE GOODS TO EUROPEAN UNION COUNTRIES. THEREFORE, WE ARE IN AGREEMENT WITH FINDING RECORDED BY THE LD. CIT (A) AND NO FAULT CAN BE FIND IN SUCH FINDINGS. THEREFORE, THE GROUNDS OF APPEAL RAISED BY THE REVENUE IS DEVOID OF ANY MERITS. ACCORDINGLY, IT IS DISMISSED. 5. GROUND NO. 2 OF REVENUE STATED THAT THE CIT (A) ERRED IN DELETING THE DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT BY HOLDING THAT COMMISSION PAYMENT NEED NOT BE SUBJECTED TO TDS IGNORING THE FACTS THAT THE ASSESSEE DID NOT GIVE DETAILS, INCOME WHICH IS ACCRUING IN INDIA IS TO BE TAXED IRRESPECTIVE OF ITS PLACE OF PAYMENT AND CIT (A) FAILED TO TAKE COGNIZANCE THAT THE ASSESSEE HAS APPLIED FOR NON DEDUCTION OF TAX UNDER SECTION 195 BEFORE THE AO. 6. THE ASSESSEE COMPANY HAS PAID COMMISSION OF RS. 72, 32, 651 VARIOUS PARTIES RESIDING OUTSIDE INDIA ON WHICH NO TDS WAS ACIT-2 BHARUCH V. RAMDEV CHEMICAL INDUSTRIES /I.T.A. NO.1256/AHD/2016/A.Y.:11-12 PAGE 6 OF 20 DEDUCTED AS THE AGENTS WERE NOT HAVING ANY BUSINESS CONNECTION IN INDIA. HOWEVER, THE AO REFERRED THE PROVISIONS OF SECTION 9 (1) (I) OF THE ACT, ACCORDING TO WHICH INCOME ACCRUE ON ARISING DIRECTLY OR INDIRECTLY THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA OR SOURCE OF INCOME IN INDIA SHALL BE DEEMED TO ACCRUE ON ARISING IN INDIA. NO DOUBT THAT THE AGENTS RENDERED SERVICES ABROAD AND SOLICITED ORDERS, BUT THE RIGHT TO RECEIVE THE COMMISSION ARISES IN INDIA WHEN THE ORDER IS EXECUTED BY THE EXPORTERS IN INDIA. THEREFORE, THE AO HELD THAT INCOME ARISING ON ACCOUNT OF COMMISSION PAYABLE TO THE AGENTS IS DEEMED TO HAVE ACCRUED AND ARISED IN INDIA AND IS TAXABLE UNDER THE I. T. ACT IN VIEW OF THE SPECIFIC PROVISION OF SECTION 5 (2) (B) READ WITH SECTION 9(1)(I) OF THE ACT. SINCE THE ASSESSEE HAS FAILED TO DEDUCT TDS THEREON AS PER PROVISIONS OF SECTION 195 OF THE ACT. THEREFORE, THE AO DISALLOWED THE ACIT-2 BHARUCH V. RAMDEV CHEMICAL INDUSTRIES /I.T.A. NO.1256/AHD/2016/A.Y.:11-12 PAGE 7 OF 20 AMOUNT OF RS. 72, 33, 651 AS PER PROVISIONS OF SECTION 40 (A) (IA) OF THE ACT. 7. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT (A). IT WAS CLAIMED BEFORE THE CIT (A) THAT SECTION 5 (2) (B) IS WRONGLY INVOKED BY THE AO AS THIS SECTION PROVIDES FOR CHARGING OF INCOME WHICH ACCRUES OR ARISES IN INDIA. THE SOURCE OF ACCRUAL OR ARISING OF INCOME IN INDIA CANNOT BE RELEVANT BECAUSE THE INCIDENCE OF TAX IS ATTACHED WITH THE PLACE OF ACCRUAL OF INCOME AND NOT ITS SOURCE. IT WAS FURTHER CONTENDED THAT FOR PROCURING ORDERS BY IT NON-RESIDENT FROM THE COUNTRIES OUTSIDE INDIA, THERE CAN NO WAY FOR CONSIDERING THE ACTUAL EXPORT FROM INDIA AS THE PLACE FOR ACCRUAL OF COMMISSION INCOME. IT WAS ALSO SUBMITTED THAT SECTION 9 (1) (I) DEALS WITH INCOME ACCRUING OR ARISING, DIRECTLY OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA FOR ANY PROPERTY IN INDIA, FROM ANY ASSET OR SOURCE OF INCOME IN INDIA OR THROUGH ACIT-2 BHARUCH V. RAMDEV CHEMICAL INDUSTRIES /I.T.A. NO.1256/AHD/2016/A.Y.:11-12 PAGE 8 OF 20 THE TRANSFER OF CAPITAL ASSET IN INDIA. THUS, IT WAS SUBMITTED THAT AT THE MOST IT CAN BE CONSIDERED THAT INCOME IS HAVING BUSINESS CONNECTION IN INDIA. HOWEVER, EXPLANATION 3 TO SECTION 9(1)(I) PROVIDES THAT IF THE BUSINESS IS CARRIED IN INDIA, THE INCOME ATTRIBUTABLE TO SUCH OPERATION SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA. THEREFORE, IT WAS SUBMITTED THAT IF NO THE ACTIVITIES CARRIED OUT IN INDIA, SECTION 9(1)(I) WOULD NOT APPLY. THE ASSESSEE HAS PLACED RELIANCE ON VARIOUS DECISIONS OF HONOURABLE SUPREME COURT LIKE ELI LILLY 312 ITR 225 (SC) , G. E. INDIA TECHNOLOGY CENTER PVT. LTD. 327 ITR 456 (SC) AND OTHERS AS MENTIONED IN WRITTEN SUBMISSIONS IN THE ORDER OF CIT (A). IT WAS FURTHER SUBMITTED THAT SIMILAR ADDITION MADE BY THE AO IN A.Y. 2010-11 HAS BEEN DELETED BY THE THEN CIT(A). THE ASSESSEE HAS ALSO REFERRED CIRCULAR NO. 23 DATED 27. 07. 1969 AND CIRCULAR NO. 786 DTD. 07. 02. 2000 OF CBDT. THE POSITION AND THE TAXABILITY OF INCOME AND BY A NON-RESIDENTS FOR OF ACIT-2 BHARUCH V. RAMDEV CHEMICAL INDUSTRIES /I.T.A. NO.1256/AHD/2016/A.Y.:11-12 PAGE 9 OF 20 OBTAINING ORDERS FOR EXPORT FOR RESIDENTS OUTSIDE INDIA WAS ALL ALONG CLARIFIED TO BE NOT A LIABLE TO TAX IN INDIA BY THE THESE CIRCULARS. THE CIT(A) THEREFORE OBSERVED THAT NONE OF THE RECIPIENTS HAS ANY PLACE OF ESTABLISHMENT IN INDIA AND THEREFORE, EVEN IN ACCORDANCE OF THE PROVISIONS OF THE TREATIES, SUCH INCOME IS NOT LIABLE TO BE TAXED IN INDIA. THOUGH THE SOURCE OF PAYMENT OF THE RECIPIENTS, THE COMMISSION AGENTS, IS IN INDIA, BUT THE SERVICES HAVE BEEN RENDERED BY THEM IN EUROPE I.E. OUTSIDE INDIA AND THESE RECIPIENTS DO NOT HAVE ANY PLACE OF ESTABLISHMENT IN INDIA. THEREFORE, AFTER CONSIDERING THE VARIOUS CASE LAWS AND SUBMISSION OF THE ASSESSEE THE CIT(A) DELETED THE ADDITION OF RS.72,33,651 MADE BY THE AO. 8. BEING AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LEARNED SR. D.R. SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE AS THE ACIT-2 BHARUCH V. RAMDEV CHEMICAL INDUSTRIES /I.T.A. NO.1256/AHD/2016/A.Y.:11-12 PAGE 10 OF 20 ASSESSEE DID NOT GIVE DETAILS OF SERVICES RENDERED BY AGENTS. THE LD. SR. D.R. FURTHER SUBMITTED THAT INCOME WHICH IS ACCRUING WERE ARISING IN INDIA IS TO BE TAXED IN IN IN INDIA IRRESPECTIVE OF PLACE OF PAYMENTS. FURTHER, THE CIT(A) IS FAILED TO EXAMINE THE CASE OF THE ASSESSEE INASMUCH AS THE ASSESSEE HAS APPLIED BEFORE THE AO FOR NON-DEDUCTION OF TAX WITHIN THE AMBIT OF PROVISIONS OF SECTION 195 (1) OF THE ACT. 9. REPLAYING TO ABOVE, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED DETAILS VIDE INVOICES AS PLACED IN THE PAPER BOOK BEFORE THE CIT (A) AND ALSO DURING ASSESSMENT PROCEEDINGS AS MENTIONED BY THE LD. CIT (A) IN HIS ORDER. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT NONE OF THE RECIPIENT HAS ANY PLACE OF ESTABLISHMENT IN INDIA. THE RECIPIENTS ARE RESIDENTS OF COUNTRIES WITH WHOM THERE EXIST DTAA, BY VIRTUE OF SECTION 90 (2) OF THE ACT, THE BENEFIT OF THE DTAA SHALL BE AVAILABLE IF THE DTAA`S ARE MORE BENEFICIAL. THEREFORE, EVEN IN ACIT-2 BHARUCH V. RAMDEV CHEMICAL INDUSTRIES /I.T.A. NO.1256/AHD/2016/A.Y.:11-12 PAGE 11 OF 20 ACCORDANCE OF THE PROVISIONS OF THE TREATIES SUCH INCOME IS NOT LIABLE TO BE TAXED IN INDIA. THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE IN THE CASE OF ITO V. TRIDENT EXPORTS 44 TAXMANN.COM 297(CHENNAI-TRIB), ACIT V. INDO INDUSTRIES 53 TAXMANN.COM 458 (MUM-TRIB) AND WELSPRING UNIVERSAL V. JCIT 56 TAXMANN.COM 174 (DEL-TRIB). THE LEARNED COUNSEL FOR THE ASSESSEE ALSO FILED COPIES OF INVOICES IN PAPER BOOK, FROM WHICH IT CAN BE SEEN THAT COMMISSION IS PAYABLE FOR EXPORTS OF VARIOUS CONSIGNEE FOR THE BUSINESS SOLICITED BY THE AGENTS. NONE OF THE SERVICE PROVIDER HAVE PERMANENT ESTABLISHMENT IN INDIA, THEREFORE, NO PAYMENTS MADE BY THE ASSESSEE CAN BE SUBJECTED TO TAX IN INDIA. THE LD. AR FURTHER RELIED IN THE CASE OF DCIT V. DIVI`S LABORATORIES 131 ITD 271 (HYD) WHEREIN IT WAS HELD THAT COMMISSION PAID TO NON- RESIDENT AGENTS FOR SERVICE RENDERED OUT SIDE INDIA NOT BEING CHARGEABLE TO TAX IN INDIA AND COULD NOT BE DISALLOWED UNDER ACIT-2 BHARUCH V. RAMDEV CHEMICAL INDUSTRIES /I.T.A. NO.1256/AHD/2016/A.Y.:11-12 PAGE 12 OF 20 SECTION 40(A)(IA) OF THE ACT. THE LD. AR FURTHER CITED DECISION IN THE CASE OF CIT V. ELI LILY COMPANY (INDIA) PVT. LTD. 312 ITR 225 (SC) , G. E TECHNOLOGY CENTER PVT. LTD. 327 ITR 456 (SC) AND TOSHOKU LTD. V. CIT 1981 AIR 148 (SC) AND SUBMITTED THAT UNLESS ANY INCOME CAN BE SAID TO HAVE DEEMED TO ACCRUE OR ARISE IN INDIA , THE PROVISION OF SECTION 195 ARE NOT ATTRACTED AND CONSEQUENTLY, PROVISION OF SECTION 40(A)(IA) ARE ALSO NOT ATTRACTED. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE COMMISSION PAYMENT HAS BEEN PAID FOR THE SERVICE RENDERED BY THE NON- RESIDENT AGENTS OUTSIDE INDIA. THE SERVICE IS RENDERED BY THEM OUT SIDE INDIA AS THE ORDERS FOR EXPORTS OF GOODS FOR THE ASSESSEE HAVE BEEN SOLICITED OUTSIDE INDIA. THESE AGENTS ARE NOT HAVING ANY PERMANENT ESTABLISHMENT IN INDIA. IN SUCH A SCENARIO THE SOURCE OF INCOME ACCRUED TO THE AGENTS IS OUT ACIT-2 BHARUCH V. RAMDEV CHEMICAL INDUSTRIES /I.T.A. NO.1256/AHD/2016/A.Y.:11-12 PAGE 13 OF 20 SIDE INDIA AS THE SERVICE RENDERED BY THEM WAS OUT SIDE INDIA. THE QUESTION UNDER CONSIDERATION IS AS TO WHETHER THE PAYMENT OF COMMISSION TO THE NON- RESIDENT COMMISSION AGENTS WAS COVERED BY THE PROVISIONS OF SECTION 195 OF THE ACT. AS PER PROVISIONS OF SECTION 195, ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT ANY INTEREST OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT TO DEDUCT INCOME- TAX THEREON AT THE RATES ENFORCED. THE PAYMENT MADE BY APPELLANT WAS ADMITTEDLY NOT ON ACCOUNT OF ANY INTEREST PAYMENT. CONSEQUENTLY, IT HAS TO BE EXAMINED WHETHER THE COMMISSION PAID BY THE ASSESSEE IS COVERED BY THE TERM 'ANY OTHER SUM CHARGEABLE UNDER THE PROVISION OF THIS ACT' AS PROVIDED IN SECTION 195 OF THE ACT. IT IS WORTH TO MENTION HERE THAT FOR THE PURPOSE OF APPLICABILITY OF SECTION 195 ANY OTHER SUM MUST BE CHARGEABLE UNDER THE PROVISIONS OF THE ACT. FURTHER SECTION 5 OF THE I.T. ACT DEALS WITH THE 'SCOPE OF TOTAL ACIT-2 BHARUCH V. RAMDEV CHEMICAL INDUSTRIES /I.T.A. NO.1256/AHD/2016/A.Y.:11-12 PAGE 14 OF 20 INCOME'. AS PER SUB-SECTION (2) OF SECTION 5, THE TOTAL INCOME OF A PERSON WHO IS NOT RESIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCES DERIVED WHICH IS RECEIVED OR DEEMED TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON OR ACCRUE OR ARISE OR IS DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA DURING SUCH YEAR. SECTION 7 EXPLAINS THE INCOME DEEMED TO BE RECEIVED. SECTION 9 FURTHER EXPLAINED/DEFINED THE INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. AS PER SECTION 9(1)(I) , THE INCOME SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA IN CASE OF ALL INCOME ACCRUING OR ARISING WHETHER DIRECTLY OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA, OR THROUGH ANY PROPERTY IN INDIA, OR FROM ANY ASSET OR SOURCES OF INCOME IN INDIA, OR THROUGH THE TRANSFER OF CAPITAL ASSET SITUATED IN INDIA. IN THE CASE OF PAYMENT OF COMMISSION BY APPELLANT TO ITS NON-RESIDENT COMMISSION AGENTS, SUCH COMMISSION INCOME TO SUCH NON-RESIDENT COMMISSION AGENTS ACIT-2 BHARUCH V. RAMDEV CHEMICAL INDUSTRIES /I.T.A. NO.1256/AHD/2016/A.Y.:11-12 PAGE 15 OF 20 WAS NOT RECEIVED IN INDIA OR WAS NOT ACCRUING OR ARISING IN INDIA WHETHER DIRECTLY OR INDIRECTLY. SUCH INCOME WAS ALSO NOT ACCRUING OR ARISING TO NON-RESIDENT THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA SINCE THESE COMMISSION AGENTS WERE RENDERING SERVICES OUTSIDE INDIA AND THE PAYMENTS WERE ALSO MADE OUTSIDE INDIA. IN THE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT IT COULD NOT BE SAID THAT THESE COMMISSION AGENTS WERE HAVING ANY BUSINESS CONNECTION IN INDIA PARTICULARLY WHEN THESE NON-RESIDENT COMMISSION AGENTS WERE HAVING NO PERMANENT ESTABLISHMENT IN INDIA. THEREFORE, INCOME IN THE FORM OF COMMISSION PAID BY THE ASSESSEE WAS ALSO NOT ARISE OR ACCRUED TO THOSE NON-RESIDENT THROUGH OR FROM ANY ASSET OR SOURCES OF INCOME IN INDIA OR THROUGH TRANSFER OF CAPITAL ASSET SITUATED IN INDIA. IN THE FACTS AND CIRCUMSTANCES, WE ARE OF CONSIDERED VIEW THAT PROVISIONS OF SECTION 9(1)(I) WERE NOT APPLICABLE IN THE CASE OF PAYMENT OF ACIT-2 BHARUCH V. RAMDEV CHEMICAL INDUSTRIES /I.T.A. NO.1256/AHD/2016/A.Y.:11-12 PAGE 16 OF 20 COMMISSION TO THOSE NON-RESIDENT COMMISSION AGENTS. THIS VIEW IS FURTHER SUPPORTED BY THE DECISION OF ITAT, MUMBAI IN THE CASE OF DIT V. ARDESHI B. CURSETJEE & SONS LTD . 115 ITJ 916 WHEREIN IT WAS HELD THAT COMMISSION PAID TO NON-RESIDENT AGENTS OUTSIDE INDIA FOR SERVICES RENDERED OUTSIDE INDIA WERE NOT CHARGEABLE TO TAX IN INDIA. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED IN THE CASE OF ITO V. TRIDENT EXPORTS 44 TAXMANN.COM 297( CHENNAI-TRIB), ACIT V. INDO INDUSTRIES 53 TAXMANN.COM 458 (MUM-TRIB) AND WHICH ALSO SUPPORTS THE CASE OF THE ASSESSEE. IN THE FACTS AND CIRCUMSTANCES, IN OUR CONSIDERED OPINION, COMMISSION PAID BY APPELLANT TO THE NON RESIDENT COMMISSION AGENT WAS NOT CHARGEABLE UNDER THE PROVISIONS OF INCOME TAX ACT,1961. SUCH PAYMENT OF COMMISSION WAS NOT CHARGEABLE TO TAX AS THE CONDITIONS SPECIFIED IN SECTION 9(1)(I) WERE NOT ATTRACTED. SUB CLAUSE (III), (IV), (V), (VI) & (VII) OF SEC.9(1) WERE ALSO NOT APPLICABLE ACIT-2 BHARUCH V. RAMDEV CHEMICAL INDUSTRIES /I.T.A. NO.1256/AHD/2016/A.Y.:11-12 PAGE 17 OF 20 IN THE CASE UNDER CONSIDERATION. THE EXPLANATION TO SECTION 9(2) INSERTED BY FINANCE ACT, 2010 WITH RETROSPECTIVE EFFECT (01.06.1996) WAS ALSO NOT APPLICABLE SINCE THE SAID EXPLANATION WAS NOT APPLICABLE TO SUB CLAUSE (I) OF SECTION 9 OF THE ACT. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED IN THE CASE OF WELSPRING UNIVERSAL V. JCIT [2015] 56 TAXMANN.COM 174 (DEL-TRIB)WHEREIN THE CO-ORDINATE BENCH HAS HELD THAT WHERE COMMISSION PAID BY ASSESSEE TO NON-RESIDENT AGENT FOR PROCURING EXPORT ORDERS WAS NOT CHARGEABLE TO TAX IN HANDS OF SAID AGENTS, HENCE, THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE. IT MAY ALSO BE NOTED THAT CIRCULAR NO. 23 DTD. 23.07.1969 HAS CLARIFIED THAT NO PART OF THE INCOME OF A FOREIGN AGENT OF INDIAN EXPORTER ARISES IN INDIA AND HENCE SUCH AN AGENT IS NOT LIABLE TO INCOME-TAX IN INDIA ON THE COMMISSION. THEN CIRCULAR NO. 786 DATED 07.02.2000 HAS FURTHER ELABORATED THE CONSEQUENCE OF CIRCULAR NO. 23 BY ACIT-2 BHARUCH V. RAMDEV CHEMICAL INDUSTRIES /I.T.A. NO.1256/AHD/2016/A.Y.:11-12 PAGE 18 OF 20 STATING THAT SINCE SUCH COMMISSION INCOME OF FOREIGN AGENT IS NOT LIABLE TO TAX IN INDIA, NO TAX IS THEREFORE, DEDUCTIBLE AT SOURCE UNDER SECTION 195 AND CONSEQUENTLY THE EXPORT COMMISSION PAYABLE TO A NON-RESIDENT FOR SERVICES RENDERED OUTSIDE INDIA IS NOT DISALLOWABLE U/S 40(A)(I) OF THE ACT. THEREAFTER, CIRCULAR NO. 7 DATED 22/10/2009 WAS ISSUED WITHDRAWING, INTER ALIA, THE ABOVE TWO CIRCULAR NOS. 23 AND 786. THE LEGAL POSITION CONTAINED IN SECTION 5(2) READ WITH SECTION 9, AS DISCUSSED ABOVE ABOUT THE SCOPE OF TOTAL INCOME OF A NON-RESIDENT SUBSISTING BEFORE THE ISSUANCE OF CIRCULAR NOS. 23 AND 786 OR AFTER THE ISSUANCE OF CIRCULAR NO. 786 HAS NOT UNDERGONE ANY CHANGE. IT IS NOT AS IF THE EXPORT COMMISSION INCOME OF A FOREIGN AGENT FOR SOLICITING EXPORT ORDERS IN COUNTRIES OUTSIDE INDIA WAS EARLIER CHARGEABLE TO TAX, WHICH WAS EXEMPTED BY THE CBDT THROUGH THE ABOVE CIRCULARS AND NOW WITH THE WITHDRAWAL OF SUCH CIRCULARS, THE HITHERTO ACIT-2 BHARUCH V. RAMDEV CHEMICAL INDUSTRIES /I.T.A. NO.1256/AHD/2016/A.Y.:11-12 PAGE 19 OF 20 INCOME NOT CHARGEABLE TO TAX, HAS BECOME TAXABLE. THE LEGAL POSITION REMAINS THE SAME DE HORS ANY CIRCULAR INASMUCH AS SUCH INCOME OF A NON-RESIDENT AGENT IS NOT CHARGEABLE TO TAX IN INDIA BECAUSE IT NEITHER ARISES IN INDIA NOR IS RECEIVED BY HIM IN INDIA NOR ANY DEEMING PROVISION OF RECEIPT OR ACCRUAL IS ATTRACTED. IT IS FURTHER RELEVANT TO NOTE THAT THE LATTER CIRCULAR SIMPLY WITHDRAWS THE EARLIER CIRCULAR, THEREBY THROWING THE ISSUE ONCE AGAIN OPEN FOR CONSIDERATION AND DOES NOT STATE THAT EITHER THE EXPORT COMMISSION INCOME HAS NOW BECOME CHARGEABLE TO TAX IN THE HANDS OF THE RECIPIENTS. IN VIEW OF THE FOREGOING DISCUSSION, IT IS APPARENT THAT THE COMMISSION INCOME IN THE HANDS OF THE NON-RESIDENT CAN NEITHER BE CONSIDERED AS RECEIVED OR DEEMED TO BE RECEIVED IN INDIA OR ACCRUING OR ARISING OR DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA IN TERMS OF SECTION 5(2) OF THE ACT. ONCE IT IS HELD THAT THE COMMISSION INCOME OF A NON-RESIDENT FOR RENDERING SERVICES ACIT-2 BHARUCH V. RAMDEV CHEMICAL INDUSTRIES /I.T.A. NO.1256/AHD/2016/A.Y.:11-12 PAGE 20 OF 20 OUTSIDE INDIA DOES NOT FALL WITHIN THE SCOPE OF HIS TOTAL INCOME, IT AUTOMATICALLY IMPLIES THAT THE SAME IS NOT CHARGEABLE TO TAX IN HIS HANDS. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT (A). ACCORDINGLY, SAME IS UPHELD. EX-CONSEQUENTI, APPEAL OF REVENUE ON THIS GROUND IS DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. 12. ORDER PRONOUNCED IN OPEN COURT ON 22.03.2018 SD/- SD/- (C.M. GARG) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER SURAT: DATED: 22 ND MARCH, 2018/OPM COPY OF ORDER SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ ITAT (DR)/GUARD FILE OF ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT