Vimta Labs Limited, Hyderabad V. Dy. Commissioner of Income Tax, Circle-17(2), Hyderabad

ITA 1273/Hyd/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7863 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 30-01-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 24-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N SWAPNA
• Assessee Lawyers: A V RAGHURAM
• Keywords: Business income; Double taxation relief; Principle of natural justice; Deemed to accrue or arise in india; Permanent establishment; Advance ruling; TDS; Set aside
• Section: 40(a)(ia); 143(1); 195

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS.11, 12 & 1273/2017 ASSESSMENT YEARS: 2012-13 TO 2014015 VIMTA LABS LIMITED, HYDERABAD. PAN: AAACV 7244 E VS. DCIT, CIRCLE-17(2), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI A.V. RAGHURAM REVENUE BY: SMT. N. SWAPNA, DR DATE OF HEARING: 30/01/2019 DATE OF PRONOUNCEMENT: 24/04/2019 ORDER PER SMT. P. MADHAVI DEVI, J.M.: THE APPEALS IN ITA NOS. 11 & 12/HYD/2017 ARE FILED BY THE ASSESSEE AGAINST THE ORDERS OF THE CIT(A)-5, HYDERABA D, DATED 31/10/2016 FOR THE ASSESSMENT YEARS 2012-13 AND 2013- 14 WHILE ITA NO.1273/HYD/2017 IS AGAINST THE ORDER OF THE CIT(A)-5 , HYDERABAD DATED 20/06/2017 FOR THE ASSESSMENT YEAR 2014-15. AS THE ISSUE INVOLVED IN ALL THESE APPEALS IS COMMON, ALL THE THRE E APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON AND CONSOLIDATED ORDER. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPANY , ENGAGED IN THE BUSINESS OF TESTING AND ANALYSIS OF MATERIALS, ENV IRONMENTAL 2 IMPACT ASSESSMENT STUDIES, CLINICAL STUDIES AND PATHOLOG ICAL SERVICES ETC., FILED ITS RETURNS OF INCOME FOR THE RELEVANT ASSES SMENT YEARS. 3. FOR THE AY 2012-13, THE RETURN WAS INITIALLY PROCE SSED U/S 143(1) OF THE ACT AND SUBSEQUENTLY THE CASE WAS SELECTED FOR S CRUTINY AND THE ASSESSEE WAS REQUIRED TO FILE THE INFORMATION CALLED F OR. IN RESPONSE, THE ASSESSEE FILED THE RELEVANT INFORMATION AND ON PER USAL OF THE SAME, THE A.O. OBSERVED THAT THE ASSESSEE-COMPANY HAD ENGAGE D SOME AGENTS IN FOREIGN COUNTRIES FOR FOLLOWING UP WITH ITS CUSTOM ERS FOR PROCUREMENT OF ORDERS AND RECOVERY OF THE PAYMENTS. IT WAS OBSER VED THAT AS PER P & L ACCOUNT FOR THE A.Y. 2012-13, A SUM OF RS. 1,14, 33,012/- WAS DEBITED UNDER THE HEAD COMMISSION TO FOREIGN AGENTS BUT NO TAX WAS DEDUCTED AT SOURCE. OBSERVING THAT UNDER THE PROVISION S OF SECTION 195 OF THE ACT, ANY PERSON RESPONSIBLE FOR MAKING A PAYME NT TO A NON- RESIDENT, NOT BEING A COMPANY, OR TO A FOREIGN COMPAN Y, ANY INTEREST OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT, 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 OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME TAX THE REON AT THE RATES IN FORCE. THE ASSESSEE WAS THEREFORE, ASKED TO SHOW-C AUSE AS TO WHY THERE WAS NO DEDUCTION OF TAX AT SOURCE WHILE MAKING THE PAYMENT TO THE N.R AGENTS. THE ASSESSEE SUBMITTED THAT IT HAS PAID AG REED COMMISSION AMOUNT TO THE AGENTS IN FOREIGN CURRENCY FRO M INDIA THROUGH NORMAL BANKING CHANNELS VIZ., WIRE TRANSFER, RTGS, DD/ CHEQUES ETC., AND THAT THE AGENTS WERE NON-RESIDENTS AND SINCE THEY WERE NOT HAVING ANY PE IN INDIA AND RENDERED THE SERV ICES OUTSIDE INDIA AND THE COMMISSION PAID TO THEM BEING THEIR BUSINESS IN COME IS NOT TAXABLE IN INDIA UNDER THE PROVISIONS OF SECTION 9 OF THE IT ACT, 1961. THEREFORE, THERE WAS NO REQUIREMENT TO DEDUCT TAX U/S 1 95 OF THE ACT 3 AND IN SUPPORT OF THIS CONTENTION, THE ASSESSEE PLACED R ELIANCE UPON VARIOUS CASE LAW. 4. THE ASSESSING OFFICER, HOWEVER, DID NOT ACCEPT THE ASSESSEES CONTENTION. THE A.O. RELIED UPON THE DECISION OF THE A UTHORITY FOR ADVANCE RULINGS IN THE CASE OF SKF BOILERS AND DRIER S PVT LTD IN AAR NOS. 983 & 984 OF 2010 REPORTED IN [2012] 343 ITR 0 385 TO HOLD THAT EVEN THOUGH THE AGENTS HAVE RENDERED SERVICES ABROAD I N THE FORM OF SOLICITING THE ORDERS AND THE COMMISSION IS ALSO REMITTE D TO THEM ABROAD, IT IS CLEAR THAT THE INCOME HAS ARISEN ON ACCO UNT OF COMMISSION PAYABLE TO THEM ABROAD AND THEREFORE, IS DEEMED TO ACCR UE OR ARISE IN INDIA, AND IS TAXABLE UNDER THE ACT IN VIEW OF THE SPEC IFIC PROVISION OF SECTION 5(2)(B) R.W.S 9(1)(I) OF THE ACT. THUS, HE HE LD THAT THE PROVISIONS OF SECTION 195 WOULD APPLY AND MADE THE DISALLOWANCE U/S 40(A)(IA) OF THE ACT AND BROUGHT IT TO TAX. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE TH E CIT(A), WHO CONFIRMED THE ORDER OF THE A.O. AND FURTHER HELD THAT THE SERVICES RENDERED BY THE FOREIGN AGENTS ARE IN THE NATURE OF FE ES FOR TECHNICAL SERVICES AND THEREFORE, IT IS TAXABLE EVEN UNDER THE D TAA AND HENCE, THE ASSESSEE-COMPANY WAS LIABLE TO DEDUCT TAX U/S 195 O F THE ACT. AGAINST THIS ORDER OF THE CIT(A), ASSESSEE IS IN APPEA L BEFORE US BY RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE ORDER OF THE LD. CIT(A) IS ERRONEOUS, ILLEGAL AND UNSUSTAINABLE ON FACTS AND IN LAW. 2. THE CIT(A) ERRED IN SUSTAINING THE ACTION OF THE A.O. IN DISALLOWING THE CLAIM OF THE APPELLANT FOR THE COMMISSION PAID TO THE AGENTS SITUATED IN FOREIGN COUNTRIES FOR THE SERVICES REND ERED OUTSIDE INDIA. 3. THE CIT(A) ERRED IN NOT APPRECIATING THE SUBMISS ION OF THE APPELLANT THAT PROVISIONS OF SECTION 9(1)OF THE INCOME TAX AC T, 1961 READ WITH 4 EXPLANATION THERETO, APPLY TO THE FACTS OF THE PRES ENT CASE. THE CIT(A) FAILED TO APPRECIATE THAT SINCE THE SERVICES WERE RENDERED BY FOREIGN AGENTS OUTSIDE INDIA COUPLES WITH THE FACT THAT THEY ARE BUSINESS RECEIPTS TO THEM, THERE WAS NO OBLIGATION TO DEDUCT TAXES UNDER SECTION 195 OF THE ACT. 4. THE CIT(A) ERRED IN INVOKING THE PROVISIONS OF S ECTION 9(1)(VI) OF THE ACT WHICH WAS NOT APPLICABLE TO THE FACTS OF THE PR ESENT CASE. THE FINDINGS GIVEN BY THE CIT(A) BY INVOKING THE DEFINI TIONS OF FEE FOR TECHNICAL SERVICES AND FEE FOR INCLUDED SERVICES AR E ERRONEOUS AND UNSUSTAINABLE ON FACTS AND IN LAW. 5. THE APPRECIATION OF THE AGREEMENTS ENTERED INTO BY THE APPELLANT WITH ITS SERVICE PROVIDERS BY THE CIT(A) ARE TOTALL Y MISPLACED AND UNSUSTAINABLE. THE CIT(A) ERRED IN SELECTIVELY HIG HLIGHTING ONLY FEW WORDS IN THE AGREEMENTS RATHER THAN LOOKING INTO TH E FACTUAL GAMUT AND THE PREDOMINANT SERVICES THAT WERE RENDERED TO THE APPELLANT BY ITS FOREIGN AGENTS. 6. LEARNED COUNSEL FOR THE ASSESSEE, WHILE REITERATIN G THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW REFERRED TO ONE OF THE AGREEMENT BETWEEN THE AGENT AND THE ASSESSEE-COMPAN Y (WHICH IS PLACED AT PAGES 32 TO 43 OF THE PAPER BOOK) ACCORD ING TO WHICH, THE FOREIGN AGENT WAS TO PROVIDE SALES, MARKETING, CUST OMER SERVICE AND/OR MANAGEMENT SUPPORT ACTIVITIES FOR THE SERVICES AS CONTRACTED BY VIMTA AND VIMTA DESIRED TO DRAW SUCH SER VICES THROUGH PSN, UPON THE TERMS AND CONDITIONS MORE SPECIF ICALLY SET- FORTH THEREIN. CLAUSE-2 OF THE AGREEMENT PROVIDES THE S ERVICES TO BE PROVIDED BY PSN AND CLAUSE (D) OF PARA 5 PROVIDE S FOR CARRY FORWARD OF SHORTFALL IN PAYMENTS TILL SUCH TIME, THE OVE R PAYMENT CAN BE SET OFF AGAINST THE COMMISSIONS EARNED. THUS, ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, THE SERVICES REN DERED OUTSIDE INDIA ARE NOT IN THE NATURE OF FEES FOR TECHNICAL SERV ICES AS HELD BY THE CIT(A). HE SUBMITTED THAT THE CIT(A) HAS ERRONEOUSLY CONSIDERED THE SERVICES AS FEES FOR TECHNICAL SERVI CES AND HAS NOT GIVEN ANY NOTICE TO THE ASSESSEE FOR HOLDING SO. THE REFORE, THE ORDER OF THE A.O. AND THE ORDER OF THE CIT(A) NEEDS TO BE SET ASIDE. 5 7. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND , SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND PARTICU LARLY PARA 14 OF THE ORDER OF THE CIT(A) AND SUBMITTED THAT THE SERV ICES RENDERED BY THE FOREIGN AGENTS ARE IN THE NATURE OF FE ES FOR TECHNICAL SERVICES AND HENCE THE ASSESSEE WAS LIABL E TO DEDUCT TDS U/S 195 OF THE ACT AND THE CIT (A)S SHOULD BE UPHELD . 8. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERI AL ON RECORD, WE FIND THAT THE AO MADE THE DISALLOWANCE U/S 40(A)(IA) ONLY ON THE GROUND THAT THE ASSESSEE OUGHT TO HAVE MADE THE TDS U/S 195 OF THE ACT SINCE THE INCOME HAD ACCRUED/ARISEN TO THE FOREIGN AGENT IN INDIA. THE AO HAS NOT HELD THE PAYMEN T TO BE FEES FOR TECHNICAL SERVICES OR ROYALTY. THE CIT (A) HA S EXAMINED THE NATURE OF SERVICES PROVIDED BY THE FOREIGN AGENT TO THE ASSESSEE AND HAS COME TO THE CONCLUSION THAT IT IS FEES FOR TECHNICA L SERVICES AND THEREFORE, LIABLE FOR TDS. UNDOUBTEDLY, THE POWER S OF THE CIT (A) ARE CO-TERMINUS WITH THAT OF THE AO AND THEREFORE, THE CIT (A) COULD HAVE EXAMINED THE FACTS OF THE CASE IF THE AO HAS NOT DONE SO BUT BEFORE DOING SO, THE CIT (A) IS REQUIRED TO GIV E A NOTICE TO THE ASSESSEE. IN THE PRESENT CASE, THE CIT (A) HAS NOT GIV EN ANY NOTICE TO THE ASSESSEE BUT HAS ONLY EXAMINED THE ISSUE ON HIS OWN AND HAS GIVEN A FINDING THAT THE PAYMENT MADE BY THE ASSESSE E IS FEE FOR TECHNICAL SERVICES. THEREFORE, THE FINDING OF THE CIT (A) IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE AND HAS TO BE SET ASIDE ON THIS GROUND ALONE. 9. ON MERITS OF THE ISSUE ALSO, WE FIND THAT THE FOREIGN AGENTS HAVE RENDERED THE SERVICES OUTSIDE INDIA AND HAVE ALS O RECEIVED THE 6 PAYMENTS OUTSIDE INDIA. THE CONTENTION OF THE ASSESSEE TH AT THEY ARE THE BUSINESS RECEIPTS OF THE FOREIGN RESIDENTS AND THE FOREIGN AGENT DO NOT HAVE ANY PE IN INDIA AND HENCE THE INCOME IS NOT TAXABLE IN INDIA HAS NOT BEEN CONTROVERTED BY THE AO. T HE AO HAS NOT DISPUTED THE CONTENTION OF THE ASSESSEE THAT THE PAYMENTS MADE BY THE ASSESSEE ARE THE BUSINESS RECEIPTS OF THE FOREIGN AGENTS. THE ONLY REASON FOR THE DISALLOWANCE WAS THAT T HE INCOME HAS ACCRUED OR ARISEN TO THE FOREIGN AGENT IN INDIA AN D FOR COMING TO THIS CONCLUSION THE AO HAD RELIED UPON THE DIRECTIO N OF AAR IN THE CASE OF SKF BOILERS & DRIERS LTD. THE LD COUNSEL FOR THE ASSESSEE HAD PLACED RELIANCE UPON THE DECISION OF T HE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. ANAND TECH NOLOGIES LTD IN ITA NO.1246/HYD/2017 DATED 20.07.2018 WHEREIN THE TRIBUNAL HAS CONSIDERED SIMILAR CIRCUMSTANCES AND ALSO THE ABO VE DECISION OF THE AAR AND AFTER CONSIDERING THE DECISIONS OF THE J URISDICTIONAL HIGH COURT AND ALSO THE HONBLE SUPREME COURT, AT PAR A 7 OF ITS ORDER, HAS HELD AS UNDER: 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PER USED THE DOCUMENTS PLACED ON RECORD ALONG WITH THE CASE LAW RELIED UPON. THERE IS NO DISPUTE THAT ASSESSEE HAS ENTERED INTO AN AGREEMENT FOR FOLLOWING UP WITH THE CUSTOMERS IN USA AND HAS AGRE ED TO PAY COMMISSION TO THE NON-RESIDENT AGENT FOR THE SERVIC ES RENDERED THERE ONLY. THERE IS NO DISPUTE THAT THE SAID COMPANY HAS NOT RENDERED ANY SERVICES IN INDIA. IT IS ALSO NOT DISPUTED THAT THE SAID COMPANY HAS NO PERMANENT ESTABLISHMENT IN INDIA. THE ONLY ISSUE RA ISED BY AO IS THAT SINCE THE COMMISSION HAS BEEN PAID FROM THE BA NK ACCOUNT IN INDIA AND HAS BEEN ACCOUNTED IN THE BOOKS OF ACCOUN T OF ASSESSEE THAT HAS TO BE CONSIDERED AS DEEMED TO ARISE OR ACCRUE I N INDIA. SIMILAR ISSUE HAS BEEN CONSIDERED BY THE CO-ORDINATE BENCH IN THE CASE OF CIT VS. SRI AUROBINDO IMPEX COMPANY, (SUPRA), THE H ON'BLE JURISDICTIONAL HIGH COURT HAS RENDERED THE JUDGMENT FOLLOWING THE PRINCIPLES LAID DOWN BY THE HON'BLE AP HIGH COURT I N THE CASE OF SRI RAM REFRIGERATION INDUSTRIES VS. ITO [361 ITR 119] (AP). FURTHER, THE HON'BLE THE HIGH COURT ALSO HELD THAT FOLLOWING THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. TOSHOKU LTD., [125 ITR 525] (SC) THAT MAKING UP OF THE ENTRIES IN THE BOOKS OF ACCOUNT OF ASSESSEE CANNOT BE TAKEN IN TO BE RECEIPT 7 ACTUAL OR CONSTRUCTIVE BY THE NON-RESIDENT SALES AG ENTS. IN VIEW OF THAT, PRIMA-FACIE, THE AMOUNTS PAID FROM INDIA DOES NOT ESTABLISH THAT INCOME HAS ACCRUED OR ARISEN IN INDIA AS THE SERVIC ES ARE NOT RENDERED IN INDIA AT ALL AND ASSESSEE HAS NO BUSINESS CONNEC TION. THIS ISSUE WAS CONSIDERED BY THE CO- ORDINATE BENCH IN THE CAS E OF DCIT VS. DIVI'S LABORATORIES 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 DO ES NOT PROVIDE SCOPE 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 VESTED IN INDIA, WHICH ARE NOT SATISFIED IN THE PRE SENT CASES. UNDER THESE CIRCUMSTANCES, WITHDRAWAL OF EARLIER CIRCULAR S ISSUED BY THE CBDT HAS NO ASSISTANCE TO THE DEPARTMENT, IN ANY WA Y, IN DISALLOWING SUCH EXPENDITURE. IT APPEARS THAT AN OV ERSEAS AGENT OF AN INDIAN EXPORTER OPERATES IN HIS OWN COUNTRY AND NO PART OF HIS INCOME ARISES IN INDIA AND HIS COMMISSION IS USUALL Y REMITTED DIRECTLY TO HIM BY WAY OF TT OR POSTING OF CHEQUES/ DEMAND DRAFTS IN INDIA AND THEREFORE THE SAME IS NOT RECEIVED BY HIM OR ON HIS BEHALF IN INDIA AND SUCH AN OVERSEAS AGENT IS NOT LIABLE T O INCOME-TAX IN INDIA ON THESE COMMISSION PAYMENTS. IT IS PERTINENT TO NOTE THAT S. 195 HAS TO 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 BE TAKEN AS CORRECT, THAT ANY PERS ON MAKING PAYMENT TO A NON-RESIDENT IS NECESSARILY REQUIRED T O DEDUCT TAX, THEN THE CONSEQUENCE WOULD BE THAT THE DEPARTMENT WOULD BE ENTITLED TO APPROPRIATE THE MONIES DEPOSITED BY THE PAYER EVEN IF THE SUM PAID IS NOT CHARGEABLE TO TAX BECAUSE THERE IS NO PROVIS ION 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 REFUN D. 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 SERVICES RENDERED OUTSI DE INDIA BECOMES ALLOWABLE EXPENDITURE AND THE SAME IS OUTSIDE RIGOU RS OF THE S. 40A(IA) . THE REQUIREMENT OF SERVICES OF THE NON- RESIDENT BEING RENDERED IN INDIA AND BEING UTILIZED IN INDIA IS ST ILL VALID, DESPITE WITHDRAWAL OF EARLIER CIRCULARS ISSUED ON THIS SUBJ ECT BY CBDT.--CIT VS. TOSHOKU LTD. (1980) 19 CTR (SC) 192 : (1980) 12 5 ITR 525 ( SC) AND GE INDIA TECHNOLOGY CENTRE (P) LTD. VS. CIT & A NR . (2010) 234 8 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 HELD AS UNDER: '7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS OT HER MATERIALS ON RECORD. WE HAVE ALSO CAREFULLY APPLIED OUR MIND TO THE DECISIONS CITED AT THE BAR. ON A PERUSAL OF THE ASSESSMENT OR DER, IT IS VERY MUCH EVIDENT THAT AO HAS NOT DISPUTED THE FACT THAT COMM ISSION PAYMENTS WERE MADE TO NON-RESIDENT AGENTS WHO NOT ONLY WERE CARRYING ON THEIR BUSINESS ACTIVITIES OUTSIDE INDIA, BUT, THE C OMMISSION PAYMENTS WERE ALSO RELATED TO SERVICES PROVIDED BY THOSE AGE NTS 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 F ACT THAT COMMISSION AMO UNTS WERE REMITTED TO NON- RESIDENTS DIRECTLY OUTSIDE INDIA. HOWEVER, AO HAS HELD 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 RIGHT TO RE CEIVE IT COMES INTO EXISTENCE. LD. CIT(A) HAS CONFIRMED THE VIEW E XPRESSED BY AO WITHOUT ASSIGNING ANY REASON OF HIS OWN. IT IS TO B E NOTED THAT INCASE OF RAJEEV MALHOTRA(SUPRA), AAR HAS COME TO ITS CONC LUSION BY REFERRING TO THE PROVISIONS CONTAINED U/S 6 AND 9 O F THE IT ACT . HOWEVER, A CAREFUL READING OF SECTION 9 OF THE ACT WOULD MAKE IT CLEAR THAT UNDER EXPLANATION 1(A) TO SECTION 9(1) , IT HAS BEEN PROVIDED THAT IN CASE OF A BUSINESS OF WHICH ALL TH E OPERATIONS ARE NOT CARRIED OUT IN INDIA, THE INCOME OF SUCH BUSINE SS ONLY RELATING TO SUCH PART OF THE INCOME AS IS REASONABLY ATTRIBUTAB LE TO THE OPERATIONS CARRIED OUT IN INDIA SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA. IN THE PRESENT CASE, AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO ESTABLISH THAT NON-RESIDENT AGENTS HAVE C ARRIED OUT ANY PART OF THEIR BUSINESS IN INDIA. 8. MOREOVER, SECTION 195(1) ENVISAGES THAT TAX IS TO BE DEDUCTED AT SOURCE ON INCOME WHICH IS CHARGEABLE UNDER THE PROV ISIONS OF IT ACT . THE HON'BLE SUPREME COURT WHILE INTERPRETING THE EXPRESSION 'CHARGEABLE UNDER THE PROVISIONS OF THIS ACT' AS EM PLOYED 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 TH E REMITTANCE HAS GOT TO BE OF A TRADING RECEIPT, THE WHOLE OR PART O F WHICH IS LIABLE TO TAX IN INDIA. HOWEVER, IF THE PAYMENTS MADE TO NON- RESIDENTS ARE NOT CHARGEABLE TO TAX UNDER THE PROVISIONS OF IT ACT , 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 RESULT IN A SITUATION WHERE, EVEN TH OUGH, THE INCOME 9 WILL HAVE NO TERRITORIAL NEXUS WITH INDIA OR IS NOT CHARGEABLE IN INDIA, THE GOVT. WOULD NONETHELESS COLLECT TAXES. I N THE PRESENT CASE, ON A PERUSAL OF THE ASSESSMENT ORDER OR THE ORDER O F LD. CIT(A), WE DO NOT FIND ANY CONCLUSIVE FINDING GIVEN BY THE AUT HORITIES CONCERNED THAT THE PAYMENTS MADE TO NON-RESIDENTS ARE CHARGEA BLE TO TAX UNDER THE IT ACT . APPLYING THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT AS AFORESAID, IT IS TO BE HELD THAT T HE PROVISIONS OF SECTION 195 WOULD NOT BE APPLICABLE TO PAYMENTS MADE BY ASSESSE E TO NON-RESIDENT AGENTS. THIS VIEW IS ALSO SUPPORTED BY THE FOLLOWING DECISIONS: 1. CIT VS. MODEL EXIMS KANPUR, [2013] 358 ITR 72 (A LL.) 2. CIT VS. FAIZAN SHOES PVT. LTD., [2014] 367 ITR 1 55 (MAD.) 9. FURTHER, THE COORDINATE BENCH WHILE EXAMINING ID ENTICAL NATURE OF DISPUTE IN CASE OF AROBINDO PHARMA LTD. (SUPRA) HEL D IN THE FOLLOWING MANNER: 25. AS FAR AS THE AMOUNT PAID AS SALES COMMISSION I S CONCERNED, THIS ISSUE HAS ALREADY BEEN DECIDED BY THE COORDINATE BE NCH IN ASSESSEE'S OWN CASE FOR THE A.Y. 2002-2003 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-RESIDENT AGENTS FOR RENDERING SERVICES ABROAD ARE NOT LIABLE FOR DEDUCTION OF TDS UNDER SECTION 195 OF THE ACT. ACCORDINGLY, THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE NOT APPLICABLE. TH E CASE LAW RELIED ON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE IN TH E CASE OF TRANSMISSION CORPORATION OF A.P. LIMITED REPORTED I N 239 ITR 587 (SC) AND THE DECISION OF THIS TRIBUNAL IN THE CASE OF CHEMINOR DRUGS VS. ITO IS NOT APPLICABLE TO THE FACTS OF THE CASE UNDER C ONSIDERATION, AS IN THIS CASE, THE ASSESSEE MADE THE PAYMENT DIRE CTLY TO THE NON- RESIDENT AGENTS FOR RENDERING SERVICES ABROAD. IN V IEW OF THE ABOVE, WE DO NOT SEE ANY INFIRMITY 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 F OLLOWING THE PRINCIPLES LAID DOWN IN THE JUDICIAL PROCEEDINGS RE FERRED TO HEREIN ABOVE, WE THEREFORE HOLD THAT THE PROVISIONS OF SECTION 195 WOULD NOT BE APPLICABLE TO THE COMMISSION PAYMENTS MADE B Y ASSESSEE TO NON-RESIDENT AGENT WHO HAS NOT DONE ANY SERVICE IN INDIA AND AS SUCH INCOME IS NOT CHARGEABLE TO TAX UNDER THE PROVISION S OF THE ACT AS THERE IS NO REQUIREMENT TO DO ANY TDS U/S. 195, THE DISALLOWANCE MADE U/S. 40(A)(I) OF THE ACT IS ALSO NOT SURVIVE. 10 7.3. WE ARE SURPRISED TO NOTE THAT LD.CIT(A) WITHOU T UNDERSTANDING THE INTERNATIONAL LAW HAS SIMPLY HELD THAT A FOREIG N AGENT AND THE INDIAN COMPANY ARE SISTER CONCERNS AND ACCORDINGLY THE AMOUNTS ARE TAXABLE. EVEN IF ONE WERE TO CONSIDER THAT OTHER CO MPANY IS A SISTER CONCERN OF ASSESSEE, HOW THE PROVISIONS OF SECTION 195 OR SECTION 5 AND SECTION 9 ARE APPLICABLE HAS NOT BEEN DISCUSSED BY THE LD.CIT(A) AT ALL. MOREOVER, THE PROVISIONS OF DTAA BETWEEN INDIA AND USA ALSO GIVES THE RIGHT TO TAX THE AMOUNT IN THE HANDS OF F OREIGN ASSESSEE IF THE SAME IS CONSIDERED AS BUSINESS INCOME WHEN THER E IS NO PERMANENT ESTABLISHMENT IN INDIA. SINCE THE NON- RE SIDENT HAS NO PERMANENT ESTABLISHMENT IN INDIA, THE QUESTION OF T AXING THE AMOUNT DOES NOT ARISE AS THE PROVISIONS OF DTAA WHICH OVER RIDES THE PROVISIONS OF INCOME TAX ACT . IN VIEW OF THAT, THE ORDER OF CIT(A) CANNOT BE UPHELD. SIMILAR VIEW WAS ALSO EXPRESSED B Y THE CO- ORDINATE BENCH IN THE CASE OF DY.CIT VS. M/S. LINKW ELL TELESYSTEMS (P.) LTD., WHEREIN 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 A MOUNT U/S. 40(A)(I). GROUNDS RAISED BY ASSESSEE ARE ALLOWED. 10. RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT THE BU SINESS RECEIPTS OF THE FOREIGN RESIDENTS ARE NOT TAXABLE IN IND IA SINCE THE AGENTS HAVE NO PE IN INDIA AND THEREFORE, THE ASSESSE E WAS NOT REQUIRED TO MAKE TDS U/S 195 OF THE ACT. THEREFORE, TH E ASSESSEES APPEALS FOR ALL THE THREE A.YS ARE ALLOWED. 11. IN THE RESULT, ASSESSEES APPEALS ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 24 TH APRIL, 2019. SD/- SD/- (S. RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 24 TH APRIL, 2019 OKK/PVV 11 COPY TO:- 1) SHRI A.V. RAGHU RAM, P.VINOD & M. NEELIMA DEVI, ADVOCATES, 610 BABUKHAN ESTATE, BASHEERBAGH, HYDERABAD 01 2) DY.CIT, CIRCLE 17(2) SIGNATURE TOWERS, KONDAPUR, HYDERABAD 500084 3) THE CIT(A)-5 , HYDERABAD 4) THE PR. CIT- 5, HYDERABAD 5) THE DR, ITAT, HYDERABAD 6) GUARD FILE