M/S JLC ELECTROMET PVT. LTD., Jaipur V. ASSISTANAT COMMISSIONER OF INCOME TAX, CIRCLE-4, Jaipur

ITA 1494/JPR/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 0354 (ITAT-JAIPUR)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 24-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAI SINGH
• Keywords: Business income; Residential status; Double taxation relief; Services rendered outside India; Retrospective amendment; Permanent establishment; Advance ruling; Question of law; TDS; Set aside
• Section: 143(3); 5(2); 40(a)(ia); 195; 139(1); 12; 139

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENC H B JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRA M SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NO. 1494/JP/2018 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2013-14 M/S JLC ELECTROMET PVT. LTD. E-153-A, ROAD NO. 11-H, V.K.I, AREA, JAIPUR CUKE VS. ACIT, CIRCLE-4, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCJ8786A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 23/JP/2019 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2014-15 M/S JLC ELECTROMET PVT. LTD. E-153-A, ROAD NO. 11-H, V.K.I, AREA, JAIPUR CUKE VS. ACIT, CIRCLE-4, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCJ8786A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI MAHENDRA GARGIEYA & SHRI DEVANG GARGIEYA JKTLO DH VKSJ LS @ REVENUE BY : SHRI JAI SINGH (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 29/07/2019 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 04/09/2019 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THESE ARE TWO APPEALS FILED BY THE ASSESSEE AGAINST THE ORDERS OF LD. CIT(A), AJMER DATED 19.11.2018 FOR AY 2013-14 AND 2 014-15 RESPECTIVELY. SINCE THE COMMON ISSUES ARE INVOLVED, BOTH THESE AP PEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORD ER. ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 2 2. IN ITA NO. 1494/JP/2018 FOR A.Y 2013-14, THE ASS ESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL AS UNDER: 1. THE IMPUGNED ADDITIONS AND DISALLOWANCE MADE IN THE ORDER U/S 143(3) DATED 29.10.2009 ARE BAD IN LAW AND ON FACTS OF THE CASE, FOR WANT OF JURISDICTION AND VARIOUS OTHER REASONS AND HENCE THE SAME KINDLY BE DELETED. 2. 1,73,17,260/- THE LD. CIT(A) ERRED IN LAW AS WEL L AS ON THE FACTS OF THE CASE IN CONFIRMING THE DISALLOWANCE U/S 40(A)(I A) R.W.S 195 OF THE ACT OF RS. 1,73,17,260/- ON ACCOUNT OF NON-DEDUCTION OF TDS FOR PAYMENT MADE TO NON-RESIDENT HAVING NO PE. THE DISALLOWANCE SO MADE & CONFIRMED BY THE LD. CIT(A), IS CONTRARY TO THE PRO VISIONS OF LAW AND FACTS. 3. 23,54,230/- : THE LD. CIT(A) ERRED IN LAW AS WEL L AS ON THE FACTS OF THE CASE IN CONFIRMING CHARGING OF INTEREST U/S 234 B & 234C OF THE ACT. THE APPELLANT TOTALLY DENIES IT LIABILITY OF CHARGI NG OF ANY SUCH INTEREST. THE INTEREST, SO CHARGED, BEING CONTRARY TO THE PRO VISIONS OF LAW AND FACTS, KINDLY BE DELETED IN FULL. 3. IN ITA NO. 23/JP/2019 FOR A.Y 2014-15, THE ASSES SEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL AS UNDER: 1. THE IMPUGNED ADDITIONS AND DISALLOWANCE MADE IN THE ORDER U/S 143(3) DATED 17.12.2016 ARE BAD IN LAW AND ON FACTS OF THE CASE, FOR WANT OF JURISDICTION AND VARIOUS OTHER REASONS AND HENCE THE SAME KINDLY BE DELETED. 2. 1,94,35,485/- THE LD. CIT(A) ERRED IN LAW AS WEL L AS ON THE FACTS OF THE CASE IN CONFIRMING THE DISALLOWANCE U/S 40(A)(I A) R.W.S 195 OF THE ACT OF RS. 1,94,35,485/- ON ACCOUNT OF NON-DEDUCTION OF TDS FOR PAYMENT ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 3 MADE TO NON-RESIDENT HAVING NO PE. THE DISALLOWANCE SO MADE & CONFIRMED BY THE LD. CIT(A), IS CONTRARY TO THE PRO VISIONS OF LAW AND FACTS. 3. 20,67,054/- : THE LD. CIT(A) ERRED IN LAW AS WEL L AS ON THE FACTS OF THE CASE IN CONFIRMING CHARGING OF INTEREST U/S 234 B & 234C OF THE ACT. THE APPELLANT TOTALLY DENIES IT LIABILITY OF CHARGI NG OF ANY SUCH INTEREST. THE INTEREST, SO CHARGED, BEING CONTRARY TO THE PRO VISIONS OF LAW AND FACTS, KINDLY BE DELETED IN FULL. 4. WITH THE CONSENT OF BOTH THE PARTIES, THE MATTER RELATING TO AY 2013-14 (IN ITA NO. 1494/JP/2018) IS TAKEN AS THE LEAD CASE FOR THE PURPOSES OF PRESENT DISCUSSIONS. 5. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF WIRE AND OTHER PRODUCTS MADE OF VARIOUS METALS INCLUDING NICKEL, COPPER, IRON, CHROMIUM ETC . DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS MADE PAYMENT OF RS. 1,54,37,362/- TOWARDS SELLING COMMISSION ON EXPORT SALES, RS.17,91,586/- FOR PAYMENT OF EXHIBITION EXPENSES AND RS.88,410/- FOR PAYMENT OF TESTING EXP ENSES TO VARIOUS NON-RESIDENT ENTITIES, WITHOUT DEDUCTION OF TAX AT SOURCE. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THESE PAYMENTS SHOULD NOT BE DISA LLOWED U/S 40(A)(IA) IN VIEW OF INSERTION OF EXPLANATION 2 TO SECTION 195 B Y THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 01.04.1962. IN ITS SUBMI SSION, THE ASSESSEE VIDE LETTER DATED 11.01.2016 (REPRODUCED AT PG-2 TO PG-6 OF THE IMPUGNED ASSESSMENT ORDER) SUBMITTED THAT THE PAYMENTS WERE MADE TO THE NON- RESIDENTS TOWARDS THE SERVICES RENDERED OUTSIDE IND IA HENCE, NO INCOME HAS ACCRUED OR ARISEN IN INDIA, THEREFORE, NO TAX WAS R EQUIRED TO BE DEDUCTED ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 4 U/S 195 OF THE ACT. HOWEVER, THE AO REJECTED THE S UBMISSION SO FILED BY THE ASSESSEE COMPANY AND THE RELEVANT FINDINGS OF THE A SSESSING OFFICER READ AS UNDER: I HAVE CONSIDERED THE REPLY OF THE ASSESSEE CAREFU LLY. I HAVE CONSIDERED THE CASE LAWS CITED BY THE ASSESSEE. IT MAY BE SUBM ITTED THAT THE DECISION OF HON`BLE ITAT, PANAJI BENCH IS RELEVANT AND CLEARLY APPLICABLE IN THE CASE OF THE ASSESSEE. AS FAR AS THE CASE REF ERRED BY THE DEPARTMENT IN GROUND NUMBER-4, AS HIGHLIGHTED BY TH E ASSESSEE ARE CONCERNED, IT MAY MENTIONED THAT THE HON`BLE TRIBUN AL HAS NOT DISCUSSED THESE CASES WHILE DECIDING APPEAL IN FAVO UR OF REVENUE. HON`BLE ITAT ONLY DISCUSSED EXPLANATION-II TO THE S ECTION 195 AND UPHELD THE DISALLOWANCE. THE ASSESSEE HAS NOT DEDUC TED TDS ON SELLING COMMISSION PAYMENT OF RS.1,54,37,262/-, EXHIBITION EXPENSES OF RS.17,91,586/- AND TESTING CHARGES OF RS.88,410/- P AID TO NON-RESIDENT. AS PER SECTION 195 OF THE ACT, THE ASSESSEE WAS LIA BLE TO MAKE THE ABOVE PAYMENT AFTER MAKING TDS. BUT THE ASSESSEE HAS FAIL ED TO DO SO. ..X X X X X CONSIDERING THE AMENDED PROVISIONS OF SECTION WITH INSERTION OF EXPLANATION-II WITH RETROSPECTIVE EFFECT FROM 01.04 .1962, THE ASSESSEE WAS REQUIRED TO DEDUCT TDS FROM SELLING COMMISSION, EXHIBITION EXPENSES AND TESTING EXPENSES PAID TO NON-RESIDENTS . SINCE THE ASSESSEE FAILED TO DEDUCT TDS THEREFORE AS PER PROVISIONS OF SECTION 195 READ WITH SECTION 40(A)(IA) THE EXPENSES OF RS. RS.1,54,37,26 2/- ON ACCOUNT OF SELLING COMMISSION, RS.17,91,586/- ON ACCOUNT OF E XHIBITION EXPENSES AND RS.88,410/- ON ACCOUNT OF TESTING EXPENSES PAID TO NON-RESIDENTS CANNOT BE ALLOWED. THUS RS.1,73,17,258/- ARE DISALL OWED U/S 40(A)(IA) AND HEREBY ADDED TO THE TOTAL INCOME OF THE ASSESSE E. ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 5 7. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS SINCE CONFIRMED THE ADDITION AND THE RELEVANT FINDINGS READ AS UNDER: I HAVE GONE THROUGH THE ASSESSMENT ORDER, STATEMEN T OF FACTS, GROUNDS OF APPEAL AND WRITTEN SUBMISSION CAREFULLY. IT IS S EEN THAT THE AO AFTER DISCUSSING THE PROVISIONS OF S. 195, INCLUDING THE EXPLANATION 2, HAS CONCLUDED THAT THE APPELLANT WAS REQUIRED TO DEDUCT THE TAX AT SOURCE WHILE MAKING THE PAYMENT OF ABOVE REFERRED EXPENSES EVEN, TO THE NON- RESIDENT PERSONS, WHETHER OR NOT THE NON-RESIDENT P ERSON HAD A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTI ON IN INDIA OR ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER IN INDIA. T HE EXP. 2 HAS BEEN INSERTED BY THE FINANCE ACT OF 2012 WITH RETROSPECT IVE EFFECT FROM 01.04.1962. I AM OF THE CONSIDERED VIEW THAT THE AR GUMENT OF THE APPELLANT THAT SINCE THE NON-RESIDENT PERSONS WHOM THE PAYMENTS WERE MADE DID NOT HAVE PLACE OF BUSINESS OR BUSINESS CON NECTION IN INDIA, THEREFORE, THE APPELLANT WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE ON THE ABOVE REFERRED PAYMENTS, IS NOT CORRECT. REGARDING THE SECOND ARGUMENT OF THE APPELLANT THAT THE INCOME OF THE RECIPIENTS OF THE ABOVE REFERRED EXPENSES WAS NOT SUM CHARGEABLE UNDER THE PROVISI ONS OF INCOME TAX ACT, 1961 THEREFORE THE PROVISIONS OF S. 195(1) ARE NOT APPLICABLE TO THESE PAYMENTS, THE A/R OF THE APPELLANT WAS SPECI FICALLY REQUESTED TO CLARIFY WHETHER ANY RULING WAS OBTAINED FROM THE AU THORITY FOR ADVANCE RULING U/S 245R(2), REGARDING NON TAXABILITY OF THE INCOME OF THE RECIPIENT IN INDIA UNDER THE INCOME TAX ACT. THE A/ R SUBMITTED THAT NO SUCH RULING WAS OBTAINED FROM A/R BY THE RECIPIENTS OF THE ABOVE REFERRED EXPENSES. THERE IS NO OTHER EVIDENCE ON RE CORD TO SHOW THAT THE SUM RECEIVED BY THE NON-RESIDENTS IN THE FORM OF SE LLING COMMISSION (RS. 1,54,37,262), EXHIBITION COMMISSION (RS. 17,91,586) AND TESTING EXPENSES (RS. 88,410) WAS NOT CHARGEABLE TO TAX UND ER THE INCOME TAX ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 6 ACT. THERE IS NO ORDER OR FINDING BY ANY INCOME TAX AUTHORITY THAT THE ABOVE REFERRED SUM OF RS. 1,73,17,258/- WAS NOT CHA RGEABLE TO TAX UNDER I.T. ACT, 1961. THEREFORE, I AM OF THE CONSIDERED V IEW THAT THE APPELLANT WAS REQUIRED TO DEDUCT TAX AT SOURCE WHILE MAKING P AYMENT OF SELLING COMMISSION (1,54,37,262/-), EXHIBITION COMMISSION ( RS. 17,91,586/-) AND TESTING EXPENSES (RS. 88,410/-) TO NON-RESIDENT , WHETHER OR NOT THE NON-RESIDENTS HAD A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA. THE DECISION RELIED UPON BY TH E APPELLANT ARE APPLICABLE ONLY WHEN THERE IS EVIDENCE ON RECORD TO SHOW THAT THE SUM PAID BY THE ASSESSEE WAS NOT CHARGEABLE TO TAX UNDE R THE INCOME TAX ACT. THEREFORE, DISALLOWANCE OF RS. 1,73,17,258/- M ADE BY THE AO IS HEREBY CONFIRMED. 8. AGAINST THE AFORESAID FINDINGS, THE ASSESSEE COM PANY IS IN APPEAL BEFORE US. DURING THE COURSE OF HEARING, THE LD AR SUBMIT TED THAT THE CRUX OF VARIOUS JUDICIAL PRONOUNCEMENTS IS THAT BEFORE APPLYING SEC TION 195, IT WAS OBLIGATORY ON THE PART OF THE ASSESSING OFFICER TO ESTABLISH B EYOND ALL REASONABLE DOUBTS THAT THE SUBJECTED PAYMENTS WERE TAXABLE UNDER THE PROVISION OF THE INCOME TAX ACT, 1961, THEN ONLY IT COULD BE SAID THAT TAX AT SOURCE WAS DEDUCTIBLE W.R.T. SUCH PAYMENT/S. IN OTHER WORDS, SECTION 195 R/W 40(A)(IA) OF THE ACT COULD BE INVOKED ONLY IF THE SUBJECTED PAYMENT/S AR E FOUND TO BE A SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT BUT NOT OTHERWISE. IN THE CONTEXT OF SECTION 195 OF THE ACT WHICH DEALS WITH THE LIABILI TY OF THE PAYER TO DEDUCT TAX AT SOURCE ON THE SPECIFIED PAYMENT/S MADE TO A NON- RESIDENT, SUCH PAYMENT/S CAN BE SAID TO BE SUM CHARGEABLE UNDER THE PROVISIO NS OF THIS ACT ONLY IF IT IS ESTABLISHED THAT SUCH PAYMENT WAS TAXABLE U/S 4, 5 AND 9 OF THE ACT. 9. IT WAS FURTHER SUBMITTED THAT SECTION 5(2) OF TH E ACT PROVIDES THAT ANY INCOME RECEIVED OR IS DEEMED TO BE RECEIVED IN INDI A OR ANY INCOME WHICH ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 7 ACCRUES OR ARISES OR DEEMED TO ACCRUE OR ARISE IN I NDIA SHALL BE TAXABLE. FURTHERMORE S. 9 OF THE ACT DEEMS CERTAIN INCOMES T O ACCRUE OR ARISE IN INDIA. THEREFORE, THE AO IS BOUND TO SHOW THAT THE SUBJECT ED PAYMENT/S MADE TO THE NON-RESIDENT/S IS LIABLE TO BE TAXED IN INDIA ON ON E GROUND OR THE OTHER. THE AO HOWEVER, SOLELY RELIED UPON THE EXPLANATION 2 TO S. 195 OF THE ACT AND THE LD. CIT(A) HELD THE SUBJECTED PAYMENTS AS CHARGEABL E TO TAX BECAUSE NO ADVANCE RULING FROM AAR WAS PRODUCED BEFORE HIM. 10. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAD ALREADY SUBMITTED IN A GREAT DETAIL, DULY SUPPORTED WITH ALL THE EVIDENCES THAT ALL THE SUBJECTED EXPENSES VIZ. SELLING COMMISSION EXP., EXHIBITION E XP., TESTING EXP. WERE INCURRED OUTSIDE INDIA AND IN ALL THE THREE CASES, THE RESPECTIVE SERVICES WERE ALSO RENDERED BY THE RESPECTIVE PAYEES, ONLY OUTSID E INDIA. 11. REGARDING COMMISSION EXPENSES OF RS.1.54 CRORE, IT WAS SUBMITTED THAT THE SAME WERE PAID TO THE FOREIGN SELLING AGENTS WH O RENDERED THEIR SERVICES TO THE APPELLANT OUTSIDE INDIA IN PROCURING ORDERS EFF ECTING SALES AND DONE OTHER INCIDENTAL TASKS AS PER AGREEMENTS BETWEEN ASSESSEE & PAYEES. THE PAYMENTS IN THIS RESPECT WERE ALSO MADE OUTSIDE INDIA ONLY. KINDLY REFER A DETAILED LEDGER ACCOUNT ON DAY TO DAY BASIS PROVIDING THE COMPLETE DETAIL AS REGARD THE NAME OF THE PAYEE, REFERENCE TO THE EXPORT INVOICE OF TH E APPELLANT, THE RATE / AMOUNT OF COMMISSION ETC. AND WHEN THE SAME WAS CRE DITED TO THE ACCOUNT OF THE PAYEE OR PAID TO HIM, WHICH WERE SUBMITTED. IN THE CASE OF CIT VS. TOSHOKU LTD (1980) 125 ITR 0525 (SC) IT WAS HELD: THIS CONTENTION OVERLOOKS THE EFFECT OF CL. (A) OF THE EXPLANATION TO CL. (I) OF SUB-ECTION (1) OF S. 9 OF THE ACT WHICH PROVIDES THAT IN THE CASE OF A BUSINESS OF WHICH ALL THE OPERATIONS ARE NOT CARRIE D OUT IN INDIA, THE INCOME OF THE BUSINESS DEEMED UNDER THAT CLAUSE TO ACCRUE OR ARISE IN INDIA SHALL BE ONLY SUCH PART OF THE INCOME AS IS R EASONABLY ATTRIBUTABLE ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 8 TO THE OPERATIONS CARRIED OUT IN INDIA. IF ALL SUCH OPERATIONS ARE OUT IN INDIA, THE ENTIRE INCOME ACCRUING THEREFROM SHALL B E DEEMED TO HAVE ACCRUED IN INDIA. IF, HOWEVER, ALL THE OPERATIONS A RE NOT CARRIED OUT IN THE TAXABLE TERRITORIES, THE PROFITS AND GAINS OF BUSIN ESS DEEMED TO ACCRUE IN INDIA THROUGH AND FROM BUSINESS CONNECTION IN INDIA SHALL BE ONLY SUCH PROFITS AND GAINS AS ARE REASONABLY ATTRIBUTABLE TO THAT PART OF THE OPERATIONS CARRIED OUT IN THE TAXABLE TERRITORIES. IF NO OPERATIONS OF BUSINESS ARE CARRIED OUT IN THE TAXABLE TERRITORIES , IT FOLLOWS THAT THE INCOME ACCRUING OR ARISING ABROAD THROUGH OR FROM A NY BUSINESS CONNECTION IN INDIA CANNOT BE DEEMED TO ACCRUE OR A RISE IN INDIA . 12. THE ASSESSEE FURTHER SUBMITTED A CHART (AT APB PAGE 21) ALONG WITH ALL THE RELEVANT PAPERS AND VARIOUS EVIDENCES, IN CASE OF EACH OF THE PAYEES AS UNDER: COPIES OF LEDGER ACCOUNT OF THE PAYEE IN THE BOOKS OF ASSESSEE, AGENCY AGREEMENT (PROVIDING FOR RENDERING OF SERVIC ES OUT OF INDIA ONLY. CERTIFICATE OF THE PAYEE (TO THE EFFECT THAT THEY H AD NO PE IN INDIA U/S 6 R/W 9 OF THE ACT NOR ANY BUSINESS CONNECTION/ACTIVI TY IN INDIA), FOREIGN BILLS TRANSACTION ADVICE, LETTER BY THE ASSESSEE TO THE CONCERNED BANK WITH E NCLOSURE TO MAKE PAYMENT OUTSIDE INDIA. IT WAS SUBMITTED THAT THE ABOVE SETS OF PAPERS WERE MADE AVAILABLE TO THE LOWER AUTHORITIES, IN CASE OF ALL THE PARTIES TO WH OM THE SUBJECTED AMOUNT OF COMMISSION HAS BEEN PAID AND ARE ALSO AVAILABLE, IN THE PAPER BOOK. 13. REGARDING EXHIBITION EXPENSES, IT WAS SUBMITTE D THAT THE SAME WERE INCURRED IN MAKING PAYMENT TO VARIOUS NON-RESIDENTS OUTSIDE INDIA ON ACCOUNT OF THE STALL BOOKING IN DIFFERENT CONFERENCES EXHIB ITIONS HELD OUTSIDE INDIA. ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 9 THUS, THE SERVICES WERE RENDERED OUTSIDE INDIA AND RESPECTIVE PAYMENTS WERE ALSO MADE OUTSIDE INDIA. KINDLY REFER THE DETAILED LEDGER ACCOUNT CONTAINING THE RELEVANT DETAILS. THE APPELLANT ALSO SUBMITTED COPI ES OF LEDGER A/CS, BILLS, BANK ADVICE, CORRESPONDENCE AND FORM A2 UNDER FEMA IN RE SPECT OF EACH AND EVERY EXPENSE. 14. REGARDING TESTING EXPENSES, IT WAS SUBMITTED TH AT THESE WERE ALSO PAID TO THE NON-RESIDENT OUTSIDE INDIA FOR GETTING THE S AMPLES / GOODS WHICH WERE TESTED BY THE NON-RESIDENT OUTSIDE INDIA. PAYMENTS TO THESE PERSONS WERE ALSO MADE OUTSIDE INDIA. COPY OF THE DETAILED LEDGER ACC OUNTS W.R.T. LABORATORY EXPENSES AND TRANSACTION RECEIPT ON DAY TO BASIS CO NTAINING THE RELEVANT DETAILS, IN RESPECT OF EVERY EXPENSE WERE SUBMITTED . 15. IT WAS ACCORDINGLY SUBMITTED THAT FROM A PERUSA L OF THE ABOVE SUBMISSIONS AND THE VOLUMINOUS EVIDENCES, IT IS EVI DENTLY CLEAR THAT UNDISPUTEDLY: ALL THE PAYEES ACTUALLY RENDERED THE SERVICES OUTSI DE INDIA ONLY, THE PAYMENTS WERE MADE TO HIM OUTSIDE INDIA ONLY, NONE OF THE PAYEES HAD ANY OFFICE OR OTHER FIXED PL ACE OF BUSINESS IN INDIA. THE PAYEE DID NOT HAVE ANY DEPENDENT EMPLOYEE/ CORR ESPONDENT PERFORMING ANY BUSINESS CONNECTION/ACTIVITY IN INDI A. THEY DID NOT HAVE ANY PERMANENT ESTABLISHMENT (PE) OR ANY SORT OF BUSINESS CONNECTION, DIRECTLY OR INDIRECTLY, IN IND IA 16. IT WAS SUBMITTED THAT ALL THESE DETAILS AND THE EVIDENCES WERE ADMITTEDLY SUBMITTED VIDE OUR LETTER DATED 18.11.2015 TO THE A O AND ALSO BEFORE THE LD. CIT(A) THROUGH A VOLUMINOUS PAPER BOOK. THE AO EXAM INED THE DETAILS THOROUGHLY HOWEVER, THESE FACTS & EVIDENCES WERE NE ITHER REBUTTED NOR DISPROVED. UNFORTUNATELY, THE LD. CIT(A) COMPLETELY OVERLOOKED THE SAME. HE ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 10 DID NOT APPLY HIS MIND ON THE FACTUAL ASPECTS THOUG H FULLY ESTABLISHED AND COMPLETELY LACKING CONTRARY EVIDENCES. HE DID NOT E VEN APPRECIATE THAT THE ONUS LAY UPON THE AO U/S 195 OF THE ACT WAS NOT AT ALL DISCHARGED. HOWEVER, ONCE THE JURISDICTIONAL FACTS ARE NOT DENIED AND DU LY ADMITTED, IT CANNOT BE SAID THAT ANY INCOME WAS CHARGEABLE TO TAX, ACCRUED OR A ROSE IN RESPECT OF ALL THE THREE SUBJECTED PAYMENTS U/S 4, 5 OR 9 OF THE ACT O R UNDER ANY OTHER PROVISIONS OF THE ACT IN INDIA. THUS, IT IS NOT A CASE WHERE N ON-RESIDENT AGENTS ARE CARRYING OUT ANY BUSINESS ACTIVITY IN INDIA AS ENUM ERATED IN EXPLANATION 2 TO SECTION 9(1) AND CONSEQUENTLY THERE IS NO BUSINESS CONNECTION BETWEEN THE ASSESSEE AND THE NON-RESIDENT PAYEES. MOREOVER, ALL THE COUNTRIES OF THE RESPECTIVE PAYEES AND INDIA HAVE ALREADY ENTERED IN TO DTAAS PROVIDING THE TAXING OF THE INCOME, IF ANY, IN THE HANDS OF THE C ONCERNED PAYEE. THUS, IT IS FULLY ESTABLISHED THAT THE SUBJECTED AMOUNTS SO REC EIVED BY THE RESPECTIVE PAYEES, WERE NOT THE INCOME CHARGEABLE TO TAX IN IN DIA IN ANY MANNER WHATSOEVER, HENCE S. 195 OF THE ACT WAS NOT APPLICA BLE IN THIS CASE. 17. IT WAS FURTHER SUBMITTED THAT EVEN EXPLANATION 2 TO S. 195 IS NOT APPLICABLE IN THE INSTANT CASE. IT WAS SUBMITTED T HAT THE AO HAS COMPLETELY MISREAD AND MISAPPLIED EXPLANATION-2 IN AS MUCH AS S.195 OF THE ACT REQUIRES ANY PERSON RESPONSIBLE FOR PAYING. ANY PERSON IN CLUDES ALL THE PERSONS BE A RESIDENT OR NON-RESIDENT AS DEFINED U/S 2(31) OF TH E ACT. THEREFORE, EVEN A NON-RESIDENT PERSON RESPONSIBLE FOR PAYING TO A NON -RESIDENT WAS LIABLE TO DEDUCT TDS U/S 195 HOWEVER, CERTAIN JUDICIAL PRONOU NCEMENTS HAD CREATED DOUBTS ABOUT THE SCOPE AND PURPOSE OF S.195 IN THE CONTRACT OF NON- RESIDENTS. IT IS ONLY, WITH A VIEW TO CLARIFY THAT THE OBLIGAT ION TO MAKE TDS U/S 195(1) APPLIES TO ALL THE PERSONS WHETHER RESIDENT OR NON- RESIDENT IF SUCH PERSON IS RESPONSIBLE FOR MAKING PAYMENT TO A NON-RESIDENT (P AYEE WHOSE INCOME IS CHARGEABLE TO TAX IN INDIA), THEREFORE, EXPLANATION 2 WAS INSERTED THROUGH THE FINANCE ACT, 2012 W.R.T. 01.04.1962. THIS IS EVIDEN T FROM THE FOLLOWING EXTRACT ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 11 TAKEN FROM PART F-RATIONALIZATION OF INTERNATIONAL TAXATION PROVISIONS IN THE MEMORANDUM EXPLAINING THE PROVISIONS OF THE FINANCE BILL, 2012: SECTION 195 OF THE INCOME-TAX ACT REQUIRES ANY PER SON TO DEDUCT TAX AT SOURCE BEFORE MAKING PAYMENTS TO A NON-RESIDENT IF THE INCOME OF SUCH NON-RESIDENT IS CHARGEABLE TO TAX IN INDIA. PERSON , HERE, WILL TAKE ITS MEANING FROM SECTION 2 AND WOULD INCLUDE ALL PERSON S, WHETHER RESIDENT OR NON-RESIDENT. THEREFORE, A NON-RESIDENT PERSON I S ALSO REQUIRED TO DEDUCT TAX AT SOURCE BEFORE MAKING PAYMENTS TO ANOT HER NON-RESIDENT, IF THE PAYMENT REPRESENTS INCOME OF THE PAYEE NON-RESI DENT, CHARGEABLE TO TAX IN INDIA. THERE ARE NO OTHER CONDITIONS SPECIFI ED IN THE ACT AND IF THE INCOME OF THE PAYEE NON-RESIDENT IS CHARGEABLE TO T AX, THEN TAX HAS TO BE DEDUCTED AT SOURCE, WHETHER THE PAYMENT IS MADE BY A RESIDENT OR A NON-RESIDENT. CERTAIN JUDICIAL PRONOUNCEMENTS HAVE CREATED DOUBTS ABOUT THE SCOPE AND PURPOSE OF SECTIONS 9 AND 195. FURTHER, THERE A RE CERTAIN ISSUES IN RESPECT OF INCOME DEEMED TO ACCRUE OR ARISE WHERE T HERE ARE CONFLICTING DECISIONS OF VARIOUS JUDICIAL AUTHORITIES. THEREFORE, THERE IS A NEED TO PROVIDE CLARIFICATORY RETROSPECTIVE AMENDMENT TO RESTATE THE LEGISLATIVE INTENT IN RESP ECT OF SCOPE AND APPLICABILITY OF SECTION 9 AND 195 AND ALSO TO MAKE OTHER CLARIFICATORY AMENDMENTS FOR PROVIDING CERTAINTY IN LAW. I. IT IS, THEREFORE, PROPOSED TO AMEND THE INCOME T AX ACT IN THE FOLLOWING MANNER:- X X X X ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 12 (V) AMEND SECTION 195(1) TO CLARIFY THAT OBLIGATION TO COMPLY WITH SUB- SECTION (1) AND TO MAKE DEDUCTION THEREUNDER APPLIE S AND SHALL BE DEEMED TO HAVE ALWAYS APPLIED AND EXTENDS AND SHALL BE DEEMED TO HAVE ALWAYS EXTENDED TO ALL PERSONS, RESIDENT OR NO N-RESIDENT, WHETHER OR NOT THE NON-RESIDENT HAS:- (A) A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CO NNECTION IN INDIA; OR (B) ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER IN INDIA. THESE AMENDMENTS WILL TAKE EFFECT RETROSPECTIVELY F ROM 1ST APRIL, 1962 AND WILL ACCORDINGLY APPLY IN RELATION TO THE ASSES SMENT YEAR 1962-63 AND SUBSEQUENT ASSESSMENT YEARS. THUS, THE EXPLANATION 2 DOES NOT AT ALL POSITIVELY SAY THAT DESPITE THE FACT THAT INCOME OF THE NON-RESIDENT PAYEE IS NOT CHARGEABLE TO TAX IN INDIA YET HOWEVER, S.195 SHALL APPLIES ON THE PAYER RESIDENT. 18. FURTHER, RELIANCE WAS PLACED ON THE CO-ORDINATE BENCH DECISION IN CASE OF M/S CLASSIC ENTERPRISES LTD. VS. JCIT (IN ITA NO. 808/JP/2014 DATED 21.12.2016) WHEREIN IT WAS HELD AS UNDER:- 2. IN RESPECT OF GROUND NO.1 OF THE ASSESSEES APP EAL, BRIEFLY THE FACTS OF THE CASE ARE THAT A DISALLOWANCE OF RS. 4, 40,820/- HAS BEEN MADE BY THE AO U/S 40(A)(IA) OF THE IT ACT ON ACCO UNT OF NON DEDUCTION OF TDS U/S 195 OF THE ACT ON COMMISSION PAID TO TWO FOREIGN PARTIES. UNDISPUTEDLY, THE COMMISSION HAS BEEN PAID TO TWO F OREIGN PARTIES OUTSIDE INDIA ON ACCOUNT OF SALES ORDERS PROCURED B Y THEM FOR THE ASSESSEE. THE ORDERS WERE OBTAINED BY THEM FROM OUT SIDE INDIA AND NO SERVICES HAVE BEEN RENDERED BY THEM IN INDIA. PAYME NTS HAVE ALSO BEEN MADE OUTSIDE INDIA. UNDER THE PROVISIONS OF SECTIO N 5 AND SECTION 9 OF THE ACT, THE SAID COMMISSION PAYMENT ON EXPORT SALE S CANNOT BE HELD ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 13 CHARGEABLE TO TAX IN INDIA. IN VIEW OF THAT, THE P ROVISIONS OF SECTION 195 ARE NOT APPLICABLE AND THUS THE PROVISIONS OF SECTI ON 40(A)(IA) HAVE WRONGLY BEEN APPLIED BY THE AO. THE ADDITION THUS MADE UNDER SECTION 40(A)(IA) IS THUS DELETED AND GROUND OF APPEAL IS A LLOWED. 19. FURTHER, RELIANCE WAS PLACED ON THE CO-ORDINATE BENCH DECISION IN THE CASE OF SUBHASH CHAND GUPTA VS. ACIT (ITA NO. 1122/JP/2016 DATED 26.12.2017) WHEREIN IT WAS HELD AS UNDER:- 7. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. DUR ING 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 D ISALLOWANCE OF PAYMENT OF SALES COMMISSION TO AN NRI WITHOUT DEDUC TING TDS BY TAKING A VIEW THAT CIRCULAR HAS BEEN WITHDRAWN AND TREATIN G THE SALES COMMISSION AS FEE FOR TECHNICAL SERVICES. IT IS PER TINENT TO NOTE THAT THIS COMMISSION WAS GIVEN FOR PROCURING THE EXPORT ORDER S FROM OUTSIDE INDIA. SOURCING ORDERS ABROAD FOR WHICH PAYMENT HAD BEEN MADE DIRECTLY TO THE NONRESIDENT DOES NOT FALL IN THE CATEGORY OF TECHNICAL 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 T HE COMMISSION HAS BEEN PAID FOR THE SERVICES RENDERED OUTSIDE THE INDIA. T HE PERSON TO WHOM THE COMMISSION PAID WAS NOT HAVING ANY BUSINESS CONNECT ION IN THE INDIA AND COMMISSION SO EARNED BY HIM IS NOT TAXABLE IN T HE INDIA. THEREFORE, THE PROVISIONS OF SECTION 195 OF THE ACT ARE NOT AP PLICABLE. THE HONBLE MADRAS HIGH COURT IN ITS ORDER DATED 20/1/2016 IN T AX 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. LT D. V. CIT (2010) 327 I.T.R. 456, IN WHICH, IT IS VERY CATEGORICALLY HELD THAT ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 14 THE TAX DEDUCTED AT SOURCE OBLIGATIONS UNDER SECTIO N 195 (1) OF THE ACT ARISES, ONLY IF THE PAYMENT IS CHARGEABLE T O 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 INFERRE D THAT THE PERSON MAKING THE REMITTANCE, NAMELY, THE ASSESSEE, IN THE INSTANT CASE, HAS COMMITTED A DEFAULT IN DISCHARGIN G HIS TAX WITHHOLDING OBLIGATIONS BECAUSE SUCH OBLIGATIONS CO ME INTO EXISTENCE ONLY WHEN THE RECIPIENT HAS A TAX LIABILI TY 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 RECIPIENT AND THEREFORE, WHEN THE RECIPIENT/ FOREIGN AGENT DO ES NOT HAVE THE PRIMARY LIABILITY TO BE TAXED IN RESPECT OF INC OME EMBEDDED IN THE RECEIPT, THE VICARIOUS LIABILITY OF THE PAYER T O DEDUCT TAX DOES NOT ARISE. THIS VICARIOUS TAX WITHHOLDING LIABILITY CANNOT BE INVOKED, UNLESS PRIMARY TAX LIABILITY OF THE RECIPE NT/FOREIGN AGENT IS ESTABLISHED. IN THIS CASE, THE PRIMARY TAX LIABI LITY OF THE FOREIGN AGENT IS NOT ESTABLISHED. THEREFORE, THE VICARIOUS LIABILITY ON THE PART OF THE ASSESSEE TO DEDUCT THE TAX AT SOURCE DO ES NOT EXIST. 10. FURTHER, JUST BECAUSE, THE PAYER/ASSESSEE HAS N OT OBTAINED A SPECIFIED DECLARATION FROM THE REVENUE AUTHORITIES TO THE EFFECT THAT THE RECIPENT IS NOT LIABLE TO BE TAXED IN INDI A, IN RESPECT OF THE INCOME EMBEDDED 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 TH AT THE NONRESIDENT AGENTS WERE ONLY PROCURING ORDERS ABROAD AND FOLLOW ING UP ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 15 PAYMENTS WITH BUYERS. NO OTHER SERVICES ARE RENDERE D OTHER THAN THE ABOVE. SOURCING ORDERS ABROAD, FOR WHICH PAYMEN TS HAVE BEEN MADE DIRECTLY TO THE NON-RESIDENTS ABROAD, DOE S NOT INVOLVE ANY TECHNICAL KNOWLEDGE OR ASSISTANCE IN TECHNICAL OPERATIONS OR OTHER SUPPORT IN RESPECT OF ANY OTHER TECHNICAL MAT TERS. IT ALSO DOES NOT REQUIRE ANY CONTRIBUTION OF TECHNICAL KNOW LEDGE, EXPERIENCE, EXPERTISE, SKILL OR TECHNICAL KNOW-HOW OF THE PROCESSES INVOLVED OR CONSIST IN THE DEVELOPMENT AN D TRANSFER OF A TECHNICAL PLAN OR DESIGN. THE PARTIES MERELY SOUR CE THE PROSPECTIVE BUYERS FOR EFFECTING SALES BY THE ASSES SEE, AND IS ANALOGOUS TO A LAND OR A HOUSE/ REAL ESTATE AGENT / BROKER, WHO WILL BE INVOLVED IN MERELY IDENTIFYING THE RIGHT PR OPERTY FOR THE PROSPECTIVE BUYER / SELLER AND ONCE HE COMPLETES TH E DEAL, HE GETS THE COMMISSION. THUS, BY NO STRETCH OF IMAGINA TION, IT CANNOT BE SAID THAT THE TRANSACTION PARTAKES THE CH ARACTER OF 'FEES FOR TECHNICAL SERVICES' AS EXPLAINED IN THE C ONTEXT 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 COMM ISSIONER OF INCOME TAX (APPEALS), THE COMMISSION PAYMENT MADE T O THEM DOES NOT FALL INTO THE CATEGORY OF 'FEES OF TECHNIC AL SERVICES' AND THEREFORE, EXPLANATION (2) TO SECTION 9 (1) (VII) O F THE ACT, AS INVOKED BY THE ASSESSING OFFICER, HAS NO APPLICATIO N 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 REMAINI NG OUTSIDE, 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 ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 16 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 SUBJ ECT MATTER OF THE DECISION, IN THE RECENT CASE, REPORTED IN (2014) 36 9 I.T.R. 96 (MAD) (COMMISSIONER OF INCOME TAX V. KIKANI EXPORTS PVT. LTD.) WHEREIN THE CONTENTION OF THE REVENUE HAS BEEN REJE CTED AND ASSESSEE HAS BEEN UPHELD AND THE RELEVANT OBSERVATI ON 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 COMMITMENT AND WOULD NOT FALL WITHIN THE ] DEFINITION OF 'FEES FOR TECHNICAL SERVICES' AND, THEREFORE, SECTION 9 WAS NOT APPLICA BLE AND, CONSEQUENTLY, SECTION 195 DID NOT COME INTO PLAY. T HEREFORE, THE 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 ATTRACT THE PROVI SIONS OF SECTION 9 OF THE ACT, THEN THERE IS NO QUESTION OF APPLYING E XPLANATION 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 OF THE ASSESSEE. 20. FURTHER, RELIANCE WAS PLACED ON THE CO-ORDINATE BENCH DECISION IN THE CASE OF ITO VS. KULBEER SINGH (ITA NO. 5204/DEL/2014 DATED 03.10.2018) WHEREIN IT WAS HELD AS UNDER:- ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 17 7. IN THE PRESENT CASE, THE COMMISSION IS PAID TO THE TWO PARTIES FOR EXPORT SALES. THE FOREIGN AGENTS ARE NON-RESIDENT A ND THE SERVICES HAVE BEEN RENDERED UNDISPUTEDLY BY THEM OUTSIDE INDIA. T HE COMMISSION PAYMENT WAS ALSO SUPPORTED BY THE COPY OF THE AGREE MENT AND CONFIRMATION OF COMMISSION PAID. THE COPY OF THE PA SSPORT OF THE COMMISSION AGENTS WERE ALSO SUBMITTED ALONG WITH TH E PARTY WISE AND INVOICE WISE DETAILS RESULTING INTO PAYMENT OF COMM ISSION. THEREFORE, IT IS NOT THE CASE THAT THE PAYMENT HAS BEEN MADE TO ON I DENTIFIED PARTIES. FURTHER, THE REVENUE HAS NOT BROUGHT ANY MATERIAL O N RECORD TO SHOW THAT EITHER OF THESE COMMISSION AGENTS HAS RENDERED ANY OF THEIR SERVICES IN INDIA AND THE PAYMENTS HAVE BEEN MADE TO THEM IN INDIA. IN VIEW OF THE FINDING OF THE LEARNED COMMISSIONER APPEALS, WE ARE OF THE OPINION THAT THE INCOME OF THE FOREIGN AGENTS IS NOT CHARGE ABLE TO TAX IN INDIA, AS THEY DO NOT HAVE ANY BUSINESS CONNECTION AS PER P ROVISIONS OF SECTION 9 OF THE INCOME TAX ACT. IN ABSENCE OF ANY BUSINESS C ONNECTION, THE INCOME IS NOT CHARGEABLE TO TAX UNDER SECTION 5 OF THE INCOME TAX ACT OF THE NON-RESIDENT FOREIGN AGENTS. THEREAFTER, THE NA TURAL CONSEQUENCES ARE THAT ON SUCH PAYMENT ASSESSEE IS NOT OBLIGED TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE INCOME TAX ACT. THE LEARNE D COMMISSIONER OF INCOME TAX APPEALS HAS RELIED UPON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN 343 ITR 366 WHEREIN IT HAS BEEN HELD THAT WHEN A NON-RESIDENT AGENT OPERATES OUTSIDE THE COUNTRY NO PART OF HIS I NCOME ARISES IN INDIA AND SINCE PAYMENT IS REMITTED DIRECTLY ABROAD AND M ERELY BECAUSE AN ENTRY IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE IS M ADE, IT DID NOT MEAN THAT NON-RESIDENT HAS RECEIVED ANY PAYMENT IN INDIA . THEREFORE, NO BUSINESS CONNECTION IS ESTABLISHED AND INCOME TAX W AS NOT DEDUCTIBLE AT SOURCE AND HENCE NO DISALLOWANCE IS CALLED FOR. IN VIEW OF THIS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED FIRS T APPELLATE AUTHORITY AS IT ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 18 FOLLOWED THE DECISION OF THE JURISDICTIONAL HIGH CO URT. THEREFORE, WE DISMISS THE APPEAL OF THE LEARNED ASSESSING OFFICER AND CONFIRM THE FINDING OF THE COMMISSIONER APPEALS. ACCORDINGLY, W E DIRECT LEARNED ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF RS. 4,41,40,860/- ON ACCOUNT OF COMMISSION PAID TO FOREIGN AGENT WHO DID NOT RENDER ANY SERVICES IN INDIA. 21. FURTHER, RELIANCE WAS PLACED ON THE CO-ORDINATE BENCH DECISION IN THE CASE OF SATYAM POLYPLAST VS. DCIT, CIRCLE-04, JAIPU R (ITA NO. 158/JP/2019 DATED 14.05.2019) WHEREIN IT WAS HELD AS UNDER:- 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS PAID COMMISSIO N TO NON-RESIDENT PERSONS AGAINST THE SERVICE OF PROCURING ORDERS FOR THE ASSESSEE. THE DETAILS OF THE COMMISSION PAID BY THE ASSESSEE ARE AS UNDER:- S. NO. NAME OF AGENT ADDRESS COMMISSION 1. MR. CLAUDIO HABERL A/C AV. SESQUICENTENARIO 4540 CP1613, BUENOS AIRES, ARGENTINA 22,06,46,7.00 2. MD. HABIBUR RAHMAN KALIBARL, AZIZABAD, PATHARGHA TA BARGUNA 3,31,442.00 3. NADIA ANWAR HASAN ALI AL-SHEKH, OTHMAN, SNAFER B UILDING YEMEN 4,68,120.00 4. REINHARD BOSSE UND GESCHAFTSKUNDEN AG, BAHNHOFSTRABE 17,49525 LENGERICH, GERMANY 7,10,060.00 5. SHAMLAN NASEER ALI DOHA, QATAR, YEMEN 1,76,698.0 0 TOTAL 38,92,787.00 THE AO HAS DISALLOWED THE SAID AMOUNT U/S 40(A)(I)O N THE GROUND THAT THE ASSESSEE HAS NOT DEDUCTED THE TAX AT SOURCE AS REQUIRED U/S 195(1) OF THE ACT. THE AO HAS GIVEN MUCH EMPHASIS TO EXPLA NATION-II TO SECTION 195(1) OF THE ACT. THE AO ALSO HELD THAT THE PAYMEN T IN QUESTION IS FEE FOR TECHNICAL SERVICES (FTS) BECAUSE THE NON-RESIDE NTS HAVE RENDERED THE SERVICE OF MANAGERIAL IN THE NATURE WHICH FALLS IN THE AMBIT OF DEFINITION OF FEE FOR TECHNICAL SERVICES U/S 9A(1)( VII) OF THE ACT. IT IS PERTINENT TO NOTE THAT THE PROVISIONS OF SECTION 40 (A)(I) CAN BE APPLIED ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 19 ONLY RESPECT OF SUM PAYABLE OR PAID TO A NON-RESIDE NT TOWARDS INTEREST, ROYALTY OR FEE FOR TECHNICAL SERVICES (FTS) OR OTHE R SUM CHARGEABLE UNDER THIS ACT WHICH IS PAYABLE TO NON-RESIDENT. FO R READY REFERENCE WE QUOTE THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT AS UNDER:- C HARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSI NESS OR PROFESSION', (A ) IN THE CASE OF ANY ASSESSEE 42 [(I) 43 44 ANY INTEREST (NOT BEING INTEREST ON A LOAN ISSUED F OR PUBLIC SUBSCRIPTION BEFORE THE 1ST DAY OF APRIL, 1938), ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER TH IS 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 XVII- B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID 45 [ON OR BEFORE THE DUE DATE SPECIFIED IN SUB- SECTION (1) OF SECTION 139 ] : 46 [ PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCT ED DURING THE PREVIOUS YEAR BUT PAID AFTER THE DUE 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 EXPLANATION2 TO CLAUSE (VI) OF SUB-SECTION (1) O F SECTION 9 ; (B ) 'FEES FOR TECHNICAL SERVICES' SHALL HAVE THE SAME M EANING AS IN EXPLANATION2 TO CLAUSE (VII) OF SUB- SECTION (1) ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 20 OF SECTION 9 ; THE PAYMENT IN QUESTION IS COMMISSION AND PRIMA FAC IE NOT ROYALTY OR FEE FOR TECHNICAL SERVICES (FTS). THE AO THOUGH OBS ERVED THAT THE PAYMENT IN THE NATURE OF FTS, HOWEVER THE AO HAS NO T EXAMINED OR NOT GIVEN THE FINDING AS TO HOW THE PAYMENT IN QUESTION IS FTS AND WHAT IS THE NATURE OF SERVICE RENDERED BY THE NON-RESIDENT. EVEN OTHERWISE THE ISSUE OF FTS HAS TO BE CONSIDERED IN LIGHT OF DEFIN ITION PROVIDED IN RESPECT THE DTAA. WE FIND THAT THE LD. CIT(A) FOR THE ASSES SMENT YEAR 2013-14 HAS CLEARLY GIVEN A FINDING THAT THE PAYMENT IN QUE STION IS NOT FEE FOR TECHNICAL SERVICES BUT IT IS A REGULAR PAYMENT TO T HE NON-RESIDENT IN THE NATURE OF ORDINARY COURSE OF BUSINESS. EVEN OTHERWI SE THE LD. CIT(A) HAS UPHELD THE ORDER OF THE AO ONLY ON THE GROUND THAT AS PER THE EXPLANATION-II OF SECTION 195(1) OF THE ACT THE ASS ESSEE WAS UNDER OBLIGATION TO DEDUCT THE TAX AT SOURCE FOR MAKING T HE PAYMENT OF COMMISSION TO NON-RESIDENT. THEREFORE, THE LD. CIT( A) HAS ACCEPTED THE NATURE OF PAYMENT AS COMMISSION AND NOT FEE FOR TEC HNICAL SERVICE. THE RELEVANT FINDING OF THE LD. CIT(A) IN PARA 4.3 AS U NDER:- 4.3 I HAVE GONE THROUGH THE ASSESSMENT ORDER, STAT EMENT OF FACTS, GROUNDS OF APPEAL AND WRITTEN SUBMISSIONS CA REFULLY. IT IS SEEN THAT THE AO AFTER DISCUSSING THE PROVISIONS OF SECTION 195, INCLUDING THE EXPLANATION 2, HAS CONCLUDED THAT THE APPELLANT WAS REQUIRED TO DEDUCT THE TAX AT SOURCE WHILE MAKING T HE PAYMENT OF ABOVE REFERRED EXPENSES EVEN, TO THE NON-RESIDENT P ERSONS, WHETHER OR NOT THE NON-RESIDENT PERSON HAD A RESIDE NCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA OR ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER IN INDIA. THE EXPLANATION 2 HAS BEEN INSERTED BY THE FINANCE ACT OF 2012 WITH RETROSPECT IVE EFFECT FROM 01.04.1962. I AM OF THE CONSIDERED VIEW THAT THE AR GUMENT OF THE APPELLANT THAT SINCE THE NON-RESIDENT PERSONS WHOM THE PAYMENTS WERE MADE DID NOT HAVE PLACE OF BUSINESS OR BUSINES S CONNECTION IN INDIA, THEREFORE, THE APPELLANT WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE ON THE ABOVE REFERRED PAYMENTS, IS NOT CORRE CT. REGARDING ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 21 THE SECOND ARGUMENT OF THE APPELLANT THAT THE INCOM E OF THE RECIPIENTS OF THE ABOVE REFERRED EXPENSES WAS NOT SUM CHARGEABLE UNDER THE PROVISIONS OF INCOME TAX ACT, 1961 THEREFORE THE PROVISIONS OF SECTION 195(1) ARE NOT APPLICABLE TO THESE PAYMENTS THE A/R OF THE APPELLANT WAS SPECIFICALLY REQUESTED TO CLARIFY WHETHER ANY RULING WAS OBTAINED FROM THE AU THORITY FOR ADVANCE RULING U/S 245(2), REGARDING NON TAXABILITY OF THE INCOME OF THE RECIPIENT IN INDIA UNDER THE INCOME TAX ACT. THE A/R SUBMITTED THAT NO SUCH RULING WAS OBTAINED FROM AAR BY THE RECIPIENTS OF THE ABOVE REFERRED EXPENSES. THERE IS NO OTHER EVIDENCE ON RECORD TO SHOW THAT THE SUM RECEIVED BY THE NON- RESIDENTS IN THE FORM OF SELLING COMMISSION (RS. 38 ,92,787/-) WAS NOT CHARGEABLE TO TAX UNDER THE INCOME TAX ACT. THE RE IS NO ORDER OR FINDING BY ANY INCOME TAX AUTHORITY THAT THE ABO VE REFERRED SUM OF RS. 38,92,787/- WAS NOT CHARGEABLE TO TAX UN DER I. T. ACT, 1961. THEREFORE, I AM OF THE CONSIDERED VIEW THAT T HE APPELLANT WAS REQUIRED TO DEDUCT TAX AT SOURCE WHILE MAKING P AYMENT OF SELLING COMMISSION ( RS. 38,92,787/-) TO NON-RESIDE NT, WHETHER OR NOT THE NON-RESIDENT HAD A RESIDENCE OR PLACE OF BU SINESS OR BUSINESS CONNECTION IN INDIA. THE DECISION RELIED U PON BY THE APPELLANT ARE APPLICABLE ONLY WHEN THERE IS EVIDENC E ON RECORD TO SHOW THAT THE SUM PAID BY THE ASSESSEE WAS NOT CHAR GEABLE TO TAX UNDER THE INCOME TAX ACT. THEREFORE, DISALLOWANCE O F RS. 38,92,787/- MADE BY THE AO IS HEREBY CONFIRMED. ONCE THE PAYMENT IN QUESTION IS COMMISSION THEN THE PROVISIONS OF SECTION 40 (A)(I) OF THE ACT ARE APPLICABLE ONLY IF SUCH SUM IS CHARGEABLE TO TAX UNDER THIS ACT. AS PER PROVISIONS OF SECTION 5(2) OF THE ACT THE TOTAL INCOME OF NON-RESIDENT INCLUDES ALL INCOME FR OM WHATSOEVER SOURCES DERIVED WHICH IS RECEIVED OR DEEMED TO BE R ECEIVED IN INDIA ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE T O HIM IN INDIA DURING SUCH YEAR. FOR READY REFERENCE WE QUOTE TO SECTION 5(2) REPRODUCED AS UNDER:- ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 22 5 (2) SUBJECT TO 11 THE PROVISIONS OF THIS ACT, THE TOTAL INCOME 12 OF ANY PREVIOUS YEAR OF A PERSON WHO IS A NON-RESIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH (A ) IS RECEIVED 14 OR IS DEEMED TO BE RECEIVED IN INDIA IN SUCH YEAR B Y OR ON BEHALF OF SUCH PERSON ; OR (B ) ACCRUES OR ARISES 14 OR IS 14 DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA DURING SUCH YEAR. EXPLANATION 1.INCOME ACCRUING OR ARISING OUTSIDE I NDIA SHALL NOT BE DEEMED TO BE RECEIVED 14 IN INDIA WITHIN THE MEANING OF THIS SECTION BY REASON ONLY OF THE FACT THAT IT IS TAKEN INTO ACCOU NT IN A BALANCE SHEET PREPARED IN INDIA. EXPLANATION 2.FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT INCOME WHICH HAS BEEN INCLUDED IN THE TOTAL INCOME OF A PERSON ON THE BASIS THAT IT HAS ACCRUED 15 OR ARISEN 15 OR IS DEEMED TO HAVE ACCRUED 15 OR ARISEN 15 TO HIM SHALL NOT AGAIN BE SO INCLUDED ON THE BASIS THAT IT IS RECEIVED OR DEEMED TO BE RECEIVED BY HIM IN INDIA. THEREFORE, COMMISSION PAID TO NON-RESIDENT OUTSIDE INDIA FOR THE SERVICES RENDERED OUTSIDE INDIA WILL NOT FALL IN THE CATEGOR Y OF THE INCOME RECEIVED FOR DEEMED OR RECEIVED IN INDIA AS WELL AS ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE IN INDIA. THUS, THE SAID AMOUNT PAID TO NON-RESIDENT DOES NOT FALL IN THE SCOPE OF TOTAL INCOME OF NON-R ESIDENT AND CONSEQUENTLY IT IS NOT CHARGEABLE TO TAX IN INDIA U NDER THE PROVISIONS OF THE ACT. EVEN OTHERWISE THE SAID INCOME IN THE HAND S OF NON-RESIDENT HAS TO BE CONSIDERED IN THE LIGHT OF THE PROVISIONS OF DTAA BETWEEN INDIA AND THE COUNTRY OF THE NON-RESIDENT. IN THE ABSENCE OF P.E. OF THE NON- RESIDENT IN INDIA SUCH BUSINESS INCOME IS NOT CHARG EABLE TO TAX IN INDIA. ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE WHEN THE AMOUNT PAID BY THE ASSESSEE IS NOT CHARGEABLE TO TAX IN IN DIA THEN THE ASSESSEE IS NOT LIABLE TO DEDUCT TDS AND CONSEQUENTLY THE PR OVISIONS OF SECTION 40(A)(I) OF THE ACT CANNOT BE INVOKED FOR MAKING TH E DISALLOWANCE. IN THE ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 23 FACTS AND CIRCUMSTANCES OF THE CASE THE DISALLOWANC E MADE BY THE AO U/S 40(A)(I) OF THE ACT IS DELETED. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 22. THE LD DR IS HEARD WHO HAS VEHEMENTLY ARGUED TH E MATTER AND HAS RELIED ON THE FINDINGS OF THE LOWER AUTHORITIES WHICH WE H AVE ALREADY NOTED ABOVE AND HAVE NOT BEEN REPRODUCED FOR SAKE OF BREVITY. 23. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS MADE PAYMENT OF SELLING COMMISSION, EXHIBITION EXPENSES AND TESTING EXPENSES TO VARIOUS NON-RESIDE NT ENTITIES, WITHOUT DEDUCTING TAX AT SOURCE AND A SHOW CAUSE WAS ISSUED AS TO WHY THIS PAYMENT SHOULD NOT BE DISALLOWED U/S 40(A)(IA) IN VIEW OF I NSERTION OF EXPLANATION 2 TO SECTION 195 BY THE FINANCE ACT, 2012 WITH RETROSPEC TIVE EFFECT FROM 01.04.1962. IN RESPONSE, THE ASSESSEE SUBMITTED THA T IT IS NOT REQUIRED TO DEDUCT ANY TAX AT SOURCE AS PER PROVISIONS OF SECTI ON 195(1) SINCE THESE PAYMENTS ARE NOT CHARGEABLE TO TAX IN INDIA AS NO I NCOME ACCRUES OR ARISES IN INDIA IN RESPECT OF THESE TRANSACTIONS IN THE HANDS OF THE NON-RESIDENT ENTITIES, THE SERVICES HAVE BEEN RENDERED OUTSIDE INDIA BY TH ESE NON-RESIDENT ENTITIES AND THE PAYMENT HAVE ALSO BEEN MADE OUTSIDE OF INDI A. IT WAS SUBMITTED THAT THE COMMISSION HAS BEEN PAID IN RESPECT OF EXPORT S ALES MADE TO NON-RESIDENT OUTSIDE OF INDIA AND THE SERVICES FOR EARNING COMMI SSION INCOME BY THE NON- RESIDENT HAS BEEN RENDERED OUTSIDE OF INDIA. IT WAS FURTHER SUBMITTED THAT THE EXHIBITION EXPENSES HAVE BEEN INCURRED IN RESPECT O F PARTICIPATION IN VARIOUS EXHIBITION OUTSIDE OF INDIA AND THE TESTING CHARGES WERE PAID TO NON-RESIDENT FOR GETTING THE SAMPLES/GOODS TESTED OUTSIDE INDIA. WE THEREFORE FIND THAT THE ASSESSING OFFICER HAS NOT DISPUTED THE NATURE OF TH E PAYMENTS SO MADE BY THE ASSESSEE TO THE NON-RESIDENT ENTITIES AND ALSO THE FACT THAT THE SERVICES HAVE ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 24 BEEN RENDERED OUTSIDE OF INDIA AND THE PAYMENT HAVE BEEN MADE OUTSIDE OF INDIA. THE ONLY REASON WHY THE ASSESSING OFFICER H AS DISALLOWED THESE EXPENSES IS IN VIEW OF THE EXPLANATION 2 TO SECTION 195 WHICH READS AS UNDER:- EXPLANATION 2 FOR THE REMOVAL OF DOUBTS, IT IS H EREBY CLARIFIED THAT THE OBLIGATION TO COMPLY WITH SUB SECTION (1) AND TO MA KE DEDUCTION THERE UNDER APPLIES AND SHALL BE DEEMED TO HAVE ALWAYS AP PLIED AND EXTENDS AND SHALL BE DEEMED TO HAVE ALWAYS EXTENDED TO ALL PERSONS, RESIDENT OR NON-RESIDENT, WHETHER OR NOT THE NON-RESIDENT PERSO N HAS (I) A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDI A; OR (II) ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER IN INDIA. 24. FURTHER, THE ASSESSING OFFICER HAS PLACED RELIA NCE WAS PLACED ON THE DECISION OF THE CO-ORDINATE BENCH DECISION IN CASE OF M/S SESA RESOURCES LTD. (ITA NO. 267-PNJ-2015 DATED 20.08.2015). THE LD. CIT(A) HAS ALSO NOT DISPUTED THE NATURE OF COMMISSION PAYMENT WHICH HAV E BEEN MADE IN RESPECT OF SALES MADE OUTSIDE OF INDIA AS WELL AS THE EXHIB ITION AND TESTING EXPENSES. 25. SECTION 195 (1) PROVIDES THAT ANY PERSON RESPON SIBLE FOR PAYING TO A NON-RESIDENT, NOT BEING A COMPANY OR TO A FOREIGN C OMPANY, ANY INTEREST OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF TH IS ACT SHALL DEDUCT INCOME TAX THEREON AT THE RATES IN FORCE. THEREFORE, WHAT NEEDS TO BE EXAMINED IN THE INSTANT CASE IS WHETHER THE PAYMENT OF COMMISSION A ND OTHER CHARGES ARE CHARGEABLE UNDER THE PROVISIONS OF THIS ACT. IN EXP LANATION 2, IT HAS BEEN CLARIFIED THAT THE OBLIGATION TO COMPLY UNDER SUB-S ECTION (1) TO MAKE DEDUCTION APPLIES TO ALL PERSON RESIDENT OR NON-RESIDENT WHET HER OR NOT THE NON-RESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CO NNECTION IN INDIA OR ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER IN INDIA. ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 25 26. WE THEREFORE FIND THAT THE EXPLANATION 2 TO SEC TION 195 TALKS ABOUT THE PERSON WHO IS MAKING/CREDITING THE PAYMENT RATHER T HAN THE PERSON WHO IS RECEIVING THE PAYMENT AS THE OBLIGATION TO COMPLY W ITH SUB-SECTION (1) IS ON THE PERSON WHO HAS TO DEDUCT TAX AT SOURCE WHILE MA KING OR CREDITING THE PAYMENT TO THE ACCOUNT OF THE PAYEE. THE EXPLANATIO N PROVIDES THAT THE OBLIGATION TO DEDUCT TAX AT SOURCE APPLIES TO ALL P ERSONS BUT IT DOESNT AND CANNOT TAKE AWAY THE FUNDAMENTAL REQUIREMENT UNDER LAW WHICH IS THAT THE SUM HAS TO BE CHARGEABLE UNDER THE PROVISIONS OF TH E ACT AND THEREFORE, ONLY IN A SCENARIO, THE SUM IS CHARGEABLE UNDER THE ACT, TH E OBLIGATION IS CAST ON ALL PERSONS TO DEDUCT TAX AT SOURCE IRRESPECTIVE OF THE RESIDENTIAL STATUS OR BUSINESS CONNECTION OR PRESENCE IN INDIA. WE THERE FORE FIND THAT READING OF THE SAID EXPLANATION BY THE LOWER AUTHORITIES IS NOT CO RRECT AND ONLY IN A SCENARIO, THE PAYMENT IS CHARGEABLE TO TAX, THE TAX IS REQUIR ED TO BE DEDUCTED AT SOURCE. THE SAID POSITION HAS ALSO BEEN CLARIFIED IN THE ME MORANDUM EXPLAINING THE PROVISIONS OF THE FINANCE BILL, 2012 WHICH READS AS UNDER:- SECTION 195 OF THE INCOME-TAX ACT REQUIRES ANY PER SON TO DEDUCT TAX AT SOURCE BEFORE MAKING PAYMENTS TO A NON-RESIDENT IF THE INCOME OF THE SUCH NON-RESIDENT IS CHARGEABLE TO TAX IN INDIA. P ERSON, HERE, WILL TAKE ITS MEANING FROM SECTION 2 AND WOULD INCLUDE ALL PE RSONS, WHETHER RESIDENT OR NON-RESIDENT. THEREFORE, A NON-RESIDENT PERSON IS ALSO REQUIRED TO DEDUCT TAX AT SOURCE BEFORE MAKING PAYM ENTS TO ANOTHER NON-RESIDENT, IF THE PAYMENT REPRESENTS INCOME OF T HE PAYEE NON- RESIDENT, CHARGEABLE TO TAX IN INDIA. THERE ARE NO OTHER CONDITIONS SPECIFIED IN THE ACT AND IF THE INCOME OF THE PAYEE NON-RESIDENT IS CHARGEABLE TO TAX, THEN TAX HAS TO BE DEDUCTED AT S OURCE, WHETHER THE PAYMENT IS MADE BY A RESIDENT OR A NON-RESIDENT. ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 26 27. FURTHER, REGARDING THE DECISION OF THE CO-ORDIN ATE BENCH IN CASE OF M/S SESA RESOURCES LTD (SUPRA) RELIED UPON BY THE ASSES SING OFFICER, WE FIND THAT THE SAME HAS BEEN SET ASIDE BY THE HONBLE BOMBAY H IGH COURT (TAX APPEAL NO. 11 OF 2016 DATED 07 TH MARCH, 2016) WHEREIN IT WAS HELD AS UNDER:- 8. WITH REGARD TO SUBSTANTIAL QUESTION OF LAW REFE RRED TO ABOVE, WE FIND THAT IN THE JUDGMENT OF THE LEARNED DIVISION B ENCH IN THE CASE OF GUJARAT RECLAIM & RUBBER PRODUCTS LTD (SUPRA) IT HA S BEEN, INTER ALIA, HELD THAT BEFORE EFFECTING DEDUCTION AT SOURCE ONE OF THE ASPECTS TO BE EXAMINED IS WHETHER SUCH INCOME IS TAXABLE IN TERMS OF THE INCOME TAX ACT. THIS ASPECT HAS NOT BEEN CONSIDERED BY LEARNED TRIBUNAL WHILE CONCLUDING THAT THE APPELLANT HAS COMMITTED A DEFAU LT IN NOT DEDUCTING THE TAX AT SOURCE. AS THE SAID LEARNED DIVISION BEN CH JUDGMENT WAS NOT AVAILABLE WHILE PASSING THE IMPUGNED ORDER BY THE L EARNED TRIBUNAL, WE FIND IT APPROPRIATE, IN THE INTEREST OF JUSTICE, TO QUASH AND SET ASIDE THE IMPUGNED ORDER OF THE LEARNED TRIBUNAL TO THE EXTEN T IT HOLDS THAT THE APPELLANT HAS DEFAULTED IN NOT DEDUCTING TAX AT SOU RCE AND REMAND THE MATTER TO THE LEARNED TRIBUNAL TO EXAMINE THE SAID ASPECT AFRESH IN THE LIGHT OF THE JUDGMENT OF THIS COURT AFTER HEARING T HE PARTIES IN ACCORDANCE WITH LAW. ALL CONTENTIONS ON THAT COUNT ARE KEPT OP EN. 28. NOW COMING TO THE PROVISIONS OF SECTION 40(A)(I A) OF THE ACT, THE SAID SECTION ALSO PROVIDES THAT ANY INTEREST, ROYALTY, F EES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER THIS ACT ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED O R AFTER DEDUCTION HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SE CTION 139(1) OF THE ACT. WE THEREFORE FIND THAT BOTH THE PROVISIONS OF SECTION 195(1) AS WELL AS 40(A)(IA) OF THE ACT TALKS ABOUT DEDUCTION OF TAX AT SOURCE WHER E THE SUM IS CHARGEABLE UNDER THIS ACT. ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 27 29. THE TAXABILITY OF COMMISSION PAYMENT HAS RECENT LY BEEN EXAMINED BY THE CO-ORDINATE BENCH IN CASE OF SATYAM POLYPLAST VS. D CIT, JAIPUR (SUPRA) WHEREIN IT WAS HELD AS UNDER:- ONCE THE PAYMENT IN QUESTION IS COMMISSION THEN TH E PROVISIONS OF SECTION 40 (A)(I) OF THE ACT ARE APPLICABLE ONLY IF SUCH SUM I S CHARGEABLE TO TAX UNDER THIS ACT. AS PER PROVISIONS OF SECTION 5(2) OF THE ACT T HE TOTAL INCOME OF NON- RESIDENT INCLUDES ALL INCOME FROM WHATSOEVER SOURCE S DERIVED WHICH IS RECEIVED OR DEEMED TO BE RECEIVED IN INDIA ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA DURING SUCH YEAR. FOR READY R EFERENCE WE QUOTE TO SECTION 5(2) REPRODUCED AS UNDER:- 5 (2) SUBJECT TO 11 THE PROVISIONS OF THIS ACT, THE TOTAL INCOME 12 OF ANY PREVIOUS YEAR OF A PERSON WHO IS A NON-RESIDENT INC LUDES ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH (A ) IS RECEIVED 14 OR IS DEEMED TO BE RECEIVED IN INDIA IN SUCH YEAR B Y OR ON BEHALF OF SUCH PERSON ; OR (B ) ACCRUES OR ARISES 14 OR IS 14 DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA DURING SUCH YEAR. EXPLANATION 1.INCOME ACCRUING OR ARISING OUTSIDE I NDIA SHALL NOT BE DEEMED TO BE RECEIVED 14 IN INDIA WITHIN THE MEANING OF THIS SECTION BY REASON ONLY OF THE FACT THAT IT IS TAKEN INTO ACCOU NT IN A BALANCE SHEET PREPARED IN INDIA. EXPLANATION 2.FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT INCOME WHICH HAS BEEN INCLUDED IN THE TOTAL INCOME OF A PERSON ON THE BASIS THAT IT HAS ACCRUED 15 OR ARISEN 15 OR IS DEEMED TO HAVE ACCRUED 15 OR ARISEN 15 TO HIM SHALL NOT AGAIN BE SO INCLUDED ON THE BASIS THAT IT IS RECEIVED OR DEEMED TO BE RECEIVED BY HIM IN INDIA. THEREFORE, COMMISSION PAID TO NON-RESIDENT OUTSIDE INDIA FOR THE SERVICES RENDERED OUTSIDE INDIA WILL NOT FALL IN THE CATEGOR Y OF THE INCOME RECEIVED FOR DEEMED OR RECEIVED IN INDIA AS WELL AS ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE IN INDIA. THUS, THE SAID AMOUNT PAID TO NON-RESIDENT ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 28 DOES NOT FALL IN THE SCOPE OF TOTAL INCOME OF NON-R ESIDENT AND CONSEQUENTLY IT IS NOT CHARGEABLE TO TAX IN INDIA U NDER THE PROVISIONS OF THE ACT. EVEN OTHERWISE THE SAID INCOME IN THE HAND S OF NON-RESIDENT HAS TO BE CONSIDERED IN THE LIGHT OF THE PROVISIONS OF DTAA BETWEEN INDIA AND THE COUNTRY OF THE NON-RESIDENT. IN THE ABSENCE OF P.E. OF THE NON- RESIDENT IN INDIA SUCH BUSINESS INCOME IS NOT CHARG EABLE TO TAX IN INDIA. ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE WHEN THE AMOUNT PAID BY THE ASSESSEE IS NOT CHARGEABLE TO TAX IN IN DIA THEN THE ASSESSEE IS NOT LIABLE TO DEDUCT TDS AND CONSEQUENTLY THE PR OVISIONS OF SECTION 40(A)(I) OF THE ACT CANNOT BE INVOKED FOR MAKING TH E DISALLOWANCE. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE DISALLOWANC E MADE BY THE AO U/S 40(A)(I) OF THE ACT IS DELETED. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 30. IN THE PRESENT CASE, UNDISPUTED FACTS ARE THAT THE COMMISSION HAS BEEN PAID TO VARIOUS NON-RESIDENT ENTITIES IN RESPECT OF SALES AFFECTED BY THE ASSESSEE OUTSIDE OF INDIA, THE SERVICES HAVE BEEN R ENDERED OUTSIDE OF INDIA AND THE PAYMENTS HAVE BEEN MADE OUTSIDE OF INDIA. IN LIGHT OF THESE UNDISPUTED FACTS, THE LEGAL PROPOSITION LAID DOWN I N THE AFORESAID DECISION EQUALLY APPLIES IN THE INSTANT CASE AND SUCH COMMIS SION PAYMENT CANNOT BE HELD CHARGEABLE TO TAX IN INDIA. SIMILARLY THE EXH IBITION EXPENSES HAVE BEEN PAID IN RESPECT OF PARTICIPATION IN VARIOUS EXHIBIT IONS HELD OUTSIDE OF INDIA AND EVEN THE TESTING CHARGES HAVE BEEN PAID FOR TESTING SERVICES OUTSIDE OF INDIA. THEREFORE, THESE PAYMENTS WILL NOT FALL IN THE CATE GORY OF INCOME WHICH HAS ACCRUED OR ARISEN OR DEEMED TO ACCRUED OR ARISE IN INDIA. FURTHER, PAYMENTS HAVE BEEN MADE OUTSIDE OF INDIA. ACCORDINGLY, WE AR E OF THE CONSIDERED VIEW THAT THERE WAS NO LIABILITY TO DEDUCT TAX AT SOURCE U/S 195(1) AS THESE PAYMENTS ARE NOT CHARGEABLE TO TAX AND THE PROVISIONS OF SEC TION 40(A)(IA) CANNOT BE INVOKED IN THE INSTANT CASE. ITA NO. 1494/JP/2018 & 23/JP/2019 M/S JLC ELECTROMET PVT. LTD., JAIPUR VS. ACIT, CIRC LE-04, JAIPUR 29 31. IN LIGHT OF ABOVE DISCUSSIONS AND AND CONSIDERI NG THE ENTIRETY OF FACTS AND CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE MAD E BY THE ASSESSING OFFICER IS DIRECTED TO BE DELETED. 32. NOW, COMING TO ITA NO. 23/JP/19 FOR AY 2014-15, UNDISPUTEDLY, THE FACTS AND CIRCUMSTANCES OF THE CASE ARE EXACTLY IDENTICAL TO FACTS AND CIRCUMSTANCES OF THE CASE IN ITA NO. 1494/JP/2018, OUR FINDINGS A ND DIRECTIONS CONTAINED THEREIN SHALL APPLY MUTATIS MUTANDIS TO THIS APPEAL. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESS EE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04/09/2019. SD/- SD/- FOT; IKY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 04/09/2019 * GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S JLC ELECTROMET PVT. LTD., JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- ACIT, CIRCLE-04, JAIPUR 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 1499/JP/2018 & 23/JP/2019} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR