M/s. Bengal Tea & Fabrics Ltd., Kolkata V. DCIT, Circle-4, Kolkata, Kolkata

ITA 1667/KOL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1440 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 19-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S JHAJHARIA AR SHRI ARI
• Assessee Lawyers: T VARKEY JUDIC IA L M EMBER
• Keywords: Capital asset; Double taxation relief; Deemed to accrue or arise in india; Retrospective amendment; Advance ruling; Non-deduction of tax
• Section: 143(3); 5(2)

Judgement Text

, D , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH D KOLKATA BEFORE SHRI ABY.T VARKEY, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 1667 / KOL / 2016 ASSESSMENT YEAR :2012-13 M/S BENGAL TEA & FABRICS LTD., CENTURY TOWERS , 4 TH FLOOR, 45, SHAKESPEARE SARANI, KOLKATA-17 [ PAN NO.AABCB 1006 D ] V/S . DCIT, CIRCLE-4, AAYAKAR BHAWAN, P-7, CHOWRINGHE SQUARE, KOLKADTA-69 /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI S. JHAJHARIA, AR /BY RESPONDENT SHRI ARINDAM BHATTACHERJEE, ADDL. CIT-DR /DATE OF HEARING 04-01-2018 /DATE OF PRONOUNCEMENT 28-02-2018 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-6, KOLKATA DAT ED 20.05.2016. ASSESSMENT WAS FRAMED BY DCIT, CIRCLE-4, KOLKATA U/ S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) VIDE HIS ORDER DATED 22.10.2014 FOR ASSESSMENT YEAR 2012-13 AND ASSESSEE HAS RAISED FOLLOWING GROUNDS:- 1. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT IS WHOLLY WRONG AND UNJUSTIFIED IN CONFIRMING THE ARBI TRARY DISALLOWANCE OF RS.15,42,693/- MADE IN THE ASSESSMENT U/S. 40(A)(IA ) OF THE I. TAX ACT ON A/C OF THE PAYMENT OF EXPORT COMMISSION MADE BY THE ASS ESSEE COMPANY TO TWO ITA NO.1667/KOL/2016 A.Y. 2012-13 M/S BENGAL TEA & FABRICS LTD. VS. DCI T, CIR-4, KOL. PAGE 2 NON-RESIDENT AGENTS FOR SERVICES RENDERED OUTSIDE I NDIA, IN RELATION TO EXPORT OF COTTON YARN, WITHOUT DEDUCTION OF TAX AT SOURCE U/S. 195 OF THE ACT. 2. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT IS WHOLLY WRONG AND UNJUSTIFIED IN CONFIRMING THE SAID DISALLOWANCE OF COMMISSION PAYMENT WITHOUT CONSIDERING THE FACTS AN D THE EXPLANATION OF THE ASSESSEE COMPANY THAT (I) THE NON-RESIDENT AGENTS H AD PROCURED THE EXPORT ORDERS FOR THE ASSESSEE OUTSIDE INDIA AND RENDERED THE REQUISITE SERVICES ALSO OUTSIDE INDIA TO EARN THE SAID COMMISSION AND (II) THOSE AGENTS HAD NO BUSINESS PLACE / ESTABLISHMENT / CONNECTION IN INDI A AND (III) THE COMMISSION PAYABLE / PAID TO THEM CANNOT BE DEEMED TO HAVE ACC RUED AND ARISEN IN INDIA THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA. 3. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT IS WHOLLY WRONG AND UNJUSTIFIED IN CONFIRMING THE SAID DISALLOWANCE OF COMMISSION PAYMENT ON A WRONG IMPRESSION BASED ON M ERE ASSUMPTION AND PRESUMPTION THAT THE EXPORT ORDERS PROCURED BY THE NON-RESIDENT AGENTS WERE EXECUTED BY THE ASSESSEE COMPANY IN INDIA AND AS SU CH THE COMMISSION AMOUNT PAYABLE BY THE ASSESSEE TO THE NON-RESIDENT AGENTS SHALL BE DEEMED TO HAVE ACCRUED AND ARISEN TO THEM ONLY IN INDIA. 4. FOR THAT YOUR PETITIONER CRAVES THE RIGHT TO PUT ADDITIONAL GROUNDS AND / OR TO ALTER / AMEND / MODIFY THE PRESENT GROUNDS BEFORE O R AT THE TIME OF HEARING. SHRI S. JHAJHARIA, LD. AUTHORIZED REPRESENTATIVE AP PEARED ON BEHALF OF ASSESSEE AND SHRI ARINDAM BHATTTACHERJEE, LD. DEPAR TMENTAL REPRESENTATIVE APPEARED ON BEHALF OF REVENUE. 2. THE INTERCONNECTED ISSUE RAISED BY THE ASSESSEE IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF ASSESSING OFFICER BY SUSTAINING THE DISALLOWANCE OF 15,42,693/- ON ACCOUNT OF NON-DEDUCTION OF TAX DED UCTED AT SOURCE (TDS) U/S 195 R.W.S 40(A)(IA) OF THE ACT. 3. BRIEFLY, STATED FACTS ARE THAT ASSESSEE IN THE P RESENT CASE IS A LIMITED COMPANY AND ENGAGED IN MANUFACTURING TEA, CLOTH AND YARN. THE ASSESSEE DURING THE YEAR INTER ALIA HAS PAID COMMISSION TO T HE PARTIES BASED ON HONG KONG AS DETAILED UNDER:- SL. NAME OF PARTY AMOUNT 1. SINO SHINY INTERNATIONAL LTD. 13,96,245 2. KORETEKS CO.LTD 1,46,448 15,42,693 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO OBS ERVED THAT THERE WAS NO DTAA WITH HONG KONG AND THEREFORE COMMISSION IN THE HANDS OF FOREIGN PARTIES WERE TAXABLE IN INDIA IN PURSUANCE TO PROVI SION OF SECTION 5(2)(B) R.W.S 9(1)(I) OF THE ACT. ACCORDINGLY, ASSESSEE WAS UNDER OBLIGATION TO DEDUCT THE ITA NO.1667/KOL/2016 A.Y. 2012-13 M/S BENGAL TEA & FABRICS LTD. VS. DCI T, CIR-4, KOL. PAGE 3 TDS ON THE AMOUNT OF COMMISSION PAID TO THE AFORES AID PARTIES BUT ASSESSEE FAILED TO DO SO. THEREFORE, AO DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF ASSESSEE. 3. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT COMMISSIO N WAS PAID TO VARIOUS PARTIES IN CONNECTION WITH DIRECT EXPORTS TO THE PA RTIES REFERRED BY THEM. THE SERVICES WERE RENDERED BY THESE AGENTS FROM THEIR R ESPECTIVE COUNTRIES. THEREFORE, THE COMMISSIONS EARNED BY THEM WERE NOT CHARGEABLE TO TAX AND CONSEQUENTLY THERE WAS NO LIABILITY TO DEDUCT THE T AX U/S 195 OF THE ACT. MOREOVER, THE COMMISSION WAS PAID TO ALL AGENTS IN TERMS OF FOREIGN CURRENCY. NONE OF THE AGENTS HAS PLACE OF BUSINESS IN INDIA A ND BUSINESS CONNECTION IN INDIA. THE AO RELIED UPON THE DECISION OF AAR IN TH E CASE OF SKF BOILERS AND DRIERS PVT. LTD. (2012) 343 ITR 385 WAS RENDERED IN RELATION TO OPIN ION OF THE ADVANCE RULING AUTHORITY. SUCH OPINION OF ADVANCE R ULING AUTHORITY IS BINDING ON THE CONCERNED PARTY WHICH SOUGHT SUCH OPINION. T HE ASSESSEE ALSO SUBMITTED THAT THE PROVISION OF SECTION 5(2)(B) R.W .S. 9(1)(I) AS RELIED BY THE AO ARE NOT APPLICABLE TO THE INSTANT FACTS OF THE CASE AS THE PARTY HAD NO BUSINESS CONNECTION, PROPERTY IN INDIA OR NO SOURCE OR INCOM E LIABLE TO TAX IN INDIA. HOWEVER, LD. CIT(A) DISREGARDED THE CONTENTION OF A SSESSEE CONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER:- 5.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE APPELLANTS SUBMISSION. THE FACTS ARE NOT DISPUTED. THE APPELLANT PAID TOTA L COMMISSION OF RS.15,42,673/- TO NON-RESIDENT AGENTS WITHOUT DEDUC TING TAX AT SOURCE. IT IS THE APPELLANTS CASE THAT THE GENTS DO NOT HAVE ANY PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA. THE COMMISSION PAID T O THEM CANNOT BE DEEMED TO ACCRUE OR ARISE IN INDIA WITHIN THE MEANI NG OF SECTION 9(1)(I) OF THE ACT. THE AO RELIED UPON THE DECISION OF AAR IN THE CASE OF SKF BOILERS AND DRIERS PVT. LTD. (2012) 343 ITR 385 IN WHICH IT HAS BEEN HELD AS UNDER:- IT IS THE APPELLANTS CONTENTION THAT THE AGENTS H AVE RENDERED SERVICES ABROAD AND WOULD BE ENTITLED TO RECEIVE COMMISSION ABROAD FOR THE SERVICES RENDERED TO FOREIGN CLIENTS OF THE APPLICA NT. AS THE SERVICES ARE RENDERED OUTSIDE INDIA, AND THE PAYMENT IS RECE IVABLE BY THE AGENTS ABROAD NO INCOME WOULD ARISE UNDER THE PROVI SIONS OF SECTION 5(2)(B) READ WITH SECTION 9(1) OF THE ACT. SECTION 5(2)(B) DEALS WITH THE SCOPE OF TOTAL INCOME WHEREBY THE INCOME OF A NON-R ESIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED, WHICH ACCR UES OR ARISES OR IS ITA NO.1667/KOL/2016 A.Y. 2012-13 M/S BENGAL TEA & FABRICS LTD. VS. DCI T, CIR-4, KOL. PAGE 4 DEEMED TO ACCRUE OR ARISE IN INDIA DURING SUCH PREV IOUS YEAR. UNDER SECTION 9(1)(I), INCOME ACCRUING OR ARISING DIRECTL Y OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA OR SOURCE OF INCOME IN INDIA SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA. WE ARE CONCERNED WITH THE SOURCE OF INCOME OF THE TWO NON-RESIDENT AGENTS WHO HAD EARNED COMMISSION FROM THE BUSINESS ACTIVITY OF THE APPLIC ANT. SECTION 5 AND 9 OF THE ACT THUS PROCEED ON THE ASSUMPTION THAT INCO ME HAS A SITUS AND THE SITUS HAS TO BE DETERMINED ACCORDING TO THE GEN ERAL PRINCIPLES OF LAW. THE WORDS ACCRUE OR ARISE OCCURRING IN SECTION 5 HAVE MORE OR LESS A SYNONYMOUS SENSE AND INCOME IS SAID TO ACCRU E OR ARISE WHEN THE RIGHT TO RECEIVE IT COMES INTO EXISTENCE. NO DO UBT THE AGENTS RENDERED SERVICES ABROAD AND HAVE SOLICITED ORDERS, BUT THE RIGHT TO RECEIVE THE COMMISSION ARISES IN INDIA WHEN THE ORD ER IS EXECUTED BY THE APPLICANT IN INDIA. THE FACT THAT THE AGENTS HA VE RECEIVED RENDERED SERVICES ABROAD IN THE FORM OF SOLICITING THE ORDER S AND THE COMMISSION IS TO BE REMITTED TO THEM ABROAD ARE WHOLLY IRRELEV ANT FOR THE PURPOSE OF DETERMINING THE SITUS OF THEIR INCOME. WE FOLLOW TH E RULING OF THIS AUTHORITY IN RAJIVE MALHOTRA, IN RE [2006] 284 ITR 564 / 155 TAXMAN 101 (DELHI). WE THEREFORE HOLD THAT THE INCOME ARIS ING ON ACCOUNT OF COMMISSION PAYABLE TO THE TWO AGENTS IS DEEMED TO A CCRUE AND ARISE IN INDIA, AND IS TAXABLE UNDER THE ACT IN VIEW OF T HE SPECIFIC PROVISION OF SECTION 5(2)(B) READ WITH SECTION 9(1)(I) OF THE AC T. THE PROVISION OF SECTION 195 WOULD APPLY, AND THE RATE OF TAX WILL B E AS PROVIDED UNDER THE FINANCE ACT FOR THE RELEVANT YEAR. THE FACTS OF THE INSTANT CASE ARE SIMILAR. THE APPE LLANT HAS STATED THAT THE CASE IS NOT A BINDING PRECEDENT, BUT AS THE FACTS A RE SIMILAR, THE RULING, DEFINITELY, HAS A PERSUASIVE VALUE. THE CIRCULAR 78 6 DATED 02/02/2007 AND CIRCULAR 23 DATED 23.07.1969 OF THE BOARD RELIED UP ON BY THE APPELLANT HAVE NOW BEEN WITHDRAWN BY CBDT VIDE CIRCULAR NO. 7 OF 2 009 DATED 221.10.2009. THE APPELLANT HAS PAID COMMISSION TO THE NON-RESIDE NT AGENTS WHICH HAVE ARISEN ONLY WHEN THE ORDERS PROCURED BY THEM WERE E XECUTED IN INDIA. THUS, THE COMMISSION INCOME HAS ARISEN IN INDIA. AS MENTI ONED BY THE ASSESSING OFFICER, THERE IS NO DTAA BETWEEN INDIA AND HONG KO NG, THE COUNTRY OF RESIDENT OF THE AGENTS. IN THE JUDGEMENT OF HON'BLE SUPREME COURT IN THE CASE OF CARBORANDUM CO. V CIT (1978) (108 ITR 335 (SC) R ELIED UPON BY THE APPELLANT, THE FACTS WERE DIFFERENT. THE ASSESSEE C OMPANY HAD BEEN PAID TECHNICAL FEE BY AN INDIAN COMPANY FOR MAKING SERVI CES OF FOREIGN PERSONNEL AVAILABLE TO INDIAN COMPANY OUTSIDE TAXABLE TERRITO RY. IT WAS HELD THAT THE SERVICE RENDERED BY THE ASSESSEE IN THAT CONNECTION WAS WHOLLY AND SOLELY RENDERED IN THE FOREIGN TERRITORY. HENCE, ITS INCOM E COULD NOT BE DEEMED TO ACCRUE OR ARISE IN INDIA. THE CASE OF THE APPELLANT IS DIFFERENT AS THE COMMISSION INCOME HAS ARISEN ONLY ON EXECUTION OF T HE ORDERS IN INDIA. IN THE DECISION OF ITAT IN THE CASE OF GUJRAT RECLAIMS RU BBER PRODUCTS LTD. RELIED UPON BY THE APPELLANT, THE DATE OF COMMISSION PAYME NT WAS PRIOR TO THE DATE OF WITHDRAWAL OF THE AFORESAID CIRCULAR NO 786 AND CIRCULAR NO. 23 BY CIRCULAR NO 7 DATED 22.10.209. MOREOVER, EXPLANATION 2 TO SECTI ON 195 INTRODUCED WITH RETROSPECTIVE EFFECT FROM 01.04.1962 CLARIFIES THAT S THE OBLIGATION TO MAKE DEDUCTION UNDER SUB-SECTION (1) OF SECTION 195 SHAL L BE DEEMED TO HAVE ITA NO.1667/KOL/2016 A.Y. 2012-13 M/S BENGAL TEA & FABRICS LTD. VS. DCI T, CIR-4, KOL. PAGE 5 ALWAYS APPLIED AND EXTENDED TO ALL PERSONS, RESIDEN T OR NON-RESIDENT, WHETHER OR NOT THE NON-RESIDENT PERSONS HAS (I) A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CO NNECTION IN INDIA; OR (II) ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER IN INDIA. THUS, THE APPELLANT CANNOT ESCAPE ITS LIABILITY TO DEDUCT TAX MERELY FOR THE REASON THAT THE NON-RESIDENT AGENTS HAVE NO RESIDEN CE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA. AS THE COMMISSION HAS ARISEN ONLY ON EXECUTION OF ORDERS IN INDIA, THE INCOME FROM COMMISSION IS D EEMED TO ARISE IN INDIA. I, THEREFORE, HOLD THAT THE APP WAS LIABLE TO DEDUCT T AX AT SOURCE ON THE PAYMENT OF COMMISSION OF RS.15,42,763/- AND HAVING FAILED T O DO, IS NOT ELIGIBLE FOR DEDUCTION OF SAME IN VIEW OF PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. HENCE, THE DISALLOWANCE OF RS.15,42,763/- U/S. 40(A)(IA)IS CONFIRMED. AGGRIEVED BY THIS, THE ASSESSEE HAS COME UP IN APPE AL BEFORE US. 4. LD. AR FOR THE ASSESSEE REITERATED THE SAME SUBM ISSIONS THAT WERE MADE BEFORE LD. CIT(A) AND RELIED ON THE ORDER OF D ELHI ITAT IN THE CASE OF DIVYA CREATION VS. ACIT IN ITA NO. 5603/DEL/2014. ON THE OTHER HAND, LD. DR VEHEMENTLY RELIED ON THE ORDER OF AUTHORITIES BELOW. 5. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, ASSESSEE HAS MADE PAYMENT TO VARIOUS AGENTS BASED IN FOREIGN COUNTRIES ON ACC OUNT OF EXPORT MADE TO THE PARTIES REFERRED BY THEM AND NO ADDITION WAS MADE I N RESPECT OF THOSE PARTIES BASED IN THE COUNTRY OTHER THAN HONG KONG IN VIEW O F THE FACT THAT THERE WAS DTAA WITH THOSE COUNTRIES. HOWEVER, AO WAS OF THE V IEW THAT THE PAYMENT MADE TO THE FOREIGN AGENTS BASED ON HONG KONG WAS M ADE WITHOUT DEDUCTING TDS U/S 195 OF THE ACT. AS PER THE AO ASSESSEE WAS LIABLE TO DEDUCT TDS ON SUCH PAYMENT OF COMMISSION DUE TO THE FACT THAT THE RE WAS NO DTAA WITH HONG KONG. THE VIEW TAKEN BY AO WAS SUBSEQUENTLY CO NFIRMED BY LD. CIT(A). AT THIS JUNCTURE, WE FIND IMPORTANT AND REL EVANT TO REPRODUCE THE PROVISION OF SECTION 195 OF THE ACT WHICH READS AS UNDER :- OTHER SUMS. 71 195. 72 [(1) 73 ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT , NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY INTEREST 74 [***] OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT (NOT BE ING INCOME CHARGEABLE ITA NO.1667/KOL/2016 A.Y. 2012-13 M/S BENGAL TEA & FABRICS LTD. VS. DCI T, CIR-4, KOL. PAGE 6 UNDER THE HEAD SALARIES 75 [***]) 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 ANY OTHER MODE, WH ICHEVER IS EARLIER, DEDUCT INCOME-TAX THEREON AT THE RATES IN FORCE : A PLAIN LOOK AT THE ABOVE STATUTORY PROVISION MAKES IT CLEAR THAT THE ASSESSEE IS LIABLE TO DEDUCT TDS ON THE PAYMENT TO NON RESID ENTS ON ANY SUM CHARGEABLE UNDER THE PROVISION OF THIS ACT. NOW, TH E QUESTION AROSE WHETHER PAYMENT MADE TO THE FOREIGN AGENT BASED IN HONG KON G IS CHARGEABLE TO TAX IN INDIA. FOR THIS PURPOSE, WE NEED TO REFER THE PR OVISION OF SEC. 5(2) OF THE ACT WHICH READS AS UNDER:- SCOPE OF TOTAL INCOME. 47 5. 48 (1) SUBJECT TO 49 THE PROVISIONS OF THIS ACT, THE TOTAL INCOME 49 OF ANY PREVIOUS YEAR OF A PERSON WHO IS A RESIDENT INCLUDE S ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH XXXXXXXXXXXXXXX (2) SUBJECT TO 49 THE PROVISIONS OF THIS ACT, THE TOTAL INCOME 49 OF ANY PREVIOUS YEAR OF A PERSON WHO IS A NON-RESIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH (A) IS RECEIVED 50 OR IS DEEMED TO BE RECEIVED 50 IN INDIA IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON ; OR (B) ACCRUES 50 OR ARISES 50 OR IS DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA DU RING SUCH YEAR. IT IS BEYOND DOUBT THE PAYMENT FOR THE COMMISSION W AS NOT RECEIVED BY THE FOREIGN AGENTS IN INDIA. THEREFORE, THE SAME CANNOT BE TAXED IN INDIA AS PER CLAUSE (A) OF SUB-SECTION (2) OF SECTION 5 OF THE A CT. SIMILARLY, WE FURTHER NOTE THAT THE INCOME WAS RECEIVED BY THE FOREIGN AGENTS ON ACCOUNT OF SERVICES RENDERED BY THEN IN THEIR RESPECTIVE COUNTRIES. THE REFORE, WE CONCLUDE THAT SUCH INCOME HAS NOT ACCRUED OR ARISEN IN INDIA AND CONSEQUENTIAL NOT CHARGEABLE TO TAX IN INDIA. NOW COMING TO THE FACT THAT WHETHER SUCH COMMISSION INCOME BY THE FOREIGN AGENTS WERE DEEMED TO ACCRUE OR ARISE IN INDIA IN TERMS OF PROVISION OF SECTION 9 OF THE ACT, WHICH READS AS UNDER:- INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. 65 9. 66 (1) THE FOLLOWING INCOMES SHALL BE DEEMED 67 TO ACCRUE OR ARISE IN INDIA : ITA NO.1667/KOL/2016 A.Y. 2012-13 M/S BENGAL TEA & FABRICS LTD. VS. DCI T, CIR-4, KOL. PAGE 7 68 (I) ALL INCOME ACCRUING OR ARISING, WHETHER DIRECT LY OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION 69 IN INDIA, OR THROUGH OR FROM ANY PROPERTY 69 IN INDIA, OR THROUGH OR FROM ANY ASSET OR SOURCE O F INCOME IN INDIA, 70 [* * *] OR THROUGH THE TRANSFER OF A CAPITAL ASSET SITUATE IN INDIA. 71 [EXPLANATION 1].FOR THE PURPOSES OF THIS CLAUSE (A) IN THE CASE OF A BUSINESS OF WHICH ALL T HE OPERATIONS 72 ARE NOT CARRIED OUT IN INDIA, THE INCOME OF THE BUSINESS DEEMED UND ER THIS CLAUSE TO ACCRUE OR ARISE IN INDIA SHALL BE ONLY SUCH PART OF THE INCOME AS IS REASONABLY ATTRIBUTABLE TO THE OPERATIONS 72 CARRIED OUT IN INDIA ; (B) IN THE CASE OF A NON-RESIDENT, NO INCOME SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA TO HIM THROUGH OR FROM OPERATIONS WH ICH ARE CONFINED TO THE PURCHASE OF GOODS IN INDIA FOR THE PURPOSE OF E XPORT ; 73 [* * *] 74 [(C) IN THE CASE OF A NON-RESIDENT, BEING A PERSON ENGAGED IN THE BUSINESS OF RUNNING A NEWS AGENCY OR OF PUBLISHING NEWSPAPER S, MAGAZINES OR JOURNALS, NO INCOME SHALL BE DEEMED TO ACCRUE OR AR ISE IN INDIA TO HIM THROUGH OR FROM ACTIVITIES WHICH ARE CONFINED TO TH E COLLECTION OF NEWS AND VIEWS IN INDIA FOR TRANSMISSION OUT OF INDIA ;] FROM THE ABOVE PROPOSITION, WE FIND THAT INCOME SHA LL BE DEEMED TO ACCRUE OR ARISE IN INDIA IF IT FULFILS ANY OF THE CONDITIONS :- I) BUSINESS CONNECTION IN INDIA; OR II) FROM ANY PROPERTY IN INDIA; OR III) FROM ANY ASSET OR SOURCE OF INCOME IN INDIA OR IV) TRANSFER OF CAPITAL ASSET SITUATED IN INDIA FROM THE ABOVE, WE NOTE THAT THE CASE OF ASSESSEE I S NOT FALLING IN ANY OF THE CATEGORY AS DISCUSSED ABOVE. SIMILARLY, IT IS NOT THE CASE OF REVENUE THAT PAYME NT WAS MADE BY ASSESSEE ON ACCOUNT OF TECHNICAL SERVICES RENDERED BY THE FO REIGN AGENTS. THEREFORE, IN OUR CONSIDERED VIEW, ASSESSEE WAS NOT LIABLE TO DED UCT TDS U/S 195 OF THE ACT. IN HOLDING SO, WE FIND SUPPORT AND GUIDANCE FR OM THE JUDGMENT OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. FARIDA LEATHER CO. REPORTED IN 66 TAXMAN.COM 321 (MAD) WHEREIN IT WAS HELD AS UNDER:- 9.2 THE UNDERLYING PRINCIPLE IS THAT, THE TAX WITHHOLD ING LIABILITY OF THE PAYER IS INHERENTLY A VICARIOUS LIABILITY ON BEHALF OF THE R ECIPIENT AND THEREFORE, WHEN THE RECIPIENT / FOREIGN AGENT DOES NOT HAVE THE PRI MARY LIABILITY TO BE TAXED IN RESPECT OF INCOME EMBEDDED IN THE RECEIPT, THE VICA RIOUS LIABILITY OF THE PAYER TO DEDUCT TAX DOES NOT ARISE. THIS VICARIOUS TAX WI THHOLDING LIABILITY CANNOT BE INVOKED, UNLESS PRIMARY TAX LIABILITY OF THE RECIPI ENT / FOREIGN AGENT IS ESTABLISHED. IN THIS CASE, THE PRIMARY TAX LIABILIT Y OF THE FOREIGN AGENT IS NOT ITA NO.1667/KOL/2016 A.Y. 2012-13 M/S BENGAL TEA & FABRICS LTD. VS. DCI T, CIR-4, KOL. PAGE 8 ESTABLISHED. THEREFORE, THE VICARIOUS LIABILITY ON THE PART OF THE ASSESSEE TO DEDUCT THE TAX AT SOURCE DOES NOT EXIST. WE ALSO FIND SUPPORT AND GUIDANCE FROM THE ORDER OF ITAT AHMEDABAD BENCH IN THE CASE OF DCIT (INTERNATIONAL TAXATION) VS. WELSPUN CORPORATI ON LTD., REPORTED IN 77 TAXMANN.COM 165 (AHD), WHEREIN IT WA S HELD AS UNDER;- 33. THERE ARE A COUPLE OF RULINGS BY THE AUTHORITY FOR ADVANCE RULING, WHICH SUPPORT TAXABILITY OF COMMISSION PAID TO NON-RESIDE NTS UNDER SECTION 9(1)(I), BUT, NEITHER THESE RULINGS ARE BINDING PRECEDENTS F OR US NOR ARE WE PERSUADED BY THE LINE OF REASONING ADOPTED IN THESE RULINGS. AS FOR THE AAR RULING IN THE CASE OF SKF BOILERS & DRIERS (P.) LTD. IN RE [2012] 343 ITR 385/206 TAXMAN 19/18 TAXMANN.COM 325 (AAR - NEW DELHI) , WE FIND THAT THIS DECISION MERELY FOLLOWS THE EARLIER RULING IN THE CASE OF RAJIV MAL HOTRA, IN RE [2006] 284 ITR 564/155 TAXMAN 101 (AAR - NEW DELHI) WHICH, IN OUR CONSIDERED VIEW, DOES NOT TAKE INTO ACCOUNT THE IMPACT OF EXPLANATION 1 T O SECTION 9(1)(I) PROPERLY. THAT WAS A CASE IN WHICH THE NON-RESIDENT COMMISSIO N AGENT WORKED FOR PROCURING PARTICIPATION BY OTHER NON-RESIDENT ENTIT IES IN A FOOD AND WINE SHOW IN INDIA, AND THE CLAIM OF THE ASSESSEE WAS THAT SI NCE THE AGENT HAS NOT CARRIED OUT ANY BUSINESS OPERATIONS IN INDIA, THE C OMMISSION AGENT WAS NOT CHARGEABLE TO TAX IN INDIA, AND, ACCORDINGLY, THE A SSESSEE HAD NO OBLIGATION TO DEDUCT TAX AT SOURCE FROM SUCH COMMISSION PAYMENTS TO THE NON-RESIDENT AGENT. ON THESE FACTS, THE AUTHORITY FOR ADVANCE RU LING, INTER ALIA, OPINED THAT 'NO DOUBT THE AGENT RENDERS SERVICES ABROAD AND PUR SUES AND SOLICITS EXHIBITORS THERE IN THE TERRITORY ALLOTTED TO HIM, BUT THE RIGHT TO RECEIVE THE COMMISSION ARISES IN INDIA ONLY WHEN EXHIBITOR PART ICIPATES IN THE INDIA INTERNATIONAL FOOD & WINE SHOW (TO BE HELD IN INDIA ), AND MAKES FULL AND FINAL PAYMENT TO THE APPLICANT IN INDIA' AND THAT 'THE CO MMISSION INCOME WOULD, THEREFORE, BE TAXABLE UNDER SECTION 5(2)(B) READ WI TH SECTION 9(1)(I) OF THE ACT'. THE AUTHORITY FOR ADVANCE RULING ALSO HELD THAT 'TH E FACT THAT THE AGENT RENDERS SERVICES ABROAD IN THE FORM OF PURSUING AND SOLICITING PARTICIPANTS AND THAT THE COMMISSION IS REMITTED TO HIM ABROAD ARE W HOLLY IRRELEVANT FOR THE PURPOSE OF DETERMINING SITUS OF HIS INCOME'. WE DO NOT CONSIDER THIS APPROACH TO BE CORRECT. WHEN NO OPERATIONS OF THE BUSINESS O F COMMISSION AGENT IS CARRIED ON IN INDIA, THE EXPLANATION 1 TO SECTION 9 (1)(I) TAKES THE ENTIRE COMMISSION INCOME FROM OUTSIDE THE AMBIT OF DEEMING FICTION UNDER SECTION 9(1)(I), AND, IN EFFECT, OUTSIDE THE AMBIT OF INCOM E 'DEEMED TO ACCRUE OR ARISE IN INDIA' FOR THE PURPOSE OF SECTION 5(2)(B). THE P OINT OF TIME WHEN COMMISSION AGENT'S RIGHT TO RECEIVE THE COMMISSION FRUCTIFIES IS IRRELEVANT TO DECIDE THE SCOPE OF EXPLANATION 1 TO SECTION 9(1 )( I), WHICH IS WHAT IS MATERIAL IN THE CONTEXT OF THE SITUATION THAT WE ARE IN SEIS IN OF. THE REVENUE'S CASE BEFORE US HINGES ON THE APPLICABILITY OF SECTION 9( 1)(I) AND, IT IS, THEREFORE. IMPORTANT TO ASCERTAIN AS TO WHAT EXTENT WOULD THE RIGOUR OF SECTION 9(1)(I) BE RELAXED BY EXPLANATION 1 TO SECTION 9(1)(I). WHEN W E EXAMINE THINGS FROM THIS PERSPECTIVE, THE INEVITABLE CONCLUSION IS THAT SINC E NO PART OF THE OPERATIONS OF THE BUSINESS OF THE COMMISSION AGENT IS CARRIED OUT IN INDIA, NO PART OF THE INCOME OF THE COMMISSION AGENT CAN BE BROUGHT TO TA X IN INDIA. IN THIS VIEW OF THE MATTER, VIEWS EXPRESSED BY THE HON'BLE AAR, WHI CH DO NOT FETTER OUR INDEPENDENT OPINION ANYWAY IN VIEW OF ITS LIMITED B INDING FORCE UNDER S. 245S ITA NO.1667/KOL/2016 A.Y. 2012-13 M/S BENGAL TEA & FABRICS LTD. VS. DCI T, CIR-4, KOL. PAGE 9 OF THE ACT, DO NOT IMPRESS US, AND WE DECLINE TO BE GUIDED BY THE SAME. THE STAND OF THE REVENUE, HOWEVER, IS THAT THESE RULING S, BEING FROM SUCH A HIGH QUASI-JUDICIAL FORUM, EVEN IF NOT BINDING, CANNOT S IMPLY BE BRUSHED ASIDE EITHER, AND THAT THESE RULINGS AT LEAST HAVE PERSUA SIVE VALUE. WE HAVE NO QUARREL WITH THIS PROPOSITION. WE HAVE, WITH UTMOST CARE AND DEEPEST RESPECT, PERUSED THE ABOVE RULINGS RENDERED BY THE HON'BLE A UTHORITY FOR ADVANCE RULING. WITH GREATEST RESPECT, BUT WITHOUT SLIGHTES T HESITATION, WE HUMBLY COME TO THE CONCLUSION THAT WE ARE NOT PERSUADED BY THESE RULINGS. THE PRINCIPLES LAID DOWN IN THE ABOVE CITED JUDGMEN TS ARE SQUARELY APPLICABLE TO THE INSTANT FACTS OF THE CASE. THUS, IT CAN BE S AFELY CONCLUDED THAT ASSESSEE PAID COMMISSION TO FOREIGN AGENT IS NOT THE INCOME CHARGEABLE TO TAX IN INDIA. ONCE AN INCOME IS NOT CHARGEABLE TO TAX IN INDIA TH EN THE QUESTION OF DEDUCTING TDS UNDER THE PROVISION U/S 195 OF THE AC T DOES NOT ARISE. ACCORDINGLY, THE ORDER OF LD. CIT(A) IS SET ASIDE AND GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 6. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED ORDER PRONOUNCED IN THE OPEN COURT 28/ 02/2018 SD/- SD/- (ABY. T. VARKEY) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP #- 28 / 02 /201 8 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-M/S BENGAL TEA & FABRICS LTD., CENTURY TOWERS, 4 TH FLOOR, 45, SHAKESPEARE SARANI, KOLKATA-17 2. /RESPONDENT-DCIT, CIRCLE-4, AAYAKAR BHAWAN, P-7, CH OWRINGHEE SQ. KOL-69 3. / 0 / CONCERNED CIT KOLKATA 4. 0- / CIT (A) KOLKATA 5. 3 66/, /, / DR, ITAT, KOLKATA 6. 9 / GUARD FILE. BY ORDER/ , /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO /,