ACIT, CHENNAI V. ISIS Exports P Ltd., CHENNAI

ITA 1964/CHNY/2014

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8752 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 29-01-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 16-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Assessee Lawyers: MRS S SRIVIDYA
• Keywords: Double taxation relief; Services rendered outside India; Deemed to accrue or arise in india; Retrospective amendment
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . , . . , ! '# [BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI S. S. GODARA, JUDICIAL MEMBER] ./ I.T.A.NO.1963/MDS/2014 / ASSESSMENT YEAR : 2010-11 THE ASSTT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE II(3) CHENNAI VS. M/S INDIA SHOES EXPORTS P. LTD 151/4, MOUNT POONAMALLEE ROAD RAMAPURAM CHENNAI 600 030 [PAN AAACI 5683 A] ( $% / APPELLANT) ( &'$% /RESPONDENT) / APPELLANT BY : SHRI N. MADHAVAN, JCIT /RESPONDENT BY : MRS. S. SRIVIDYA, CA ./ I.T.A.NO.1964/MDS/2014 / ASSESSMENT YEAR : 2010-11 THE ASSTT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE II(3) CHENNAI VS. M/S ISIS EXPORTS P. LTD PLOT NO.96, I MAIN ROAD NEHRU NAGAR INDUSTRIAL ESTATE CHENNAI 600 096 [PAN AAACI 0846 H] ( $% / APPELLANT) ( &'$% /RESPONDENT) / APPELLANT BY : SHRI N. MADHAVAN, JCIT /RESPONDENT BY : SHRI R. SANKARANARAYANAN, CA I.T.A.NOS. 1963 & 1964/14 :- 2 -: / DATE OF HEARING : 29-01-2015 / DATE OF PRONOUNCEMENT : 04-02-2015 ( / O R D E R PER S.S.GODARA, JUDICIAL MEMBER THESE REVENUES APPEALS IN CASE OF DIFFERENT A SSESSEES FOR ASSESSMENT YEAR 2010-11, ARE DIRECTED AGAINST SEPAR ATE ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-II CHENNAI DAT ED 28.1.2014 AND 20.1.2014 PASSED IN APPEAL NOS. 1852/2013-14 AN D 1599/2013-14 DELETING DISALLOWANCE U/S 40(A)(I) OF ` 2,16,29,463 AND ` 78,54,319/- RESPECTIVELY, IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2. THE REVENUES IDENTICAL GROUNDS RAISED IN BOTH APP EALS READ AS UNDER: 2. THE LEARNED CIT(A) ERRED IN DELETING THE DISALL OWANCE U/S 40(A)(I) TO THE EXTENT OF RS. 78,54,319/- HOLDING T HAT THE ASSESSEE IS NOT LIABLE TO DEDUCT AT SOURCE ON THE 'EXPORT SA LES COMMISSION' PAYMENTS MADE TO THE NON RESIDENT U/S.195 OF THE AC T; 2.1 IT IS SUBMITTED THAT SECTION 40(A)(I) HAS BEEN AMENDED BY THE FINANCE ACT, 2004 AND W.E.F. 01.04.2005, AND ANY AM OUNT PAYABLE OUTSIDE INDIA OR IN INDIA TO A NON-RESIDENT, THEN S UCH PAYMENT MADE WITHOUT DEDUCTION OF TDS CANNOT BE ALL OWED AS A DEDUCTION WHILE COMPUTING THE PROFITS AND GAINS OF BUSINESS; 2.2 IT IS SUBMITTED THAT THE EXPLANATION 2 TO SEC.1 95 INSERTED BY THE FINANCE ACT, 2012 SPECIFICALLY STATES THAT THE INCOME OF A NON-RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CLAUSE (V) OR (VI) OR (VII) OF SUBSECTION (1) OF SE CTION (9) AND SHALL I.T.A.NOS. 1963 & 1964/14 :- 3 -: BE INCLUDED IN HIS TOTAL INCOME WHETHER OR NOT THE NON RESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA OR HAS RENDERED SERVICES IN INDIA; 2.3 THE LD CIT(A) OUGHT TO HAVE APPRECIATED THAT TH E DECISION OF THE APEX COURT IN THE CASE OF M/S. TRANSMISSION COR PORATION OF ANDHRA PRADESH REPORTED IN (239 ITR 589 (SC) CLEARL Y HELD THAT TDS SHOULD BE EFFECTED AT THE RATES IN FORCE, IF TH E AMOUNT IS PAID TO A NON-RESIDENT. THE RIGHTS OF THE PAYEE OR THE R ECIPIENT ARE FULLY SAFEGUARDED UNDER SECTIONS 195(2), 195(3) AND 197 O F THE ACT; 2.4 THE ID. CIT(A) FAILED TO APPRECIATE THE FACT THAT T HE ASSESSEE HAS NOT OBTAINED CERTIFICATE U/S.195(2) OF THE ACT TO BE EXEMPT FROM THE PURVIEW OF TDS AND HENCE THE AO HAS RIGHTL Y DISALLOWED THE OVERSEAS COMMISSIONER PAID TO FOREIGN AGENTS, U /S 40(A)(I) OF THE I.T. ACT; 2.5 IT IS SUBMITTED THAT AS PER EXPLANATION INSERTE D BY THE FINANCE ACT 2010 WITH RETROSPECTIVE EFFECT FROM 1 . 6.1976, PAYMENTS OF THIS NATURE ARE TAXABLE IN INDIA IRRESPECTIVE OF THE PE OF THE NON RESIDENT AND ALSO THE PLACE IN WHICH THE SERVICE WAS RENDERED; 2.6 THE ID. CIT (A) FAILED TO APPRECIATE THIS ISSUE IN THE LIGHT OF THE DTAA AS THE NATURE OF SERVICES THAT NEED TO SUFFER WITHHOLDING OF TAX SHOULD BE VIEWED DEPENDING UPON THE NATURE OF SERVI CES AND THE COUNTRY OF RESIDENCE OF THE NON RESIDENT; 2.7 IT IS SUBMITTED THAT THE DECISION OF THE HON'BL E ITAT IN ITA NO 359/MDS/2013 DT.11 . 04.2013 FOR AY 2008-09 IN THE CASE OF M/S FARIDA SHOES PVT LIMITED RELIED ON BY THE CITCA), H AS NOT REACHED FINALITY AND APPEALS BEFORE THE HON'BLE HIG H COURT IS PENDING. PARTIES INFORM US THAT THE SOLE IDENTICAL ISSUE I NVOLVED IN BOTH THESE CASES IS DELETION OF DISALLOWANCE U/S 40(A)(I )OF THE ACT THEREFORE, WE TREAT I.T.A.NO.1964/MDS/2014 IN CASE OF M/S ISIS EXPORTS(P) LTD. AS THE LEAD CASE. I.T.A.NOS. 1963 & 1964/14 :- 4 -: 3. THE ASSESSEE MANUFACTURES SHOE LEATHER SOCKS, HAN DBAGS AND KEY CHAINS. IT HAD FILED ITS RETURN ON 15.10.2 01 ADMITTING INCOME OF ` 13,19,550/-. THE SAME WAS SUMMARILY PROCESSED. THE ASSESSING OFFICER TOOK UP SCRUTINY. HE NOTICED F ROM THE ASSESSEES PROFIT AND LOSS ACCOUNT THE IMPUGNED SUM OF ` 78,54,319/- CLASSIFIED AS COMMISSION ON EXPORT SALES WITHOUT DE DUCTING TDS. THE SAID AGENTS ARE BASED IN ITALY, SPAIN, FRANCE AND G ERMANY. THE ASSESSING OFFICER SOUGHT TO INVOKE DISALLOWANCE U/ S 40(A)(I). THE ASSESSEE PLEADED THAT NO TDS WAS REQUIRED TO BE DED UCTED SINCE THE IMPUGNED EXPORT COMMISSION HAD NOT ACCRUED/ARISEN I N INDIA AS THE SERVICES HAD BEEN RENDERED IN FOREIGN SHORES. THE COMMISSION PAYMENTS WERE ALSO CLAIMED TO HAVE BEEN DIRECTLY RE MITTED. THE ASSESSING OFFICER DID NOT AGREE. HE WENT THROUGH T HE ASSESSEES AGREEMENTS WITH THE AFORESAID PAYEES AND OBSERVED T HAT THEY NOT ONLY SOURCED EXPORT ORDERS BUT ALSO IDENTIFIED ITS CUSTO MERS BASED ON MATTERS OF INTEREST IN THE TERRITORY QUA ITS PROD UCTS, PRICE LEVELS, COMPETITION, MARKET SITUATION AND RELATED SUITABLE FORECASTS REQUIRING SPECIAL TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL AND KNOW-HOW. HE REFERRED TO VARIOUS DOUBLE TAXATION AVOIDANCE AGREE MENTS (DTAAS) DEFINING FEE FOR TECHNICAL SERVICES. SECTION 9(1)( VII) PERTAINING TO FEE FOR TECHNICAL SERVICES WAS QUOTED. THE ASSESSING O FFICER OPINED IN I.T.A.NOS. 1963 & 1964/14 :- 5 -: LIGHT THEREOF THAT ASSESSEES EXPORT BUSINESS HAD TO BE CONSTRUED AS SOURCE FROM WHICH COMMISSION INCOME IN QUESTION IS EARNED AND THE SAME IS SITUATED IN INDIA. HE PROCEEDED ON THIS RE ASONING AND INVOKED SECTION 40(A)(I) TO DISALLOW THE IMPUGNED COMMISSIO N PAYMENTS OF ` 78,54,319/-. 4. THE CIT(A) HAS ACCEPTED THE ASSESSEES CORRESPONDI NG GROUND AS UNDER: 4.1.2 I HAVE CONSIDERED THE ASSESSEE'S SUBMISSION S AS WELL AS THE ORDERS OF THE HON'BLE ITAT IN THE CASES OF M/S. FAR IDA SHOES P LTD (ITA NO.159/MDS/2013 DATED 11.04.2013 FOR A.Y. 2008 -09) AND M/S. DELTA SHOES P LTD (ITA NO.909/MDS/2013 DATED 31.07. 2013) ETC. THE FACTS INVOLVED IN THE CASES OF M/S. FARIDA SHOES P LTD AND M/S. DELTA SHOES P LTD, ARE EXACTLY SIMILAR TO THOS E INVOLVED IN THE PRESENT ASSESSEE. IN THE SAID CASES (I.E. FARIDA SH OES P LTD AND DELTA SHOES P LTD) THE PAYMENTS MADE TO THE NON-RES IDENTS, WITHOUT MAKING TDS, WERE SIMILAR TO THOSE MADE BY THE PRESE NT ASSESSEE COMPANY. THE ASSESSING OFFICER DISALLOWED THE SAID PAYMENTS U/S.40(A)(I) FOR NON-DEDUCTION OF TDS U/S.195 OF TH E ACT. THE CIT(A) ALLOWED THE APPEALS OF THE SAID COMPANIES. THE REVE NUE PREFERRED AN APPEALS TO THE ITAT AGAINST THE ORDERS OF THE CIT(A ). THE HON 'BLE INCOME TAX APPELLATE TRIBUNAL OF CHENNAI, VIDE ITS ORDERS MENTIONED ABOVE, HAS HELD THAT THE SERVICES PROVIDED BY THE C ONCERNED NON- RESIDENTS NEITHER AMOUNTS TO MANAGERIAL / TECHNICA L SERVICES NOR THE PAYMENTS ARE ASSESSABLE TO TAX IN INDIA AND HENCE T HE PROVISIONS OF SEC.195 OF THE ACT ARE NOT APPLICABLE TO THE FACTS OF THE SAID COMPANIES. THE RELEVANT PORTION OF THE ORDER OF THE ITAT (IN ITA NO.159/MDS/2013 DATED 11.04.2013 FOR A.Y. 2008-09 I N THE CASE OF M/S. FARIDA SHOES P LTD) IS REPRODUCED AS UNDER: '10. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIAL S AVAILABLE ON RECORD AND CASE LAW CITED. IN THIS CAS E, THE ASSESSEE HAS MADE CERTAIN PAYMENTS TO OVERSEAS AGENTS AS COMMISSION AND NO TDS DEDUCTED. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEES' BUSINESS I S SITUATED IN INDIA AND THE PAYMENTS WERE ALSO MADE FROM INDIA AND ACCORDING TO SECTION 195, THE ASSESSEE IS I.T.A.NOS. 1963 & 1964/14 :- 6 -: UNDER OBLIGATION TO DEDUCT TDS. THEREFORE, BY INVOK ING SECTION 40(A)(I), HE HAS DISALLOWED AN AMOUNT OF RS. 5, 62,13,826/ - ON APPEAL, THE CIT(APPEALS) DELETED THE DISALLOWANCE ON THE GROUND THAT THE COMMISSION WAS PAID TO NON-RESIDENT AGENT AND IT CA NNOT BE SAID TO HAVE BEEN ACCRUED IN INDIA AND SECTION 195 HAVE NO APPLICATION. THE ONLY ISSUE FOR OUR CONSIDE RATION IS AS TO WHETHER THE ASSESSEE IS UNDER OBLIGATION TO DEDUCT THE TDS UNDER SECTION 195 OR NOT. THE CIT(APPEALS), BY CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE PASSED A DETAILED ORD ER BY OBSERVING THAT SECTION 195 HAVE NO APPLICATION TO ASSESSEE'S CASE. IN THE CASE OF M/ S. PRAKASH IMPEX V. ACIT (SUPRA), THE COORDINATE BENCH OF ITAT CHENNAI HAS CONSIDERED THE VERY SAME ISSUE AND OBSERVED THAT TH E COMMISSION PAID TO NON-RESIDENT AGENT FOR THE SERVICES RENDERED OUTSIDE INDIA AND SUCH PAYMENTS A RE NOT CHARGEABLE TO TAX INDIA AND THEREFORE, THE PROV ISIONS OF SECTION 195 ARE NOT APPLICABLE VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF G E INDIA TECHNOLOGY CENTRE P. LTD. V. CIT (SUPRA). 11. IN THE CASE OF CIT V. EON TECHNOLOGY (P) LTD., THE HON'BLE DELHI HIGH COURT HAS ALSO HELD THAT THE COMMISSION PAYMENT TO ITS BRITISH PARENT/ HOLDING COMPANY ETUK COULD NOT SAID TO HAVE BEEN ACCRUED TO ETUK IN INDIA AND THEREFORE, THE ASSESSEE WAS NOT L IABLE TO DEDUCT TAX AT SOURCE FROM PAYMENT OF COMMISSION TO ETUK. THE HEAD NOTE OF ADDER IS REPRODUCED HEREUNDE R: SECTION 9 OF THE INCOME-TAX ACT, 1961 - INCOME - DEEMED TO ACCRUE OR ARISE IN INDIA ASSESSMENT YEAR 2007-08 - ASSESSEE-COMPANY WAS ENGAGED IN BUSINESS OF DEVELOPMENT AND EXPORT OF SOFTWARE - DURING RELEVANT ASSESSMENT YEAR, IT HAD PAID COMMISSION TO ITS BRITISH PARENT/HOLDING COMPANY ETUK ON SALES AND AMOUNTS REALIZED ON EXPORT CONTRACTS PROCURED BY ETUK FOR ASSESSEE - ASSESSING OFFICER HELD THAT COMMISSION INCOME EARNED BY ETUK HAD ACCRUED IN INDIA OR WAS DEEMED TO ACCRUE IN INDIA AND, THEREFORE, ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE THEREFROM AND AS THERE WAS FAILURE, SAID EXPENDITURE SHOULD BE DISALLOWED UNDER SECTION 40(A)(IA) - WHETHER WHEN ETUK WAS NOT RENDERING ANY SERVICE OR PERFORMING ANY ACTIVITY IN INDIA ITSELF, COMMISSION INCOME COU LD BE SAID TO HAVE ACCRUED, ARISEN TO OR RECEIVED BY I.T.A.NOS. 1963 & 1964/14 :- 7 -: ETUK IN INDIA MERELY BECAUSE IT WAS RECORDED IN BOOKS OF ASSESSEE IN INDIA OR WAS PAID BY ASSESSEE SITUATED IN INDIA - HELD, NO - WHETHER FOR APPLYING SECTION 9 ASSESSING OFFICER WAS REQUIRED TO EXAMINE WHETHER SAID COMMISSION INCOME WAS ACCRUING OR ARISING DIRECTLY OR INDIRECTLY FROM ANY BUSINESS CONNECTION IN INDIA - HELD, YES - WHETHER SINCE FAC TS FOUND BY ASSESSING OFFICER DID NOT MAKE OUT A CASE OF BUSINESS CONNECTION AS STIPULATED IN SECTION 9(1)(I), COMMISSION INCOME COULD NOT BE SAID TO HAVE ACCRUED TO ETUK IN INDIA AND, THEREFORE, ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE FRO M PAYMENT OF COMMISSION TO ETUK - HELD, YES [IN FAVOUR OF ASSESSEE]. 12. THE HONBLE DELHI HIGH COURT HAS CONSIDERED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F M/S. TRANSMISSION CORPORATION OF ANDHRA PRADESH REPORTED IN 239 ITR 587 AND DECIDED THE ISSUE IN FAVOUR OF THE ASSE SSEE. 13. IN THE CASE OF ARMAYESH GLOBAL V. ACIT (SUPRA), THE MUMBAI BENCH OF ITAT HAS OBSERVED THAT THE COMMISSI ON PAYMENT WAS MADE TO THE OVERSEAS AGENT FOR PROCURIN G EXPORT ORDERS. THE AGENTS HAVE NOT BEEN PROVIDED ANY MANAGERIAL/TECHNICAL SERVICES. THE RELATIONSHIP BET WEEN THE ASSESSEE AND THE NON-RESIDENT (AGENT) WAS ONLY FOR RENDERING NON-TECHNICAL SERVICES. MOREOVER, THERE WAS NO PERM ANENT ESTABLISHMENT OF THE SAID NON-RESIDENT IN INDIA. TH EREFORE, THE COMMISSION PAID TO THE NON-RESIDENT AGENT DID NOT A CCRUE OR ARISE IN INDIA AND THUS, THERE WAS NO NEED FOR DEDU CTING TDS UNDER SECTION 195 OF THE ACT. 14. IN THE PRESENT CASE, THE ASSESSEE PAID CERTAIN AMOUNTS TO OVERSEAS AGENTS FOR PROCUREMENT OF EXPORT ORDERS. T HE AGENTS HAVE NOT PROVIDED ANY MANAGERIAL/TECHNICAL SERVICES . THE PAYMENTS RECEIVED BY THE NON-RESIDENT INDIAN ARE NO T TAXABLE IN INDIA. TAKING INTO CONSIDERATION OF ENTIRE FACTS AN D CIRCUMSTANCES AND BY FOLLOWING AFORESAID DECISIONS, WE ARE OF THE OPINION THAT THE ISSUE INVOLVED IN THIS APPEAL IS COVERED IN FAVOUR OF THE ASSESSEE AND SECTION 195 HAVE NO APPL ICATION TO ASSESSEES CASE. ACCORDINGLY, THE APPEAL OF THE REV ENUE IS DISMISSED. 4.1.3 IN THE INSTANT CASE ALSO, THE ASSESSEE COMPAN Y IS ENGAGED IN THE BUSINESS OF EXPORTING LEATHER GOODS (IN THE CAS ES OF FARIDA SHOES I.T.A.NOS. 1963 & 1964/14 :- 8 -: P LTD AND DELTA SHOES P LTD ALSO PRODUCTS EXPORTED WERE LEATHER SHOES/GOODS). AS EXPLAINED BY THE ASSESSEE, IT IS A VAILING THE SERVICES OF NON-RESIDENT AGENTS FOR PROCURING EXPORT ORDERS FOR THE ASSESSEE FOR WHICH IT IS PAYING COMMISSION. PERUSAL OF THE ASSESSEE'S SUBMISSIONS SHOWS THAT THE SAID NON-RESIDENT AGENTS HAVE NO BUSINESS CONNECTION IN INDIA, NOR THEY HAVE ANY PER MANENT ESTABLISHMENTS IN INDIA. THEY ARE PROCURING EXPORT ORDERS FOR THE ASSESSEE. THUS, THE SAID NON-RESIDENT AGENTS ARE OP ERATING OUTSIDE THE COUNTRY AND ALL THE SERVICES ARE RENDERED ABROA D ONLY. IN OTHER WORDS, THOUGH THE SAID NON-RESIDENTS ARE RENDERING SERVICES TO THE ASSESSEE (INDIAN COMPANY) THESE SERVICES ARE RENDER ED TOTALLY OUTSIDE THE COUNTRY. IN SUCH A SITUATION THE PAYME NTS (COMMISSIONS) MADE TO SUCH AGENTS ARE NOT LIABLE TO BE TAXED IN I NDIA. 4.1.4 THE DECISION OF DELHI TRIBUNAL IN THE CASE OF ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. V. DY. CIT (85 ITD 478) (DEL), RELIED ON BY THE ASSESSING OFFICER IN HIS ORDER, IS WITH RESP ECT TO THE CONSULTANCY CHARGES. THE CONSULTANCY CHARGES ARE NO RMALLY TECHNICAL IN NATURE, WHERE THE UTILIZATION OF THE SERVICES PL AYS A CRUCIAL ROLE IN DECIDING THE PLACE ACCRUAL OF INCOME. IN THE CASE O F COMMISSION PAYMENTS, LIKE IN THE PRESENT CASE, THE SERVICES CA NNOT BE CONSIDERED AS 'TECHNICAL SERVICES'. IN SUCH CASES, THE PLACE O F RESIDENCE OF THE AGENTS AND THE PLACE OF CANVASSING (MARKETING) IS T HE DECIDING FACTOR. THE NON-RESIDENT AGENTS IN THE PRESENT CASE HAVE CA NVASSED FOR THE ASSESSEE'S PRODUCTS OUTSIDE THE COUNTRY AND OBTAINE D THE SALES ORDERS ETC. HENCE THE SAID DECISION OF DELHI TRIBUN AL IS NOT APPLICABLE TO THE FACTS OF THE CASE. 4.1.5 TDS IS REQUIRED TO BE DEDUCTED ON ALL PAYMEN TS TO NON- RESIDENTS IF THE SAID PAYMENTS ARE LIABLE FOR TAX I N INDIA. IN THE INSTANT CASE, THE COMMISSION PAYMENTS TO THE NON-RESIDENT A GENT ARE NOT TAXABLE IN INDIA AS THE SERVICES ARE RENDERED ABROA D AND THE AGENTS HAVE NO PE IN INDIA. THEREFORE, THERE IS NO REQUIRE MENT TO DEDUCT TDS ON THESE PAYMENTS. FOR THIS PURPOSE RELIANCE IS ALSO PLACED ON THE DECISION OF APEX COURT IN THE CASE OF GE INDIA TECHNOLOGY CEN. P LTD. V. CIT [2010] (327 ITR 456) (SC)WHEREIN IT WAS HELD AS UNDER: SECTION 195 OF THE INCOME-TAX ACT, 1961 - DEDUCTION OF TAX AT SOURCE - PAYMENT TO NON-RESIDENT- WHETHER THE MOMENT A REMITTANCE IS MADE TO A NON-RE SIDENT, OBLIGATION TO DEDUCT TAX AT SOURCE DOES NOT ARISE; IT ARISES ONLY WHEN SUCH REMITTANCE IS A SUM CHARGEABLE UNDER ACT) I.E., CHARGEABLE UNDER SECTIONS 4) 5 AND 9 HELD, YES. WHETHER SECTION 195(2) IS NOT A MERE PROVISION TO P ROVIDE INFORMATION TO ITO(TDS) SO THAT DEPARTMENT CAN KEEP TRACK OF REMITTANCES BEING MADE TO NON-RESIDENTS OUTSIDE IND IA; RATHER I.T.A.NOS. 1963 & 1964/14 :- 9 -: IT GETS ATTRACTED TO CASES WHERE PAYMENT MADE IS A COMPOSITE PAYMENT IN WHICH CERTAIN PROPORTION OF PAYMENT HAS AN ELEMENT OF 'INCOME' CHARGEABLE TO TAX IN INDIA AND PAYER SEEKS A DETERMINATION OF APPROPRIATE PROPORTION OF SUM CHARGEABLE HELD, YES. FURTHER, UNDER SIMILAR FACTS AND CIRCUMSTANCES , THE HON'BLE ITAT OF CHENNAI, IN THE CASE OF M/S. FARIDA SHOES P LTD, IN ITA NO.159/MDS/2013 DATED 1L.04.2013 (A.Y.2008-09), HAS EXAMINED THE ISSUE OF COMMISSION PAYMENTS TO NON-RESIDENTS FOR P ROCURING EXPORT ORDERS IN DETAIL AND CONCLUDED THAT THE COMMISSION PAYMENTS TO THE SAID NON-RESIDENT AGENTS ARE NOT ASSESSABLE TO TAX IN INDIA AND CONSEQUENTLY THE RESIDENT PAYEE COMPANY (M/S. FARID A SHOES P LTD) WAS NOT UNDER THE OBLIGATION OF DEDUCTION TDS ON TH E COMMISSION PAYMENTS U/S.195 OF THE ACT. 4.1.6 IN THE PRESENT APPEALS OF THE ASSESSEE ALSO THE FACTS AND CIRCUMSTANCES ARE EXACTLY IDENTICAL TO THOSE INVOLV ED IN THE CASE OF M/S. FARIDA SHOES P LTD AND M/S. DELTA SHOES P LTD. THEREFORE, SINCE THE ISSUE INVOLVED IN THE PRESENT APPEALS IS THE SA ME AND THE FACTS ARE EXACTLY IDENTICAL, THE ABOVE DECISION OF THE IT AT, (M/S. FARIDA SHOES P LTD, IN ITA NO.159 /MDS/2013 DATED 11.04.20 13), IS EQUALLY APPLICABLE TO THE FACTS OF THE PRESENT ASSESSEE ALS O. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF ITAT, IN THE CASE OF M/S. FARIDA SHOES P LTD (IN ITA NO.159/MDS/2013 DATED 11.04.201 3), I HOLD THAT THE ABOVE TRANSACTIONS OF 'EXPORT SALES COMMISSION' PAYMENTS TO THE NON-RESIDENTS FOR PROCURING EXPORT ORDERS, ARE NOT ASSESSABLE TO TAX IN INDIA AND CONSEQUENTLY THE ASSESSEE COMPANY IS NOT UNDER ANY OBLIGATION TO DEDUCT THE TDS ON THE ABOVE COMMISSIO N PAYMENTS IX] S.195 OF THE ACT. THE PROVISIONS OF SEC.40(A)(I) HA VE NO APPLICATION IN THE PRESENT CASE. ACCORDINGLY, THE ADDITIONS MADE B Y THE ASSESSING OFFICER, ON ACCOUNT OF DISALLOWANCE OF 'EXPORT SALE S COMMISSION' PAYMENTS OF RS.78,54,319/- FOR NON-DEDUCTION OF TDS U/S40(A)(I) R.W.S. 195 OF THE ACT, ARE NOT JUSTIFIED AND DELETE D. THEREFORE, THE REVENUE IS IN APPEAL. 5. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH THE CAS E FILE. THE ONLY ISSUE FOR OUR CONSIDERATION IS AS TO WHETH ER THE ASSESSEES COMMISSION PAYMENTS MADE TO ITS OVERSEAS AGENTS IN LIEU OF PROCURING I.T.A.NOS. 1963 & 1964/14 :- 10 -: EXPORT ORDERS AMOUNT TO FEE FOR TECHNICAL SERVICES OR NOT U/S 9(1)(VII) OF THE ACT. IN OUR VIEW, SECTION 9(1)(VII)(B) HAS TO BE TAKEN AS PART OF SECTION 9(1)(VII). ONCE THE FORMER PROVISION STIPU LATING FEE FOR TECHNICAL SERVICES ITSELF IS NOT APPLICABLE, LATTE R LIMB CANNOT BE INVOKED IN ISOLATION. WE MAKE IT CLEAR THAT THERE IS NO EV IDENCE PLACED ON RECORD PROVING ANY TECHNICAL SERVICES ELEMENT IN PROCUREMENT OF EXPORT ORDERS. IT IS EVIDENT THAT THE ASSESSEES OVERSEAS EXPORT AGENTS HAVE MERELY COLLECTED EXPORT ORDERS IN LIEU OF DIRECT REMITTANCES. WE FIND THAT THE HON'BLE JURISDICTION AL HIGH COURT IN CIT VS FAIZAN SHOES PVT. LTD. [2014] 367 ITR 155 HAS HE LD IN IDENTICAL CIRCUMSTANCES THAT SUCH AN EXPORT COMMISSION PAYMEN T DOES NOT AMOUNT TO FEE FOR TECHNICAL SERVICES. THE REVENU E HEAVILY RELIES ON THE CASE LAW OF TRANSMISSION CORPORATION OF ANDHRA PRADESH VS CIT - 239 ITR 589(SC). THE HON'BLE APEX COURT HAS ITSELF DISTINGUISHED THE SAID CASE LAW IN GE INDIA TECHNOLOGY CEN. P. LTD V S CIT [2010] 327 ITR 456(SC) IN CLEAR TERMS THAT SECTION 195 WOULD ONLY APPLY IF THE PAYMENT IN QUESTION IS TAXABLE AS INCOME IN INDIA A ND NOT OTHERWISE. THE SAID ISSUE STANDS ALREADY DECIDED AGAINST THE R EVENUE. THEREFORE, WE UPHOLD THE CIT(A)S ORDER AND REJECT THE REVENUES GROUNDS. I.T.A.NOS. 1963 & 1964/14 :- 11 -: THE REVENUES APPEAL I.T.A.NO.1964/MDS/2014 IS DIS MISSED. 6. SAME ORDER TO FOLLOW IN I.T.A.NO.1963/MDS/2014. 7. BOTH THESE REVENUES APPEALS ARE DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 4 TH OF FEBRUARY, 2015, AT CHENNAI. SD/- SD/- ( . . ) (B.R. BASKARAN) / ACCOUNTANT MEMBER ( . . ) (S. S. GODARA) ! '# / JUDICIAL MEMBER $! / CHENNAI %' / DATED: 4 TH FEBRUARY, 2015 RD '&'' ()'*) / COPY TO: ' 1 . / APPELLANT 4. ' + / CIT 2. / RESPONDENT 5. ),-' . / DR 3. ' +'/0 / CIT(A) 6. -1'2 / GF