MODERN THREADS (INDIA) LIMITED, Jaipur V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-6, Jaipur

ITA 198/JPR/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 4261 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 18-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MADHUKAR GARG
• Keywords: Business income; Double taxation relief; Services rendered outside India; Retrospective amendment; Permanent establishment; Advance ruling; Question of law; Non-deduction of tax; TDS; Set aside
• Section: 5(2); 40(a)(ia); 195; 201; 139(1); 9(1); 9(1); 9(1); 13; 119; 12; 15

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENC HES, B JAIPUR JH LAANHI XKSLKBZ] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SING H YADAV, AM VK;DJ VIHY LA- @ ITA NOS. 198/JP/2019 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2014-15 MODERN THREADS INDIA LIMITED, A-4, VIJAY PATH, TILAK NAGAR, JAIPUR CUKE VS. ACIT, CIRCLE-6, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCM1850A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NOS. 199/JP/2019 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2015-16 MODERN THREADS INDIA LIMITED, A-4, VIJAY PATH, TILAK NAGAR, JAIPUR CUKE VS. DCIT, CIRCLE-6, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCM1850A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI MADHUKAR GARG (CA) JKTLO DH VKSJ LS @ REVENUE BY : SMT. RUNI PAL (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 21/12/2020 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 15/02/2021 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 10.12.2018 & 14.12.2018 FOR AY 2014-15 & 2015-16 RESPECTIVELY. SINCE THE COMMON ISSUES ARE INVOLVED, BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS C ONSOLIDATED ORDER. ITA NO. 198 & 199/JP/2019 MODERN THREADS INDIA LTD, JAIPUR VS. ACIT, JAIPUR 2 2. IN ITA NO. 198/JP/2019 FOR A.Y 2014-15, THE ASSESSE E HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL:- 1. THAT THE LEARNED CIT(APPEALS) HAS ERRED IN HOLD ING THAT THE A/R OF THE APPELLANT WAS SPECIFICALLY REQUESTED TO CLARIFY WHETHER ANY RULING WAS OBTAINED FROM THE AUTHORITY FOR ADVANCE RULING U/S 245R(2) REGARDING NON-TAXABILITY OF THE INCOME OF THE RECIPIENT AND T HE A/R SUBMITTED THAT NO SUCH RULING WAS OBTAINED FROM AAR. THE SAID FIND ING IS INCORRECT AS NO SUCH CLARIFICATION WAS SOUGHT FOR DURING THE COURSE OF APPELLATE PROCEEDINGS. 2. THAT THE LEARNED CIT(APPEALS) HAS ERRED IN HOLDI NG THAT ARGUMENT OF THE APPELLANT THAT SINCE NON-RESIDENT PERSONS TO WHOM PAYMENTS WERE MADE DID NOT HAVE ANY PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA AND THEREFORE, THE APPELLANT WAS NOT REQUIRED TO DE DUCT TAX AT SOURCE IS NOT CORRECT. THE SAID FINDING IS ILLEGAL AND UNJUST IFIED. 3. THAT THE LEARNED CIT(APPEALS) HAS ERRED IN HOLDI NG THAT THERE IS NO EVIDENCE ON RECORD TO SHOW THAT THE SUM RECEIVED BY THE NON-RESIDENTS IN THE FORM OF SALES COMMISSION OF RS. 99,84,435/- WAS NOT CHARGEABLE TO TAX UNDER THE INCOME-TAX ACT. THE SAID FINDING IS I LLEGAL AND UNJUSTIFIED. 4. THAT THE LEARNED CIT(APPEALS) HAS ERRED IN CONFI RMING DISALLOWANCE OF RS. 99,84,435/- ON ACCOUNT OF NON-D EDUCTION OF TAX AT SOURCE WHILE MAKING PAYMENT OF SALE COMMISSION TO N ON-RESIDENTS. THE DISALLOWANCE CONFIRMED IS ILLEGAL AND UNJUSTIFIED. 3. DURING THE COURSE OF HEARING, THE LD. AR SUBMITT ED THAT FIRST GROUND OF APPEAL HAS BEEN TAKEN AGAINST THE ACTION OF THE LD CIT(APPEALS) IN HOLDING THAT A/R OF THE APPELLANT WAS SPECIFICALLY REQUESTED TO CLARIFY WHETHER ANY RULING WAS OBTAINED FROM THE AUTHORITY FOR ADVANCE RULING U/S 245R(2) REGARDING NON- TAXABILITY OF INCOME OF THE RECIPIENTS AND THE A/R SUBMITTED THAT NO SUCH RULING WAS OBTAINED FROM AAR. IN THIS REGARD, IT WAS SUBMI TTED THAT THE LD ITA NO. 198 & 199/JP/2019 MODERN THREADS INDIA LTD, JAIPUR VS. ACIT, JAIPUR 3 CIT(APPEALS) HAD NEVER REQUIRED THE ASSESSEE TO CLA RIFY REGARDING ANY RULING U/S 245R(2) AND FINDING OF THE LEARNED CIT(APPEALS) IS THEREFORE UNJUSTIFIED. 4. GROUNDS NO. 2-4 OF ASSESSEES APPEAL ARE AGAINST THE ACTION OF THE LD CIT(APPEALS) IN CONFIRMING THE DISALLOWANCE OF RS.9 9,84,435/- U/S 40(A)(I) ON ACCOUNT OF NON-DEDUCTION OF TAX AT SOURCE WHILE PAY ING SALES COMMISSION TO NON-RESIDENTS. 5. IN THIS REGARD, THE LD AR SUBMITTED THAT THE APP ELLANT COMPANY IS A PUBLIC LIMITED COMPANY DERIVING INCOME FROM POLYEST ER VISCOSE, BLENDED WOOLEN YARN ETC. AND THE COMPANY WAS DECLARED A SICK COMPA NY BY THE BOARD OF FINANCIAL RECONSTRUCTION ON 21.5.2005. THE ASSESSIN G OFFICER WHILE COMPLETING THE ASSESSMENT HAS MENTIONED THAT THE COMPANY HAD P AID COMMISSION OF RS.99,84,435/- TO FOREIGN AGENTS AS SALES COMMISSIO N DURING THE YEAR AND NO TAX WAS DEDUCTED AT SOURCE AS PER THE PROVISIONS OF SECTION 195. THE ASSESSEE IN RESPONSE TO THE SHOW CAUSE NOTICE HAS FILED A DE TAILED REPLY WHICH HAS BEEN REPRODUCED BY THE ASSESSING OFFICER FROM PAGES 3-7 OF THE ORDER. HOWEVER, THE ASSESSING OFFICER HAD NOT ACCEPTED THE CONTENTION O F THE ASSESSEE THAT NO TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE AND RELYING O N EXPLANATION 2 TO SECTION 195(1) INTRODUCED BY THE FINANCE ACT, 2012 WITH RET ROSPECTIVE EFFECT FROM 1.4.1962 HELD THAT THE PAYMENT OF COMMISSION BY THE ASSESSEE IS NOTHING BUT A FEE WHICH HAS BEEN PAID BY THE RESIDENT ASSESSEE TO NON-RESIDENT FOR TECHNICAL SERVICES RENDERED BY HIM HOLDING THAT THE COMMISSIO N WAS FEE FOR TECHNICAL SERVICES AND THE ASSESSEE WAS REQUIRED TO DEDUCT TA X AT SOURCE ON THE SAID PAYMENT. HE, THEREFORE, DISALLOWED THE SUM OF RS. 99,84,435/- BY APPLYING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. 6. THE ASSESSEE HAD PREFERRED AN APPEAL AGAINST THE SAID ORDER AND IT WAS POINTED OUT TO THE LD CIT(APPEALS) THAT AS PER THE PROVISIONS OF SECTION 195(1), ITA NO. 198 & 199/JP/2019 MODERN THREADS INDIA LTD, JAIPUR VS. ACIT, JAIPUR 4 IT IS CLEAR THAT TAX IS REQUIRED TO BE DEDUCTED AT SOURCE UNDER THE PROVISIONS OF SECTION 195(1) ONLY IN RESPECT OF SUM CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT. IT WAS ALSO CONTENDED THAT THE AMOUNT PAID BY THE ASSESSEE NOT BEING CHARGEABLE TO TAX IN INDIA IN RESPECT OF PAYEE, NO TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE AND RELIANCE WAS PLACED ON THE D ECISION OF SUPREME COURT IN THE CASE OF G.E.(INDIA) TECHNOLOGY CENTRE (P) LI MITED VS. CIT REPORTED IN 327 ITR 456 AS WELL AS ANOTHER DECISION OF SUPREME COURT IN THE CASE OF VIJAY SHIP BREAKING CORPORATION VS. CIT 314 ITR 309. THE ASSESSEE HAD ALSO RELIED ON NUMBER OF CASES OF VARIOUS HIGH COURTS IN WHICH IT WAS HELD THAT NO TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE IN RESPECT OF PAY MENT OF COMMISSION TO NON- RESIDENT AGENTS. THE ASSESSEE HAD ALSO FILED COMPLE TE DETAILS OF COMMISSION PAID AS WELL AS CERTIFICATE FROM THE PAYEES THAT CO MMISSION RECEIVED BY THEM WAS IN THE NATURE OF THEIR BUSINESS INCOME AND THEY WERE NOT HAVING ANY PERMANENT ESTABLISHMENT IN INDIA. THE LD CIT(APPEAL S) HAS DISCUSSED THIS MATTER IN PARA 6 OF HIS ORDER AND HIS FINDING HAS B EEN GIVEN IN PARA 6.3 ON PAGE 13 WHEREIN HE HAS HELD THAT ARGUMENT OF THE AS SESSEE THAT SINCE THE NON- RESIDENT PERSONS TO WHOM PAYMENTS WERE MADE DO NOT HAVE A PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA AND THEREF ORE, HE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE IS NOT CORRECT. THE LD CIT(APP EALS) HAS HELD THAT THERE IS NO ORDER OR FINDING BY ANY INCOME-TAX AUTHORITY THA T THE SUM OF RS.99,84,435/- WAS NOT CHARGEABLE TO TAX UNDER THE INCOME-TAX ACT, 1961. THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE WHETHER OR NOT THE NON-RESIDENT HAD A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTI ON IN INDIA, HE HAD THEREFORE, CONFIRMED THE DISALLOWANCE OF RS.99,84,4 35/-. 7. IN THE AFORESAID FACTUAL BACKGROUND, IT WAS SUBM ITTED THAT RELIANCE PLACED BY THE ASSESSING OFFICER AS WELL AS THE LEAR NED CIT(APPEALS) ON EXPLANATION 2 TO SECTION 195(1) OF THE IT ACT WHICH HAS BEEN INTRODUCED BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 1. 4.62 IS MISPLACED. THE ITA NO. 198 & 199/JP/2019 MODERN THREADS INDIA LTD, JAIPUR VS. ACIT, JAIPUR 5 LEARNED CIT(APPEALS) AS WELL AS THE ASSESSING OFFIC ER HAS FAILED TO APPRECIATE THE PROVISIONS OF SECTION 195 OF THE IT ACT. FROM T HE PROVISIONS OF SECTION 195(1), IT IS CLEAR THAT ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT ANY INTEREST OR ANY OTHER SUM CHARGEABLE TO TAX UNDER T HE PROVISIONS OF THE ACT, SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE, DEDUCT INCOME TAX THEREON AT THE RATES IN FORCE. THUS, IT IS QUITE CLEAR THAT TAX IS REQUIRED TO BE DEDUCTED AT SOURCE FROM THE ELEMENT OF INCOME EMBEDDED IN THE TOTAL PAYMENT BEING MADE BY THE PERSON RESPONSI BLE IN RESPECT THEREOF, TO THE NON-RESIDENT ENTITY. IF THE AMOUNT PAID BY THE ASSESSEE IS NOT CHARGEABLE TO TAX IN INDIA IN RESPECT OF THE PAYEE, NO TAX IS REQUIRED TO BE DEDUCTED AT SOURCE. RELIANCE IN THIS REGARD IS PLACED ON THE DE CISION OF HONBLE SUPREME COURT IN THE CASE OF GE(INDIA) TECHNOLOGY CENTRE (P ) LTD. VS. CIT REPORTED IN 327 ITR 456 WHEREIN IT HAS BEEN HELD BY THE HONBLE SUPREME COURT THAT 'THE MOST IMPORTANT EXPRESSION IN SECTION 195(1) OF THE INCOME-TAX ACT, 1961, DEALING WITH DEDUCTION OF TAX AT SOURCE CONSISTS OF THE WORDS CHARGEABLE UNDER THE PROVISIONS OF THE ACT. A PERSON PAYING INTEREST OR ANY OTHER SUM TO A NO N- RESIDENT IS NOT LIABLE TO DEDUCT TAX IF SUCH SUM IS NOT CHARGEABLE TO TAX UNDER THE ACT. SECTION 195 CONTEMPLATES NOT MERELY AMOUNT S, THE WHOLE OF WHICH ARE PURE INCOME PAYMENTS; IT ALSO COVERS COMPOSITE PAYM ENTS WHICH HAVE AN ELEMENT OF INCOME IMBEDDED OR INCORPORATED IN THEM. THE OBLIGATION TO DEDUCT TAX AT SOURCE, IS, HOWEVER, LIMITED TO APPROPRIATE PROPORTION OF INCOME CHARGEABLE UNDER THE ACT FORMING PART OF THE GROSS SUM OF MONEY PAYABLE TO THE NON-RESIDENT. IT IS FOR THIS REASON THAT THE CB DT HAS CLARIFIED IN CIRCULAR NO.728 DATED OCTOBER, 31, 1995, THAT THE TAX DEDUCT OR CAN TAKE INTO CONSIDERATION THE EFFECT OF THE DTAA IN RESPECT OF PAYMENTS OF ROYALTIES AND TECHNICAL FEES WHILE DEDUCTING TDS. 8. IT WAS SUBMITTED THAT THE EXPRESSION CHARGEABLE UNDER THE PROVISIONS OF THE ACT IN SECTION 195(1) SHOWS THAT THE REMITTANC E HAS GOT TO BE OF A TRADING ITA NO. 198 & 199/JP/2019 MODERN THREADS INDIA LTD, JAIPUR VS. ACIT, JAIPUR 6 RECEIPT, THE WHOLE OR PART OF WHICH IS LIABLE TO TA X IN INDIA. IF TAX IS NOT SO ASSESSABLE, THERE IS NO QUESTION OF TAX AT SOURCE B EING DEDUCTED. THE HONBLE SUPREME COURT HAS ALSO REFERRED TO ITS ANOTHER DECI SION IN THE CASE OF VIJAY SHIP BREAKING CORPORATION VS. CIT REPORTED IN 314 I TR 309. IT WAS HELD BY THE SUPREME COURT THAT IF THE CONTENTION OF THE DEPARTM ENT THAT THE MOMENT THERE IS A REMITTANCE THE OBLIGATION TO DEDUCT TDS ARISES IS TO BE ACCEPTED, THEN WE ARE OBLITERATING THE WORDS CHARGEABLE UNDER THE PR OVISIONS OF THE ACT IN SECTION 195(1). THE SAID EXPRESSION IN SECTION 195( 1) SHOWS THAT REMITTANCE HAS GOT TO BE OF A TRADING RECEIPT, THE WHOLE OR PA RT OF WHICH IS LIABLE TO TAX IN INDIA. THE PAYER IS BOUND TO DEDUCT TDS ONLY IF TAX IS ASSESSABLE IN INDIA. IF TAX WAS NOT ASSESSABLE, THERE IS NO QUESTION OF TDS BEI NG DEDUCTED. 9. YOUR ATTENTION IN THIS REGARD IS ALSO INVITED TO INSTRUCTION NO.2/2014 DATED 26.2.2014 ISSUED BY THE CBDT. FROM THE PERUSA L OF THE SAME, IT WOULD BE OBSERVED THAT IN PARA 3 OF THE INSTRUCTION, IT H AS CLEARLY BEEN MENTIONED THAT IN A CASE WHERE THE ASSESSEE FAILS TO DEDUCT T AX UNDER SECTION 195 OF THE ACT, THE ASSESSING OFFICER SHALL DETERMINE THE APPR OPRIATE PROPORTION OF THE SUM CHARGEABLE TO TAX AS MENTIONED IN SUB-SECTION ( 1) OF SECTION 195 TO ASCERTAIN THE TAX LIABILITY ON WHICH THE DEDUCTOR S HALL BE DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER SECTION 201 OF THE ACT, A ND THE APPROPRIATE PROPORTION OF THE SUM WILL DEPEND ON THE FACTS AND CIRCUMSTANCES OF EACH CASE TAKING INTO ACCOUNT NATURE OF REMITTANCES, INCOME C OMPONENT THEREIN OR ANY OTHER FACT RELEVANT TO DETERMINE SUCH APPROPRIATE P ROPORTION. THUS, THE CBDT HAS ALSO MENTIONED THAT TAX IS ONLY REQUIRED TO BE DEDUCTED AT SOURCE IN RESPECT OF THE AMOUNT OF REMITTANCE WHICH IS IN THE NATURE OF INCOME. 10. FURTHER ATTENTION IS INVITED TO CIRCULAR NO.3/2 015 DATED 12.02.2015 IN WHICH THE BOARD HAS CLARIFIED REGARDING DISALLOWANC E TO BE MADE U/S 40(A)(I). IT HAS CLEARLY BEEN MENTIONED IN THE CIRCULAR AS FOLLO WS:- ITA NO. 198 & 199/JP/2019 MODERN THREADS INDIA LTD, JAIPUR VS. ACIT, JAIPUR 7 AS DISALLOWANCE OF AMOUNT UNDER SECTION 40(A)(I) O F THE ACT IN CASE OF A DEDUCTOR IS INTERLINKED WITH THE SUM CHARGEABLE UND ER THE ACT AS MENTIONED IN SECTION 195 OF THE ACT FOR THE PURPOSE OF TAX DEDUCTION AT SOURCE, THE CENTRAL BOARD OF DIRECT TAXES, IN EXERC ISE OF POWERS CONFERRED UNDER SECTION 119 OF THE ACT, HEREBY CLAR IFIES THAT FOR THE PURPOSE OF MAKING DISALLOWANCE OF OTHER SUM CHARGE ABLE UNDER SECTION 40(A)(I) OF THE ACT, THE APPROPRIATE PORTION OF THE SUM WHICH IS CHARGEABLE TO TAX UNDER THE ACT SHALL FORM THE BASI S OF SUCH DISALLOWANCE AND SHALL BE THE SAME AS DETERMINED BY THE ASSESSIN G OFFICER HAVING JURISDICTION FOR THE PURPOSE OF SUB- SECTION (1) OF SECTION 195 OF THE ACT AS PER INSTRUCTION NO.2/2014, DATED 26.2.2014 OF CB DT. FURTHER, WHERE DETERMINATION OF OTHER SUM CHARGEABLE HAS BEEN MA DE UNDER SUB- SECTION (2), (3) OR (7) OF SECTION 195 OF THE ACT, SUCH A DETERMINATION WILL FORM THE BASIS FOR DISALLOWANCE, IF ANY, UNDER SECT ION 40(A)(I) OF THE ACT. THUS, IN BOTH THE CIRCULARS THE BOARD HAS ALSO MENT IONED THAT TAX IS REQUIRED TO BE DEDUCTED ONLY IN RESPECT OF SUM CHARGEABLE TO TA X. 11. IT HAS BEEN HELD BY THE ASSESSING OFFICER THAT THE PAYMENT OF COMMISSION BY THE ASSESSEE TO NON-RESIDENT AGENTS I S FEE FOR TECHNICAL SERVICES AND HENCE THE ASSESSEE WAS REQUIRED TO DEDUCT TAX A T SOURCE. IN THIS CONNECTION, IT IS SUBMITTED THAT IT HAS BEEN HELD I N NUMBER OF CASES THAT PAYMENT OF COMMISSION TO FOREIGN AGENTS IS NOT FEE FOR TECHNICAL SERVICES. FOREIGN COMMISSION AGENTS HAVE NEITHER ANY CONTROL OVER THE EXPORT ACTIVITY OF THE ASSESSEE NOR THEY ARE FINAL AUTHORITY IN RESPEC T OF THE SAME. THEY ONLY PERFORM SUBSIDIARY FUNCTION OUTSOURCED TO THEM FOR SAVING THE COST AND CONVENIENCE. THE ASSESSEE HAD DULY FILED CERTIFICAT ES FROM THE RECIPIENTS OF COMMISSION THAT THE COMMISSION RECEIVED BY THEM WAS THEIR BUSINESS INCOME AND THEY WERE NOT HAVING ANY PERMANENT ESTABLISHMEN T IN INDIA. THUS, IT IS ITA NO. 198 & 199/JP/2019 MODERN THREADS INDIA LTD, JAIPUR VS. ACIT, JAIPUR 8 VERY CLEAR THAT THE COMMISSION WHICH IS BEING PAID BY THE ASSESSEE TO NON- RESIDENTS AND RECEIVED BY THE NON-RESIDENTS IS NOT CHARGEABLE TO TAX UNDER THE PROVISIONS OF INCOME-TAX ACT AND HENCE, NO TAX IS R EQUIRED TO BE DEDUCTED AT SOURCE UNDER THE PROVISIONS OF SECTION 195. IN SUPP ORT, RELIANCE WAS PLACED ON FOLLOWING DECISIONS: PR.CIT VS. MOTIF INDIA INFOTECH 409 ITR 178 (GUJ) NOVA TECHNOCAST REPORTED IN 166 DTR (GUJ) 426 CIT VS. FARIDA LEATHER COMPANY REPORTED IN 287 CTR 565(MADRAS) EVOLV CLOTHING COMPANY VS. ACIT 407 ITR 729 (MAD). SUBHASH CHAND GUPTA VS. ACIT 58 TAX WORLD 176 (JP) 12. WITHOUT PREJUDICE TO ABOVE, IT WAS FURTHER SUBM ITTED THAT THE PAYMENT OF COMMISSION TO AGENTS BY THE ASSESSEE IS IN THE NATU RE OF BUSINESS PROFIT IN THE HANDS OF THE RECIPIENTS AND AS PER THE RELEVANT ART ICLE OF DOUBLE TAXATION AVOIDANCE AGREEMENT (ARTICLE 7) BUSINESS PROFITS AR E TAXABLE ONLY IN THE COUNTRY OF SUCH ENTERPRISE UNLESS ENTERPRISE HAS A PERMANENT ESTABLISHMENT SITUATED IN INDIA. AS MENTIONED EARLIER, THE PARTIE S TO WHOM PAYMENTS HAVE BEEN MADE BY THE ASSESSEE COMPANY ARE NOT HAVING AN Y PERMANENT ESTABLISHMENT IN INDIA. THIS MATTER HAS BEEN CONSID ERED BY THE ITAT, JAIPUR BENCH, JAIPUR IN THE CASE OF SATYAM POLYPLAST VS. D CIT REPORTED IN 106 TAXMANN.COM 145(JPR.TRIB) WHEREIN IT WAS HELD AS UN DER:- THE PAYMENT IN QUESTION IS COMMISSION AND PRIMA FA CIE NOT ROYALTY OR FEE FOR TECHNICAL SERVICES (FTS). THE ASSESSING OFF ICER THOUGH OBSERVED THAT THE PAYMENT IN THE NATURE OF FTS, HOWEVER, THE ASSESSING OFFICER HAS NOT EXAMINED OR NOT GIVEN THE FINDING AS TO HOW THE PAYMENT IN QUESTION IS FTS AND WHAT IS THE NATURE OF SERVICE R ENDERED BY THE NON- RESIDENT. EVEN OTHERWISE THE ISSUE OF FTS HAS TO BE CONSIDERED IN LIGHT OF DEFINITION PROVIDED IN RESPECT THE DTAA. IT IS FOUN D THAT THE ITA NO. 198 & 199/JP/2019 MODERN THREADS INDIA LTD, JAIPUR VS. ACIT, JAIPUR 9 COMMISSIONER(APPEALS) FOR THE ASSESSMENT YEAR 2013- 14 HAS CLEARLY GIVEN A FINDING THAT THE PAYMENT IN QUESTION IS NOT FEE FOR TECHNICAL SERVICES BUT IT IS A REGULAR PAYMENT TO THE NON-RES IDENT IN THE NATURE OF ORDINARY COURSE OF BUSINESS. EVEN OTHERWISE THE COM MISSIONER(APPEALS) HAS UPHELD THE ORDER OF THE ASSESSING OFFICER ONLY ON THE GROUND THAT AS PER THE EXPLANATION II OF SECTION 195(1), THE ASSES SEE WAS UNDER OBLIGATION TO DEDUCT THE TAX AT SOURCE FOR MAKING T HE PAYMENT OF COMMISSION TO NON-RESIDENT. THEREFORE, THE COMMISSI ONER(APPEALS) HAS ACCEPTED THE NATURE OF PAYMENT AS COMMISSION AND NO T FEE FOR TECHNICAL SERVICE(PARA 5). ONCE THE PAYMENT IN QUESTION IS COMMISSION THEN THE PROVISIONS OF SECTION 40(A)(I) ARE APPLICABLE ONLY IF SUCH SUM IS CHARGEABLE TO TAX UNDER THE ACT. AS PER THE PROVISIONS OF SECTION 5(2 ), THE TOTAL INCOME OF NON-RESIDENT INCLUDES ALL INCOME FROM WHATSOEVER SO URCES DERIVED WHICH IS RECEIVED OR DEEMED TO BE RECEIVED IN INDIA ACCRU ES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA DURING SU CH YEAR. THEREFORE, THE COMMISSION PAID TO NON-RESIDENT OUTS IDE INDIA FOR THE SERVICES RENDERED OUTSIDE INDIA WILL NOT FALL IN TH E CATEGORY OF THE INCOME RECEIVED OR DEEMED TO BE RECEIVED IN INDIA AS WELL AS ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE IN INDIA. THUS, THE SA ID AMOUNT PAID TO NON- RESIDENT DOES NOT FALL IN THE SCOPE OF TOTAL INCOME OF NON-RESIDENT AND, CONSEQUENTLY, IT IS NOT CHARGEABLE TO TAX IN INDIA UNDER 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 RESIDENT. IN THE ABSENCE OF PE OF THE NON-RESIDENT IN INDIA SUCH BUSINESS INCOME IS NOT CHARGEABLE 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 ITA NO. 198 & 199/JP/2019 MODERN THREADS INDIA LTD, JAIPUR VS. ACIT, JAIPUR 10 IS NOT LIABLE TO DEDUCT TDS AND CONSEQUENTLY, THE P ROVISIONS OF SECTION 40(A)(I) CANNOT BE INVOKED FOR MAKING THE DISALLOWA NCE. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 40(A)(I) IS DELETED(PARA 5). FURTHER, RELIANCE WAS PLACED ON ITAT JAIPUR BENCH D ECISION IN CASE OF JLC ELECTROMET P LTD VS ACIT REPORTED IN [2019] 75 ITR (TRIB)13. IN VIEW OF ABOVE, IT WAS SUBMITTED THAT THERE WAS NO LIABILITY ON THE PART OF THE ASSESSEE TO DEDUCT ANY TAX AT SOURCE IN RESPECT OF COMMISSION P AID TO FOREIGN AGENTS AND THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WHIC H HAS BEEN CONFIRMED BY THE LEARNED CIT(APPEALS) DESERVES TO BE DELETED. 13. IT WAS ALSO SUBMITTED THAT OUT OF THE TOTAL PAY MENT OF COMMISSION AMOUNTING TO RS.99,84,436/-, A SUM OF RS.1,55,867/- HAS BEEN PAID TO AUMLRYA MARKETING SERVICES PVT. LTD., WHO IS AN INDIAN AGEN T AND TAX HAS DULY BEEN DEDUCTED AT SOURCE IN RESPECT OF THE SAID PAYMENT A ND HENCE, THE SAME CANNOT BE CONSIDERED FOR DISALLOWANCE UNDER THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. 14. IN HER SUBMISSIONS, THE LD D/R SUBMITTED THAT THE ASSESSEE COMPANY HAS PAID COMMISSION OF RS. 99,84,435/- TO FOREIGN AGENT S AS SALES COMMISSION DURING THE YEAR ON WHICH TDS WAS NOT DONE AS PER PR OVISIONS OF SECTION 195 READ WITH EXPLANATION II TO THE SAID SECTION WHEREI N IT IS CLARIFIED THAT: 'THE OBLIGATION TO COMPLY WITH SUB SECTION (I) AND TO MAKE DEDUCTION THERE UNDER APPLIES AND SHALL BE DEEMED T O HAVE ALWAYS APPLIED AND EXTENDS AND SHALL BE DEEMED TO H AVE ALWAYS EXTENDED TO ALL PERSONS, RESIDENT OR NONRESIDENT, W HETHER OR NOT THE NON-RESIDENT PERSON HAS (I) A RESIDENCE OR PLAC E OF BUSINESS ITA NO. 198 & 199/JP/2019 MODERN THREADS INDIA LTD, JAIPUR VS. ACIT, JAIPUR 11 OR BUSINESS CONNECTION IN INDIA; OR (II) ANY OTHER PRE SENCE IN ANY MANNER WHATSOEVER IN INDIA'. 15. IT WAS FURTHER SUBMITTED THAT SECTION 9(1) (VII ) WOULD CLASSIFY AND COVER ALL INCOMES AS ACCRUING AND ARISING IN INDIA WHICH PARTAKE THE CHARACTER OF PAYMENT ON ACCOUNT OF FEE FOR TECHNICAL SERVICES, WHICH IN TURN, HAS BEEN DEFINED TO INCLUDE ANY PAYMENT FOR RENDERING OF ANY MANAGERIAL OR CONSULTANCY SERVICES RENDERED BY THE NON-RESIDENT A GENT. IN THE INSTANT CASE, SINCE THE ASSESSEE WAS NOT ABLE TO SELL HIS GOODS O N HIS OWN OFFSHORE, HE HAS TO ENGAGE THE MANAGERIAL ACUMEN AND EXPERTISE OF TH E NON-RESIDENT IN LIEU OF A CONSIDERATION, TERMED AS COMMISSION. THIS IS TO SAY THAT THE PAYMENT BY THE RESIDENT ASSESSEE IN CONNECTION WITH HIS BUSINE SS IN INDIA TO A PERSON OUTSIDE INDIA MAKING USE OF HIS EXPERTISE IN SALE O F SIMILAR GOODS IN A PARTICULAR COUNTRY IS NOTHING BUT A FEE WHICH HAS B EEN PAID BY THE RESIDENT ASSESSEE TO THE NON-RESIDENT FOR THE TECHNICAL SERV ICES RENDERED BY HIM. THIS BEING THE STATED POSITION AND THE FACTUM OF THE CAS E, THE PAYMENT MADE BY THE ASSESSEE TO A NON-RESIDENT IS SQUARELY COVERED BY T HE PROVISIONS OF SECTION 195 OF THE INCOME TAX ACT, 1961 WHICH CALL FOR DEDUCTIO N OF TAX AT APPROPRIATE RATE AT THE TIME OF PAYMENT TO A NON-RESIDENT. IN VIEW O F THESE PROVISIONS WHICH FIND PLACE IN THE STATUTE, THE PROVISIONS OF SECTION 40( A)(IA) ARE ALSO ATTRACTED WHEREVER TDS ON PAYMENT OF COMMISSION TO A NON-RESI DENT HAS NOT BEEN MADE AT APPROPRIATE RATES. THESE PROVISIONS BAR DEDUCTIO N OF ANY PAYMENT ON ACCOUNT OF COMMISSION [FEE FOR TECHNICAL SERVICES] MADE TO A NON-RESIDENT, WITHOUT TDS. IN THESE CIRCUMSTANCES, THERE IS ABSOL UTELY NO BASIS TO CONCLUDE THAT INCOME, WHICH IS COMMISSION IN THE PRESENT CAS E, IS NOT TAXABLE UNDER INCOME TAX ACT, 1961. THE ASSESSEE IN THESE CIRCUMS TANCES IS LIABLE TO DEDUCT TAX AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACC OUNT OF PAYEE OR AT THE TIME OF PAYMENT WHICHEVER IS EARLIER. ALTERNATIVELY, THE ASSESSEE HAS TO OBTAIN CERTIFICATE FOR NO DEDUCTION OR LOWER DEDUCTION OF TAX ON THE PAYMENTS AS ITA NO. 198 & 199/JP/2019 MODERN THREADS INDIA LTD, JAIPUR VS. ACIT, JAIPUR 12 REQUIRED U/S 195(2) OF ACT. THE FOREIGN AGENTS CAN ALSO OBTAIN CERTIFICATES FOR NO DEDUCTION OR LOWER DEDUCTION OF TAX ON AMOUNT RE CEIVABLE / RECEIVED AS PRESCRIBED U/S 195(3) OF ACT. SINCE, THESE CONDITIO NS HAVE NOT BEEN CERTIFIED PAYMENTS HAVE BEEN MADE TO NON RESIDENTS WITHOUT DE DUCTION OF TAX AS REQUIRED U/S 195 OF THE ACT. CONSEQUENTLY, THE EXPE NDITURE ON EXPORT COMMISSION AND OTHER RELATED CHARGES PAYABLE TO A N ON RESIDENT FOR SERVICES RENDERED OUTSIDE INDIA IS NOT ALLOWABLE EXPENDITURE AND THESE ARE RIGHTLY DISALLOWED U/S 40(A)(IA) OF THE ACT. SHE ACCORDINGL Y SUPPORTED THE LOWER OF THE LOWER AUTHORITIES. 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE COORDINATE BENCH IN CASE OF JLC ELECTROMET P LTD VS ACIT (SUPRA) HAS DEALT WITH AN IDENTICAL ISSUE OF DISALL OWANCE OF COMMISSION PAYMENT TO NON-RESIDENTS U/S 40(A)(I) DUE TO NON-DE DUCTION OF TDS AND WHERE (SPEAKING THROUGH ONE OF US), IT WAS HELD AS UNDER: 23. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. DURING THE COURSE OF ASSESSME NT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS MADE PAYMENT OF SELLING COMMISSION, EXHIBITION EXPENSES AND TESTING EXPENSE S TO VARIOUS NON- RESIDENT ENTITIES, WITHOUT DEDUCTING TAX AT SOURCE AND A SHOW CAUSE WAS ISSUED AS TO WHY THIS PAYMENT SHOULD NOT BE DISALLO WED 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 RESPONSE, THE ASSESSEE SUBMITTED THAT IT IS NOT REQUIRED TO DEDUC T ANY TAX AT SOURCE AS PER PROVISIONS OF SECTION 195(1) SINCE THESE PAYMEN TS ARE NOT CHARGEABLE TO TAX IN INDIA AS NO INCOME ACCRUES OR ARISES IN I NDIA IN RESPECT OF THESE TRANSACTIONS IN THE HANDS OF THE NON-RESIDENT ENTIT IES, THE SERVICES HAVE BEEN RENDERED OUTSIDE INDIA BY THESE NON-RESIDENT E NTITIES AND THE PAYMENT HAVE ALSO BEEN MADE OUTSIDE OF INDIA. IT WA S SUBMITTED THAT ITA NO. 198 & 199/JP/2019 MODERN THREADS INDIA LTD, JAIPUR VS. ACIT, JAIPUR 13 THE COMMISSION HAS BEEN PAID IN RESPECT OF EXPORT S ALES MADE TO NON- RESIDENT OUTSIDE OF INDIA AND THE SERVICES FOR EARN ING COMMISSION INCOME BY THE NON-RESIDENT HAS BEEN RENDERED OUTSIDE OF IN DIA. IT WAS FURTHER SUBMITTED THAT THE EXHIBITION EXPENSES HAVE BEEN IN CURRED IN RESPECT OF PARTICIPATION IN VARIOUS EXHIBITION OUTSIDE OF INDI A AND THE TESTING CHARGES WERE PAID TO NON-RESIDENT FOR GETTING THE S AMPLES/GOODS TESTED OUTSIDE INDIA. WE THEREFORE FIND THAT THE ASSESSING OFFICER HAS NOT DISPUTED THE NATURE OF THE PAYMENTS SO MADE BY THE ASSESSEE TO THE NON-RESIDENT ENTITIES AND ALSO THE FACT THAT THE SE RVICES HAVE 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 MAKE DEDUCTION THERE UNDER APPLIES AND SHALL BE DEEMED T O HAVE ALWAYS APPLIED AND EXTENDS AND SHALL BE DEEMED TO HAVE ALW AYS EXTENDED TO ALL PERSONS, RESIDENT OR NON-RESIDENT, WHETHER O R NOT THE NON- RESIDENT PERSON HAS (I) A RESIDENCE OR PLACE OF BUS INESS OR BUSINESS CONNECTION IN INDIA; 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 C ASE OF M/S SESA RESOURCES LTD. (ITA NO. 267-PNJ-2015 DATED 20.08.20 15). THE LD. CIT(A) HAS ALSO NOT DISPUTED THE NATURE OF COMMISSION PAYM ENT WHICH HAVE BEEN MADE IN RESPECT OF SALES MADE OUTSIDE OF INDIA AS WELL AS THE EXHIBITION AND TESTING EXPENSES. ITA NO. 198 & 199/JP/2019 MODERN THREADS INDIA LTD, JAIPUR VS. ACIT, JAIPUR 14 25. SECTION 195 (1) PROVIDES THAT ANY PERSON RESPON SIBLE FOR PAYING TO A NON-RESIDENT, NOT BEING A COMPANY OR TO A FOREIG N COMPANY, ANY INTEREST OR ANY OTHER SUM CHARGEABLE UNDER THE PROV ISIONS OF THIS ACT SHALL DEDUCT INCOME TAX THEREON AT THE RATES IN FOR CE. THEREFORE, WHAT NEEDS TO BE EXAMINED IN THE INSTANT CASE IS WHETHER THE PAYMENT OF COMMISSION AND OTHER CHARGES ARE CHARGEABLE UNDER T HE PROVISIONS OF THIS ACT. IN EXPLANATION 2, IT HAS BEEN CLARIFIED T HAT THE OBLIGATION TO COMPLY UNDER SUB-SECTION (1) TO MAKE DEDUCTION APPL IES TO ALL PERSON RESIDENT OR NON-RESIDENT WHETHER OR NOT THE NON-RES IDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDI A OR ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER IN INDIA. 26. WE THEREFORE FIND THAT THE EXPLANATION 2 TO SEC TION 195 TALKS ABOUT THE PERSON WHO IS MAKING/CREDITING THE PAYMENT RATH ER THAN THE PERSON WHO IS RECEIVING THE PAYMENT AS THE OBLIGATION TO C OMPLY WITH SUB- SECTION (1) IS ON THE PERSON WHO HAS TO DEDUCT TAX AT SOURCE WHILE MAKING OR CREDITING THE PAYMENT TO THE ACCOUNT OF T HE PAYEE. THE EXPLANATION PROVIDES THAT THE OBLIGATION TO DEDUCT TAX AT SOURCE APPLIES TO ALL PERSONS 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 THE ACT AND THEREFORE, ONLY IN A SCENARIO, THE SUM IS CHARGEABLE UNDER THE ACT, THE OBLIGATION IS CAST ON ALL PERSONS TO DEDUCT TAX AT SOURCE IRRESPECTIVE OF THE RESIDENTIAL STATU S OR BUSINESS CONNECTION OR PRESENCE IN INDIA. WE THEREFORE FIND THAT READI NG OF THE SAID EXPLANATION BY THE LOWER AUTHORITIES IS NOT CORRECT 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 MEMORANDUM EXPLAINING THE PROVISIONS OF THE FINANCE BILL, 2012 WHICH READS AS UNDER:- ITA NO. 198 & 199/JP/2019 MODERN THREADS INDIA LTD, JAIPUR VS. ACIT, JAIPUR 15 SECTION 195 OF THE INCOME-TAX ACT REQUIRES ANY PER SON TO DEDUCT TAX AT SOURCE BEFORE MAKING PAYMENTS TO A NON-RESID ENT IF THE INCOME OF THE SUCH NON-RESIDENT IS CHARGEABLE TO TA X IN INDIA. PERSON, HERE, WILL TAKE ITS MEANING FROM SECTION 2 AND WOULD INCLUDE ALL PERSONS, WHETHER RESIDENT OR NON-RESIDE NT. THEREFORE, A NON-RESIDENT PERSON IS ALSO REQUIRED TO DEDUCT TAX AT SOURCE BEFORE MAKING PAYMENTS TO ANOTHER NON-RESIDENT, IF THE PAY MENT REPRESENTS INCOME OF THE PAYEE NON-RESIDENT, CHARGE ABLE TO TAX IN INDIA. THERE ARE NO OTHER CONDITIONS SPECIFIED IN T HE 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 I S MADE BY A RESIDENT OR A NON-RESIDENT. 27. FURTHER, REGARDING THE DECISION OF THE CO-ORDIN ATE BENCH IN CASE OF M/S SESA RESOURCES LTD (SUPRA) RELIED UPON BY THE A SSESSING OFFICER, WE FIND THAT THE SAME HAS BEEN SET ASIDE BY THE HONBL E BOMBAY HIGH 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 DIVISIO N BENCH IN THE CASE OF GUJARAT RECLAIM & RUBBER PRODUCTS LTD (SUPR A) IT HAS BEEN, INTER ALIA, HELD THAT BEFORE EFFECTING DEDUCT ION AT SOURCE ONE OF THE ASPECTS TO BE EXAMINED IS WHETHER SUCH INCOM E IS TAXABLE IN TERMS OF THE INCOME TAX ACT. THIS ASPECT HAS NOT BE EN CONSIDERED BY LEARNED TRIBUNAL WHILE CONCLUDING THAT THE APPEL LANT HAS COMMITTED A DEFAULT IN NOT DEDUCTING THE TAX AT SOU RCE. AS THE SAID LEARNED DIVISION BENCH JUDGMENT WAS NOT AVAILABLE W HILE PASSING THE IMPUGNED ORDER BY THE LEARNED TRIBUNAL, WE FIND IT ITA NO. 198 & 199/JP/2019 MODERN THREADS INDIA LTD, JAIPUR VS. ACIT, JAIPUR 16 APPROPRIATE, IN THE INTEREST OF JUSTICE, TO QUASH A ND 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 SOURCE AND REMAND THE MATTER TO THE LEARNED TRIBUNAL TO EXAMIN E THE SAID ASPECT AFRESH IN THE LIGHT OF THE JUDGMENT OF THIS COURT AFTER HEARING THE PARTIES IN ACCORDANCE WITH LAW. ALL CON TENTIONS ON THAT COUNT ARE KEPT OPEN. 28. NOW COMING TO THE PROVISIONS OF SECTION 40(A)(I A) OF THE ACT, THE SAID SECTION ALSO PROVIDES THAT ANY INTEREST, ROYAL TY, FEES 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 OR AFTER DEDUCTION HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SECTION 139(1) OF THE ACT. WE THEREFO RE FIND THAT BOTH THE PROVISIONS OF SECTION 195(1) AS WELL AS 40(A)(IA) O F THE ACT TALKS ABOUT DEDUCTION OF TAX AT SOURCE WHERE THE SUM IS CHARGEA BLE UNDER THIS ACT. 29. THE TAXABILITY OF COMMISSION PAYMENT HAS RECENT LY BEEN EXAMINED BY THE CO-ORDINATE BENCH IN CASE OF SATYAM POLYPLAS T VS. DCIT, 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 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. 198 & 199/JP/2019 MODERN THREADS INDIA LTD, JAIPUR VS. ACIT, JAIPUR 17 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 ACCOUNT 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 IN COME 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 RE CEIVED BY HIM IN INDIA. THEREFORE, COMMISSION PAID TO NON-RESIDENT OUTSIDE INDIA FOR THE SERVICES RENDERED OUTSIDE INDIA WILL NOT FALL IN TH E CATEGORY 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 SC OPE OF TOTAL INCOME OF NON-RESIDENT AND CONSEQUENTLY IT IS NOT C HARGEABLE TO TAX IN INDIA UNDER THE PROVISIONS OF THE ACT. EVEN OTHERWISE THE SAID INCOME IN THE HANDS OF NON-RESIDENT HAS TO BE CONSIDERED IN THE LIGHT OF THE PROVISIONS OF DTAA BETWEEN INDIA A ND THE COUNTRY OF THE NON-RESIDENT. IN THE ABSENCE OF P.E. OF THE NON-RESIDENT IN INDIA SUCH BUSINESS INCOME IS NOT CHARGEABLE TO TAX IN INDIA. ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE WHEN THE AMOUNT PAID BY THE ASSESSEE IS NOT CHARGEABLE TO TA X IN INDIA THEN ITA NO. 198 & 199/JP/2019 MODERN THREADS INDIA LTD, JAIPUR VS. ACIT, JAIPUR 18 THE ASSESSEE IS NOT LIABLE TO DEDUCT TDS AND CONSEQ UENTLY THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT CANNOT BE INVOKED FOR MAKING THE DISALLOWANCE. IN THE FACTS AND CIRCUMSTA NCES OF THE CASE THE DISALLOWANCE MADE BY THE AO U/S 40(A)(I) O F THE ACT IS DELETED. IN THE RESULT, THE APPEAL FILED BY THE ASS ESSEE IS ALLOWED. 30. IN THE PRESENT CASE, UNDISPUTED FACTS ARE THAT THE COMMISSION HAS BEEN PAID TO VARIOUS NON-RESIDENT ENTITIES IN RESPE CT OF SALES AFFECTED BY THE ASSESSEE OUTSIDE OF INDIA, THE SERVICES HAVE BE EN RENDERED OUTSIDE OF INDIA AND THE PAYMENTS HAVE BEEN MADE OUTSIDE OF INDIA. IN LIGHT OF THESE UNDISPUTED FACTS, THE LEGAL PROPOSITION LAID DOWN IN THE AFORESAID DECISION EQUALLY APPLIES IN THE INSTANT CASE AND SU CH COMMISSION PAYMENT CANNOT BE HELD CHARGEABLE TO TAX IN INDIA. SIMILARLY THE EXHIBITION EXPENSES HAVE BEEN PAID IN RESPECT OF PA RTICIPATION IN VARIOUS EXHIBITIONS HELD OUTSIDE OF INDIA AND EVEN THE TEST ING CHARGES HAVE BEEN PAID FOR TESTING SERVICES OUTSIDE OF INDIA. THEREFO RE, THESE PAYMENTS WILL NOT FALL IN THE CATEGORY OF INCOME WHICH HAS ACCRUE D OR ARISEN OR DEEMED TO ACCRUED OR ARISE IN INDIA. FURTHER, PAYMENTS HAV E BEEN MADE OUTSIDE OF INDIA. ACCORDINGLY, WE ARE OF THE CONSIDERED VIE W THAT THERE WAS NO LIABILITY TO DEDUCT TAX AT SOURCE U/S 195(1) AS THE SE PAYMENTS ARE NOT CHARGEABLE TO TAX AND THE PROVISIONS OF SECTION 40( A)(IA) CANNOT BE INVOKED IN THE INSTANT CASE. 17. IN THE PRESENT CASE, THE FACTS ARE PARI-MATERIA WHERE THE COMMISSION HAS BEEN PAID TO VARIOUS NON-RESIDENT ENTITIES IN RESPE CT OF SALES AFFECTED BY THE ASSESSEE OUTSIDE OF INDIA, THE SERVICES HAVE BEEN R ENDERED BY THESE ENTITIES OUTSIDE OF INDIA AND THE PAYMENTS HAVE BEEN MADE OU TSIDE OF INDIA. IN LIGHT OF THESE UNDISPUTED FACTS, THE LEGAL PROPOSITION LA ID DOWN IN THE AFORESAID DECISION EQUALLY APPLIES IN THE INSTANT CASE AND CO MMISSION PAID TO NON- ITA NO. 198 & 199/JP/2019 MODERN THREADS INDIA LTD, JAIPUR VS. ACIT, JAIPUR 19 RESIDENT OUTSIDE INDIA FOR THE SERVICES RENDERED OU TSIDE INDIA WILL NOT FALL IN THE CATEGORY OF THE INCOME RECEIVED OR DEEMED TO BE REC EIVED IN INDIA AS WELL AS ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE I N INDIA. SUCH COMMISSION PAYMENT OR PART THEREOF CANNOT THEREFORE BE HELD CH ARGEABLE TO TAX IN INDIA AND IN ABSENCE OF ANY INCOME CHARGEABLE TO TAX, THE RE WAS NO LIABILITY TO DEDUCT TAX AT SOURCE U/S 195(1) AND THE PROVISIONS OF SECTION 40(A)(I) THEREFORE CANNOT BE INVOKED IN THE INSTANT CASE. FURTHER, OUT OF TOTAL COMMISSION PAYMENT OF RS 99,84,436, AN AMOUNT OF RS 1,55,867/- HAS BEEN PAID TO A RESIDENT ENTITY ON WHICH TDS HAS ALREADY BEEN DONE WHICH IS AGAIN OUT OF THE AMBIT OF PROVISIONS OF SECTION 40(A)(I) OF THE ACT. IN LIGHT OF ABOVE DISCUSSIONS AND CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTA NCES OF THE CASE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER BY INVOK ING PROVISIONS OF SECTION 40(A)(I) IS HEREBY DIRECTED TO BE DELETED. 18. NOW, COMING TO ITA NO. 199/JP/19 FOR AY 2015-16 , BOTH THE PARTIES FAIRLY SUBMITTED THAT THE FACTS AND CIRCUMSTANCES OF THE C ASE ARE EXACTLY IDENTICAL TO FACTS AND CIRCUMSTANCES OF THE CASE IN ITA NO. 1494 /JP/2018, THEREFORE, OUR FINDINGS AND DIRECTIONS CONTAINED THEREIN SHALL APP LY 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 15/02/2021. SD/- SD/- LANHI XKSLKBZ FOE FLAG ;KNO ( SANDEEP GOSAIN ) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 15/02/2021 * GANESH KR. ITA NO. 198 & 199/JP/2019 MODERN THREADS INDIA LTD, JAIPUR VS. ACIT, JAIPUR 20 VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- MODERN THREADS INDIA LIMITED, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- ACIT, CIRCLE-06, JAIPUR DCIT, CIRCLE-06, 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 NOS. 198 & 199/JP/2019} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR