BNTConnections Impex Ltd., CHENNAI V. DCIT, CHENNAI

ITA 2066/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96629 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 19-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR B NISCHAL
• Assessee Lawyers: KARUNAKARAN
• Keywords: Non-deduction of tax
• Section: 5(2); 201(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! # $ , % & BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NOS.2065 & 2066/MDS/2015 ( / ASSESSMENT YEARS: 2010-11 & 2011-12) M/S. BNT CONNECTIONS IMPEX LTD. 41, KKR AVENUE, PERAMBUR, CHENNAI-600 011 VS THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-1(2), CHENNAI. PAN: AAACB2243D ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. KARUNAKARAN, ADVOCATE /RESPONDENT BY : DR. B.NISCHAL, JCIT /DATE OF HEARING : 1 ST DECEMBER, 2015 /DATE OF PRONOUNCEMENT : 30 TH DECEMBER, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGA INST THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEA LS)-1, CHENNAI DATED 10.08.2015 FOR THE ASSESSMENT YEARS 2010- 11 AND 2011-12. THE ONLY ISSUE IN THESE TWO APPEALS OF THE ASSESSEE IS THAT COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN SUSTAINING THE DISALLOWANCE MADE UNDER SEC TION 40(A)(IA) OF THE ACT IN RESPECT OF COMMISSION PAID TO NON- RESIDENT AGENTS FOR NON-DEDUCTION OF TAX AT SOURCE. 2. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITS T HAT THIS ISSUE HAS COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN 2 ITA NO.2065 & 2066 /MDS/2015 CASE FOR THE ASSESSMENT YEAR 2009-10 AND THE TRIBUN AL REMITTED THE APPEAL BACK TO THE FILE OF ASSESSING O FFICER WITH A DIRECTION TO DECIDE THE ISSUE DE NOVO, THUS A SIM ILAR DIRECTION MAY BE ISSUED FOR THESE TWO ASSESSMENT YE ARS ALSO. 3. DEPARTMENTAL REPRESENTATIVE HAS NO SERIOUS OBJEC TION IN GIVING SIMILAR DIRECTION AS WAS GIVEN BY THE TR IBUNAL FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR IN ASSESSEES OWN CASE. 4. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISION RELIED ON. THE CO-ORDINATE BENCH O F THIS TRIBUNAL FOR THE IMMEDIATELY PRECEDING ASSESSMENT Y EAR IN ASSESSEES OWN CASE IN ITA NO.1466/MDS/2013 DATED 20.03.2014 HELD AS UNDER:- 7. THE SECOND GROUND OF APPEAL OF THE REVENUE RELATES TO DISALLOWANCE MADE UNDER SECTION 40(A)(I) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE ASSESSING OFFICER HAS OBSERVED THAT UNDER SCHED ULE 13 FORMING PART OF FINANCIALS, COMMISSION WAS SHOWN AS ` .1,07,49,588/-. THE ASSESSEE WAS ASKED TO CLARIFY REGARDING THE NATURE OF THIS CLAIM AND ALSO WHETHER IT SUFFERED TDS VIDE LETTER DATED 08.12.2011. THE ASSE SSEE HAS STATED THAT IT REPRESENTS COMMISSION ON EXPORTS AND TDS PROVISIONS ARE NOT APPLICABLE IN TERMS OF BOARD S CIRCULAR NO. 726 DATED 07.02.2000. THE ASSESSEE HAS STATED THAT THE EXPENSES ON OVERSEAS COMMISSION DOE S NOT REQUIRE TAX TO BE DEDUCTED AND FURTHER RELIED O N THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F GE INDIA TECHNOLOGY CENTRE V. CIT AND SUBMITTED THAT T DS OBLIGATION UNDER SECTION 195(1) ARISES ONLY IF THE PAYMENT 3 ITA NO.2065 & 2066 /MDS/2015 IS CHARGEABLE TO TAX IN THE HANDS OF NON-RESIDENT RECIPIENT. THE ASSESSING OFFICER HAS ASKED THE ASSE SSEE TO FURNISH THE COMPLETE DETAILS IN RESPECT OF COMMI SSION COPY OF RELEVANT AGREEMENT IN THIS REGARD. THE ASSE SSEE COULD NOT FURNISH ANY SUCH AGREEMENT OTHER THAN STA TING THAT THE PAYMENTS ARE REGULARLY MADE FOR THE PAST S EVERAL YEARS. THE ASSESSING OFFICER, AFTER CONSIDERING THE REPLY OF THE ASSESSEE, DISALLOWED THE COMMISSION OF ` .1,07,49,588/- PAID TO THE NON-RESIDENTS UNDER SECT ION 40(A)(I) OF THE ACT FOR THE FAILURE TO COMPLY WITH THE PROVISIONS OF CHAPTER XVII-B AND ADDED TO THE INCOM E OF THE ASSESSEE. 8. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFOR E THE LD. CIT(APPEALS) AND SUBMITTED COPY OF THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND THE AGENT, WHO IS REPRESENTING THE FOREIGN BUYER DATED 01.01.2008 AND ALSO CERTIFICATE ISSUED BY THE BUYE R AGENT TO THE EFFECT THAT HE HAS DISCHARGED HIS TAX OBLIGATIONS IN INDIA. THE LD. CIT(APPEALS), AFTER C ALLING REMAND REPORT FROM THE ASSESSING OFFICER AND CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, DELETE D THE ADDITION MADE BY THE ASSESSING OFFICER. 9. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 10. THE LD. DR HAS SUBMITTED THAT THE ASSESSEE HAS INDIRECTLY PAID THE COMMISSION TO FOREIGN BUYER AGE NT AND IT ATTRACTS EXPLANATION 1 TO SECTION 194H AND STRON GLY SUPPORTED THE ORDER PASSED BY THE ASSESSING OFFICER . 11. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THEY HAVE NOT PAID THE COMMISSION TO THE AGENT AND ONLY THE FOREIGN BUYER HAS PAID THE COMMISSION TO THE AGENT AS PER THEIR TERMS OF CONTRACT BY DEDUCTING THE SAME FROM THE EXPORT PROC EEDS FROM THE ASSESSEES EXPORT BILL, SINCE THE COMMISSI ON WAS ADDED TO THE ORIGINAL SELLING PRICE. THEREFORE, THE ASSESSEE HAS SUBMITTED THAT THEY HAVE NEITHER CREDI TED THE AGENTS ACCOUNT WITH THE COMMISSION AMOUNT IN TH EIR BOOKS NOR PAID THE COMMISSION DIRECTLY TO THE PARTY HENCE THE QUESTION OF DEDUCTION OF TAX BY THEM DOES NOT ARISE AT ALL AND THE COMMISSION WAS PAID BY FOREIGN BUYER, THE ASSESSEE HAS NO OBLIGATION TO DEDUCT TDS . 12. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIAL S ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIE S 4 ITA NO.2065 & 2066 /MDS/2015 BELOW. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTU RE AND EXPORT OF GARMENTS. IN THE ASSESSMENT PROCEEDIN GS, THE ASSESSING OFFICER HAS SHOW CAUSED THE ASSESSEE IN RESPECT OF COMMISSION AMOUNT SHOWN AS ` .1,07,49,588/-, WHETHER IT HAS SUFFERED TDS OR NOT. IN ITS REPLY DA TED 08.12.2011, THE ASSESSEE HAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE COMMISSION ON EXPORT, TD S PROVISIONS ARE NOT APPLICABLE AS PER THE BOARDS CI RCULAR DATED 07.02.2000. THE ASSESSEE HAS ALSO SUBMITTED T HAT THE EXPENSE ON OVERSEAS COMMISSION DOES NOT REQUIRE TAX TO BE DEDUCTED. THE ASSESSING OFFICER HAS ASKED THE ASSESSEE TO FURNISH COMPLETE DETAILS IN RESPECT OF COMMISSION AND COPY OF RELEVANT AGREEMENT IN THIS REGARD. THE ASSESSEE COULD NOT FURNISH ANY SUCH AGREEMENT OTHER THAN STATING THAT THE PAYMENTS ARE REGULARLY MADE FOR THE PAST SEVERAL YEARS. THEREFOR E, THE ASSESSING OFFICER CONCLUDED BY DISALLOWING THE AMOU NT OF ` .1,07,49,588/- PAID TO THE NON-RESIDENTS UNDER SECT ION 40(A)(I) OF THE ACT FOR THE FAILURE TO COMPLY WITH THE PROVISIONS OF CHAPTER XVII-B. BEFORE THE LD. CIT(APPEALS), IT WAS SUBMITTED THAT THE COMMISSION WAS PAID BY FOREIGN BUYER AND THE COMMISSION WAS ADDED TO THE SALE VALUE AND THE BUYER USED TO REMIT THE EXPO RT PROCEEDS AFTER DEDUCTING THE COMMISSION DUE TO THEI R AGENT. IT WAS ALSO SUBMITTED THAT ACTUALLY THE AGEN T IS A RESIDENT AND WAS APPOINTED AND NOMINATED AS BUYERS AGENT AND NOT ASSESSEES AGENT AND HE COMMISSION WA S PAID BY THE FOREIGN BUYER. THIS SUBMISSION WAS NOT MADE BEFORE THE ASSESSING OFFICER. FURTHER, ACTUALLY, TH E FOREIGN BUYER PAYS COMMISSION TO THE AGENT. THE ASSESSEE WAS NOT ABLE TO EXPLAIN BEFORE THE ASSESSI NG OFFICER BY PRODUCING RELEVANT MATERIALS. BEFORE THE ASSESSING OFFICER, THE ASSESSEE HAS NOT GIVEN ANY DETAILS OF COMMISSION PAYMENT. BEFORE THE LD. CIT(APPEALS), THE AR OF THE ASSESSEE HAS FILED WRIT TEN SUBMISSION, WHICH READS AS UNDER: 5.1 THE APPELLANT CONTESTED THE ABOVE ADDITION OF RS.1,07,49,588/- U/S 40(A)(I). THE WRITTEN SUBMISSI ONS OF THE APPELLANT ARE REPRODUCED AS UNDER: THE APPELLANT SUBMITS THAT THE SUM OF RS. 1,07,49, 588/- INCLUDE COMMISSION PAID LOCALLY OF RS. 16,97,427/- ON WHICH THE APPELLANT HAS DEDUCTED TAX AT SOURCE AND THEREF ORE THE SAME MAY BE ALLOWED AND THE DISALLOWANCE MAY BE DEL ETED. THE OVERSEAS COMMISSION PAID THEREFORE AMOUNTED TO RS. 90,11,577 AND NOT RS. 1,07,49,588/-.DISALLOWED BY T HE ASSESSING OFFICER. 5 ITA NO.2065 & 2066 /MDS/2015 THE ASSESSING OFFICER HAS DISALLOWED THE SUM OF RS. 90,11,577/- ON THE GROUND THAT THE COMMISSION PAID WAS TO A NON RESIDENT AND TAX HAS NOT. BEEN DEDUCTED AT SOURCE AS PER THE PROVISIONS OF SECTION 195 AND THEREFORE THE COMMISSION HAS TO BE DISALLOWED AS PER THE PROVISIONS OF SECTION 40(A)(I ). IN THIS CONNECTION, THE APPELLANT SUBMIT THAT THE COMMISSIO N WAS TO BE PAID BY THE FOREIGN BUYER AND THE COMMISSION WAS AD DED TO THE SALE VALUE AND THE BUYER USED TO REMIT THE EXPORT P ROCEEDS AFTER DEDUCTING THE COMMISSION DUE TO THEIR AGENT. THE AGENT IS ACTUALLY A RESIDENT WHO WAS APPOINTED AND NOMINATED AS BUYERS AGENT AND NOT APPELLANT AGENT AND THE COMMIS SION WAS PAID BY THE FOREIGN BUYER. SINCE COMMISSION HAS TO BE PAID TO THE AGENT AS PER THE CONTRACT BY THE OVERSEAS BUYER UNDER PURCHASE ORDER OF THE FOREIGN BUYER AND UNLESS THE CONDITION IMPOSED BY THE FOREIGN BUYER IS NOT FULFILLED THE A PPELLANT WOULD LOSE ITS EXPORT ORDER. THE APPELLANT SUBMITS THAT THEY HAVE NOT PAID THE COMMISSION DIRECTLY TO THE AGENT AND ONLY THE FOREIGN BUYER HAS PAID THE COMMISSION TO THE AGENT AS PER THEIR TERMS OF CONTRACT BY DEDUCTING THE SAME FROM THE EX PORT PROCEEDS FROM THE APPELLANT EXPORT BILLS, SINCE THE COMMISSION WAS ADDED TO THE ORIGINAL SELLING PRICE. THE APPELL ANT THEREFORE SUBMITS THAT THE ASSESSEE HAVE NEITHER CREDITED THE AGENTS ACCOUNT WITH THE COMMISSION AMOUNT IN THEIR BOOKS N OR PAID THE COMMISSION DIRECTLY TO THE PARTY HENCE THE QUES TION OF DEDUCTION OF TAX BY THEM DOES NOT ARISE AT ALL. THE APPELLANT THEREFORE SUBMITS THAT THE COMMISSION HAVING BEEN P AID TO THE OVERSEAS BUYERS. INDIAN AGENT BY THE FOREIGN BUYER THEREFORE THE PROVISIONS OF SECTION 195 WILL NOT APPLY. THE APPELLANT FURTHER STATES THAT THEY HAVE INCLUDE D THE COMMISSION AMOUNT ALONG WITH THE UNIT PRICE OF THE GOODS EXPORTED IN THE INVOICE AS PER TERMS OF THE LETTER OF CREDIT OR THE PURCHASE ORDER OF THE FOREIGN BUYER. FURTHER THE AP PELLANT HAS ACCOUNTED THE GROSS VALUE OF THE SALES WHICH INCLUD ES THE COMMISSION AMOUNT PAYABLE BY THE FOREIGN BUYER TO H IS AGENT. WHEN THESE BILLS ARE SENT TO THE BUY.ER FOR PAYMENT S THE BUYER DEDUCTS THE COMMISSION PART FROM THE INVOICE VALUE AND MAKES PAYMENT OF NET SALE VALUE (VALUE OF THE GOODS EXPOR TED BY THE APPELLANT). THE APPELLANT HAS BOOKED THE GROSS VALU E OF SALES IN HIS BOOKS AND WHEN THE, COMPANY RECEIVES ONLY TH E NET VALUE OF EXPORTED GOODS THE APPELLANT PASSES JOURNAL ENTR Y AND FOR THE COMMISSION PORTION AND SHOWS THE SAME AS EXPEND ITURE AS THE SALE VALUE IS BOOSTED OR INCREASED BY THE COMMI SSION PAYABLE BY THE FOREIGN BUYER TO HIS AGENT. HENCE TO SHOW THE ACTUAL POSITION OF THE COMPANIES BUSINESS THE ASSES SEE CLAIMS THE COMMISSION AS EXPENDITURE TO NULLIFY THE GROSS SALES WHICH INCLUDES COMMISSION AMOUNT. 6 ITA NO.2065 & 2066 /MDS/2015 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER ON LY INVOKED THE PROVISIONS OF SECTION 195. THE ASSESSING OFFICE R DISALLOWED THE OVERSEAS COMMISSION FOR WANT OF AGREEMENT. SHE HAS FURTHER HELD THAT AS PER THE PROVISIONS OF SECTION 9 THE INCOME OF A NON RESIDENT SHALL BE DEEMED TO ACCRUE WHETHER OR NOT HE HAS RESIDENCE OR PLACE OF BUSINESS IN INDIA BUT REN DERED SERVICES IN INDIA. THE APPELLANT SUBMITS THAT THE S ERVICES WERE RENDERED OUTSIDE AND INSIDE INDIA BY THE INDIAN AGE NT. THE APPELLANT SUBMITS THAT THE COMMISSION IS TO BE PAID BY THE BUYER AND THEREFORE ASKING THE TO ADD BUYERS AGENT COMMISSION ALSO IN THE BILL ITSELF WHICH IS PAYABLE BY THE BUY ER TO HIS COMMISSION AGENT. IT IS THE CONDITION OF PURCHASE A ND UNLESS THE CONDITION IS SATISFIED, THE FOREIGN BUYER WOULD NOT IMPORT THE GOODS FROM THE APPELLANT AND THE APPELLANT CANN OT EXPORT THE GOODS. THIS IS EVIDENCED FROM THE PURCHASE ORDE R, LC AND INVOICES RAISED AND ALSO AGENT AGREEMENT. THE EXPOR T BILL RAISED ON THE FOREIGN BUYER ALSO SUPPORTS THE ABOVE FACT WHEREIN THE COMMISSION TO BE PAID BY THE BUYER TO H IS AGENT IS ADDED TO THE INVOICE VALUE AND THE APPELLANT RECEIV ES ONLY THE ACTUAL SALE VALUE OF THE GOODS AND NOT THE COMMISSI ON PORTION. AND THE COMMISSION IS DIRECTLY REMITTED BY THE FORE IGN BUYER TO HIS COMMISSION AGENT IN INDIA. THE ASSESSING OFFICE R REJECTED THE ABOVE DOCUMENTARY EVIDENCES. THE APPELLANT COUL D NOT SUBMIT THE AGREEMENT WITHIN A SHORT TIME GRANTED BY THE ASSESSING OFFICER BEFORE COMPLETION OF THE ASSESSME NT. IN THE PRESENCE OF ALL THE DOCUMENTS FURNISHED THE PAYMENT OF COMMISSION, IS PROVED BEYOND DOUBT AND THEREFORE TH E ASSESSING OFFICER SHOULD NOT HAVE DISALLOWED THE CO MMISSION PAYMENTS .UNDER SECTION 40 A (I). THE OTHER GROUND ON WHICH THE ASSESSING OFFICER DIS ALLOWED THE OVERSEAS COMMISSION WAS THAT THE EARLIER CIRCULARS ALLOWING FOREIGN AGENCY COMMISSION WITHOUT ANY TAX DEDUCTION VIZ. THE CIRCULAR NOS. 786 DATED 7/2/2000 AND CIRCULAR NO.23 OF 1969 WERE WITHDRAWN BY SUBSEQUENT CIRCULAR NO. 7 OF 2009 DATED 22.10.2009 AND THEREFORE THE OVERSEAS COMMISSION CA NNOT BE ALLOWED AS THERE WAS NO TAX DEDUCTION. SHE HAS DIST INGUISHED THE SUPREME COURT'S DECISION IN THE CASE OF GE INDI A TECHNOLOGY CENTRE P LTD. (327 ITR 356) RELIED ON BY THE APPELLANT AND FOLLOWED THE DECISION IN THE CASE OF TRANSMISSION CORPORATION AP LTD. (239 ITR 587). THE APPELLANT SUBMITS THAT THE REASONING OF THE ASSESSI NG OFFICER IS NOT CORRECT FOR DISALLOWING THE OVERSEAS COMMISSION PAYMENT OF RS. 90,11,577/-. THE APPELLANT SUBMITS THAT THE SUM OF RS. 90,11,577 /- WAS NOT PAID BT THE COMPANY AND HENCE THEY HAVE NOT DEDUCTE D THE TDS 7 ITA NO.2065 & 2066 /MDS/2015 ON THE SAME. THE APPELLANT THEREFORE SUBMITS THAT S INCE THE APPELLANT HAS RECEIVED THE INVOICE VALUE OF THE GOO DS EXPORTED AND NOT COMMISSION THE APPELLANT HAS TO MAKE NECESS ARY ENTRY FOR ADJUSTING THE GROSS INVOICE VALUE WHICH INCLUDE D BUYERS AGENT COMMISSION RETAINED BY THE BUYER FOR, ULTIMAT E PAYMENT TO HIS AGENT AND ACCORDINGLY REMITTED ALL THE COMMI SSION AMOUNTS DIRECTLY FROM OVERSEAS TO HIS AGENT IN INDI A AS PAR THEIR CONTRACT. NO COMMISSION PAYMENT WAS ACTUALLY MADE BT THE APPELLANT TO THE BUYERS COMMISSION AGENT BUT ON LY THE BUYER MAKES THE PAYMENT TO THEIR AGENT. SINCE NO PA RT OF THE COMMISSION WAS PAID DIRECTLY BY THE APPELLANT IN IN DIA, THEY HAVE NOT DEDUCTED ANT TAX AT SOURCE AND THEREFORE T HE ASSESSING OFFICER IS NOT CORRECT IN DISALLOWING THE COMMISSIO N PAID BY INVOKING THE PROVISIONS OF SECTION 40 (A) (I) READ WITH SECTION 195. THE APPELLANT SUBMITS THAT THE REASONING OF THE ASS ESSING OFFICER FOR DISALLOWING THE AGENCY COMMISSION IS NO T CORRECT BOTH IN LAW AND ON FACTS. FIRSTLY, THE BOARDS CIRCULAR ALLOWING FOREIGN AGEN CY COMMISSION WITHOUT DEDUCTION OF TAX AT SOURCE WHEN SERVICES ARE RENDERED BY A FOREIGN AGENT OUTSIDE INDIA WAS, WITHDRAWN ,ONLY ON 22/10/2009 AND WOULD BE EFFECTIVE ONLY THE REAFTER. THE ASSESSMENT YEAR INVOLVED IS ASSESSMENT YEAR 2009-10 . THE EARLIER CIRCULARS WERE EFFECTIVE FOR THE PREVIOUS Y EAR ENDED 31/3/2009. FURTHER, THE BOARD'S CIRCULAR DATED 22/1 0/2009 DEALS WITH THE PROVISIONS OF SECTION 9 WHICH IS NOT APPLICABLE TO THE APPELLANT'S CASE. THE APPELLANT SUBMITS THAT TH E MUMBAI BENCH OF THE INCOME-TAX APPELLATE TRIBUNAL IN THE C ASE OF DDIT VS. SIEMENS AKTIENGESELLSCHAFT (ITA 6133/MUM/2 002) HELD THAT THE WITHDRAWAL OF THE CIRCULAR IS PROSPEC TIVE IN NATURE AND WILL NOT APPLY TO THE YEARS IN WHICH IT WAS IN OPERATION. SINCE THE CIRCULAR WAS IN OPERATION FOR THE YEAR ENDED 31/3/2009, THE WITHDRAWAL HAS NO IMPLICATION TO THE APPELLANT'S CASE. SECONDLY, THE APEX COURT IN THE CASE OF GE TECHNOLO GY CENTRE P LTD. (327 ITR 456) HAS CATEGORICALLY HELD THAT ON LY WHEN THE RECEIPT IS LIABLE TO INCOME-TAX EITHER PARTLY OR WH OLLY THEN ONLY THE QUESTION OF DEDUCTION OF TAX AT SOURCE WOULD AR ISE AND NOT OTHERWISE. IN THE APPELLANTS CASE THERE WAS NO DIS PUTE THAT THE COMMISSION WAS PAID FOR SERVICES RENDERED OUTSIDE I NDIA AND THE COMMISSION WAS PAID BY THE BUYER AND NOT THE AP PELLANT AND ACCORDINGLY NO TAX IS REQUIRED TO BE DEDUCTED. THE VIEW TAKEN BY THE ASSESSING OFFICER IS QUITE CONTRARY TO THE DECISION OF THE SUPREME COURT. 8 ITA NO.2065 & 2066 /MDS/2015 THIRDLY, THE ASSESSING OFFICER ERRED IN APPLYING TH E PROVISIONS OF SECTION 9 TO THE APPELLANT'S CASE. THE OVERSEAS COMMISSION IS NOT AT ALL COVERED BY THE PROVISIONS OF SECTION 9 A ND NO SERVICES WERE RENDERED IN INDIA BY THE AGENT. THE O VERSEAS COMMISSION CANNOT BE EQUATED TO ROYALTY OR TECHNICA L FEES AS REFERRED TO IN SECTION 9. THE ASSESSING OFFICER COM PLETELY ERRED IN HOLDING THAT SINCE THE PAYMENTS WERE MADE FOR TH E APPELLANT'S BUSINESS IT SHOULD BE DEEMED TO HAVE AR ISEN IN INDIA. THE SERVICES OF A FOREIGN AGENT CANVASSING O RDERS FOR THE INDIAN EXPORTER CANNOT BE CLASSIFIED AS RENDERING M ANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES AS DEFINED IN SEC TION 9(1)(VII). NO MANAGERIAL SERVICES IS RENDERED BT TH E FOREIGN AGENT NOR DOES HE GIVE ANY CONSULTANCY SERVICES TO THE APPELLANTS. BY CANVASSING ORDERS, HE IS NOT RENDERI NG ANY TECHNICAL SERVICES TOO. HENCE THE COMMISSION PAID T O THE FOREIGN AGENT CANNOT BE CONSIDERED AS TECHNICAL SER VICES WITHIN THE MEANING OF SECTION 9(1)(VII). THE JAIPUR BENCH OF THE ITAT IN MODERN INSULATOR CASE 56 DTR 362 AND TH E DELHI HIGH COURT IN THE CASE OF EON TECHNOLOGY P LTD (343 ITR 366) HELD THAT COMMISSION RELATED SERVICES RENDERED BY F OREIGN AGENT DO NOT ATTRACT TAX WITHHOLDING U/S 195 OF THE ACT AS THE SAME ARE NOT IN THE NATURE OF TECHNICAL/MANAGERIAL SERVICES. FOURTHLY, THE APPELLANT SUBMITS THAT THE APPELLANT IS NOT REQUIRED TO OBTAIN ANY CERTIFICATE UNDER SECTION 19 5(2) AS NO PART OF THE COMMISSION PAID TO THE FOREIGN AGENT IS CHARGEABLE TO TAX IN INDIA AS HELD BY THE CHENNAI BENCH OF THE ITAT IN THE CASE OF VA TECH WABAG LTD VS ACIT(2010 TIL-109) WHI CH RELIED ON SPECIAL BENCH DECISION OF THE ITAT CHENNA I IN THE CASE OF ITO VS PRASAD PRODUCTIONS LTD (129 TTJ 641) . THE APPELLANT FURTHER SUBMITS THAT THE AUTHORITY FOR AD VANCE RULING IN THE CASE OF SPAHI PROJECTS P LTD. IN RE ( 315 ITR 374 (AAR) HAS HELD THAT THE COMMISSION PAID TO THE FORE IGN AGENTS FOR SERVICES ABROAD CANNOT BE CONSIDERED AS AN INCO ME FALLING WITHIN THE PROVISIONS OF SECTION 9 AND NO INCOME DE EMED TO ACCRUE OR ARISE IN INDIA. SIMILAR VIEW WAS TAKEN IN THE CASE OF HAVELLS INDIA LTD (140 TTJ 283) BY THE DELHI BENCH OF THE ITAT. RELIANCE IS ALSO PLACED ON THE DECISION IN TH E CASE OF DCIT VS MAINETTI (INDIA) P LTD (2011) 12 TAXMAN.COM .60. THE HYDERABAD ITAT IN THE CASE OF ACIT VS PRIYADARSHINI SPINNING MILLS P LTD IN ITA NO 1776/HYD/2011 DATED 6/7/2012 HAS HELD THAT IF INCOME IS NOT CHARGEABLE TO TAX IN INDIA, TAX IS NOT REQUIRED TO BE DEDUCTED U/S 195 (1) SIMILAR VIE W WAS TAKEN IN THE CASE OF DCIT VS DIVIS LABORATORIES LTD DT 25 /3/2011 BY THE SAME BENCH. THE APPELLANT FURTHER SUBMITS THAT THE PERSON WHO H AS RECEIVED THE COMMISSION IS A RESIDENT IN INDIA AND HE HAS DI SCHARGED HIS 9 ITA NO.2065 & 2066 /MDS/2015 TAX OBLIGATION FOR THE ASSESSMENT YEAR 2009-10 AND HE HAS GIVEN A DECLARATION TO THIS EFFECT. COPY OF THE SAM E IS ENCLOSED. AS PER DECISION OF THE SUPREME COURT IN THE CASE OF M/S HINDUSTAN COCO COLA (293 ITR 226 ) HAS HELD THAT ON CE THE PAYEE HAS DISCHARGED THE TAX OBLIGATIONS THERE IS N O REQUIREMENT TO DEDUCT SUCH TAX. IN FACT THIS IS THE INTENTION OF THE LEGISLATURE AS EVIDENT FROM THE AMENDMENT MADE BY FINANCE ACT 2012 TO SECTION 40(A)(IA) BY INSERTING THE PROVISO TO THE SAID SECTION. AS PER THE PROVISO IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESID ENT PAYEE REFERRED TO IN THE FIRST PROVISO TO SECTION 201(1) AND THE ASSESSEE WILL BE ALLOWED DEDUCTION IN RESPECT OF SU CH EXPENDITURE. THOUGH THE AMENDMENT IS EFFECTIVE FROM 01.04.2012 STILL THE AMENDMENT MADE CLEAR THE INTEN TION OF THE LEGISLATURE WHICH FOLLOWED THE RATIO LAID DOWN BY T HE SUPREME COURT IN THE ABOVE CASE. IN THE APPELLANT'S CASE THE PROVISIONS OF SECTION 4 0(A)(IA) ARE ONLY APPLICABLE AND SINCE THE ENTIRE COMMISSION WAS PAID DURING THE YEAR THE PROVISIONS OF SECTION 40(A((IA) ARE NOT APPLICABLE AS THE SAID PROVISIONS ARE APPLICABLE ON LY TO THE AMOUNTS PAYABLE AND NOT ON THE AMOUNTS PAID. THIS I S SO HELD BY THE SPECIAL BENCH OF THE INCOME TAX APPELLATE TR IBUNAL, VISAKHAPATNAM IN THE CASE OF MERILYN SHIPPING & TRA NSPORT VS ADDL. CIT (136 ITD 23). THE SPECIAL BENCH DECISI ON WAS FOLLOWED BY THE ITAT OF CHANDIGARH BENCH IN THE CAS E OF PUNJAB STATE CO OP FEDERATION OF HOUSE BUILDING SOC IETY VS DCIT DATED 31/05/2011. RELIANCE IS PLACED ON THE DE CISION IN 39 SOT 13 (HYD). THE CHENNAI ITAT HAS ALSO FOLLOWED THE SAID DECISION IN THE CASE OF RANE ENGINE VALVES LTD VS ITO IN ITA NO 1949/MDS/2011 DATED 16/05/2012. THE APPELLAN T THEREFORE PRAYS THAT THE COMMISSION PAID TO THE IND IAN AGENT BY THE FOREIGN BUYER CANNOT BE DISALLOWED UNDER SEC TION 40(A)(I) OR UNDER SECTION 40(A)(IA). THE APPELLANT THEREFORE PRAYS THAT THE DISALLOWANCE OF AGENCY COMMISSION OF RS. 1,07,49,588/- MADE BY THE ASSESSI NG OFFICER MAY BE DELETED AND JUSTICE RENDERED. 13. THE LD. CIT(APPEALS) CALLED REMAND REPORT FROM THE ASSESSING OFFICER AND AFTER CONSIDERING THE REM AND REPORT AND SUBMISSIONS OF THE ASSESSEE, DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. THE CASE OF THE ASSESSEE BEFORE THE LD. CIT(APPEALS) WAS ALTOGETHER DIFFERENT FROM THE CASE BEFORE THE ASSESSING OFFICE R. ACCORDING TO THE ASSESSING OFFICER, THE COMMISSION PAYMENT WAS MADE TO THE NON-RESIDENT. ACCORDING TO THE 10 ITA NO.2065 & 2066 /MDS/2015 ASSESSEE, THE COMMISSION PAYMENT WAS MADE TO THE RESIDENT AND THERE IS AN AGREEMENT ENTERED INTO BY THE ASSESSEE WITH FOREIGN BUYER AGENT AND AT PAGE 45 OF ASSESSEES PAPER BOOK, THE BUYER AGENT GAVE A CERTIFICATE DATED 30.03.2013 BY STATING THAT WE HA VE NOT RECEIVED ANY CONSIDERATION FROM THE EXPORTER AND WE EARN AND RECEIVE FROM EUROPEAN BUYERS. AS PER THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND THE BUYER AGENT DATED 01.01.2008, THERE IS NOTHING INDI CATES ABOUT THE COMMISSION PAYMENTS. THE CASE OF THE ASSESSEE IS THAT THE COMMISSION WAS TO BE PAID BY T HE BUYER AND COMMISSION WAS ADDED TO THE SALE VALUE AN D THE BUYER USED TO REMIT THE EXPORT PROCEEDS AFTER DEDUCTING THE COMMISSION DUE TO THEIR AGENT. THE AG ENT IS ACTUALLY A RESIDENT WHO WAS APPOINTED AND NOMINA TED AS BUYERS AGENT AND NOT ASSESSEES AGENT AND THE COMMISSION WAS PAID BY THE FOREIGN BUYER SINCE COMMISSION HAS TO BE PAID TO THE AGENT AS PER THE CONTRACT BY THE OVERSEAS BUYER UNDER PURCHASE ORDER OF THE FOREIGN BUYER AND UNLESS THE CONDITION IMPOSED BY THE FOREIGN BUYER IS NOT FULFILLED THE ASSESSEE WOU LD LOSE IS EXPORT ORDER. ALL THESE SUBMISSIONS WERE MADE BE FORE THE LD. CIT(APPEALS) AND NEVER BEFORE THE ASSESSING OFFICER. THE CASE OF THE ASSESSEE IS THAT THE COMMI SSION HAS TO BE PAID TO THE AGENT AS PER THE CONTRACT BY OVERSEAS BUYER AND THE PURCHASE ORDER OF THE FOREIG N BUYER. THEREFORE, IT IS VERY MUCH NECESSARY IN THIS CASE TO EXAMINE THE CONTRACT BETWEEN THE ASSESSEE AND TH E FOREIGN BUYERS AND HOW THE ASSESSEE APPROVES EXPORT DEALS. THE AGREEMENT FILED BY THE ASSESSEE ENTERED INTO BETWEEN THE ASSESSEE AND THE FOREIGN AGENT HAS NO RELEVANCE AT ALL, BECAUSE, THE ASSESSEE HAS STATED TO HAVE BEEN NOT RECEIVED THE COMMISSION SINCE THE CONTRACT IS BETWEEN THE ASSESSEE AND THE FOREIGN BU YER. THEREFORE, WHAT IS THE CONTRACTUAL AGREEMENT BETWEE N THE ASSESSEE AND THE FOREIGN BUYER IS REQUIRED TO B E EXAMINED. ACCORDING TO THE ASSESSING OFFICER, THE PAYMENT WAS MADE TO THE NON-RESIDENT, WHEREAS, ACCORDING TO THE ASSESSEE, THE PAYMENT WAS MADE TO THE RESIDENT (ASSESSEE). IN OUR OPINION, NEITHER THE ASSESSING OFFICER NOR THE LD. CIT(APPEALS) HAVE EXAMINED THE ISSUE IN RIGHT PROSPECTIVE. EVEN THE ASSESSEE HAS TAKEN A DIFFERENT STAND BEFORE THE ASSESSING OFFICER AS WELL AS BEFORE THE LD. CIT(APP EALS). THEREFORE, IN THE INTEREST OF JUSTICE, WE SET ASIDE THE ORDER OF THE LD. CIT(APPEALS) ON THIS ISSUE AND REM IT THE MATTER BACK TO THE ASSESSING OFFICER WITH A DIRECTI ON TO DECIDE THE ISSUE DE NOVO IN ACCORDANCE WITH LAW AFT ER 11 ITA NO.2065 & 2066 /MDS/2015 ALLOWING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 5. RESPECTFULLY FOLLOWING THE SAID ORDER, WE DIRECT THE ASSESSING OFFICER TO DECIDE THE ISSUE DE NOVO IN AC CORDANCE WITH LAW, AFTER ALLOWING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE, KEEPING IN VIEW THE OBSERVATIONS OF T HE TRIBUNAL IN ASSESSEES OWN CASE IN THE ORDER DATED 20.03.2014 IN ITA NO.1466/MDS/2013. 6. IN THE RESULT, BOTH THESE APPEALS OF THE ASSESSE E ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DECEMBER, 2015. SD/- SD/- ( . ) ( ( *+ ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDR A PRASAD ) - / ACCOUNTANT MEMBER * - / JUDICIAL MEMBER * /CHENNAI, / /DATED 30 TH DECEMBER, 2015 SOMU 12 32 /COPY TO: 1. APPELLANT 2.RESPONDENT 3. 4 () /CIT(A) 4. 4 /CIT 5. 2 7 /DR 6. /GF .