AGRA ENGINEERING CO., MUMBAI V. ADDL CIT RG 12(3), MUMBAI

ITA 2176/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2786 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 15-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 19-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AGAINST DIFFERENT S PASSED
• Keywords: Services rendered outside India
• Section: 5(2)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI . . , , !' #$, % , & BEFORE SHRI R.C.SHARMA, AM AND SHRI AMARJIT SINGH, JM / I.T.A. NO.1264/MUM/2011, I.T.A.NO.736/MUM/2012 & 2176/MUM/2013 ( %' ( / ASSESSMENT YEAR: 2007-08, 2008-09 & 2009-10) M/S. AGRA ENGINEERING CO. C/5, LAXMI TOWERS, 6 TH FLOOR, BKC, BANDRA(EAST) MUMBAI - 400051 ' / VS. DY. COMMISSIONER OF INCOME TAX 12(3) AAYAKAR BHAVAN, 1 ST FLOOR, R.NO.137, M.K.ROAD, MUMBAI - 400020 ./ ./ PAN/GIR NO. : AAAFA2297H ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 26.05.2016 !' /DATE OF PRONOUNCEMENT: 23.09.2016 #$ / O R D E R PER AMARJIT SINGH, JM: THE ABOVE MENTIONED APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINST THE DIFFERENT ORDERS PASSED BY THE COMMISSI ONER OF INCOME TAX (APPEALS) 23, MUMBAI [HEREINAFTER REFERRED TO A S THE CIT(A)] RELEVANT TO THE A.Y.2007-08, 2008-09 AND 2009-10. SINCE IN THESE ASSESSEE BY: SHRI NARAYAN ATAL DEPARTMENT BY: SHRI B.D.NAIK I.T.A. NO.1264/MUM/2011,736/MUM/2012& 2176/MUM/2013 A.Y. 2007-08, 2008-09 & 2009-10 2 APPEALS PARTIES ARE THE SAME AND THE MATTER OF CONT ROVERSY IS ALSO OF THE SAME WHICH CAN CONVENIENTLY BE ADJUDICATED TOGE THER FOR THE SAKE OF CONVENIENCE. ITA NO.1264/MUM/2011(2007-08):- 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) -23, MUMBAI [HEREAFTER REFERRED TO AS THE CIT(A)] ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING O FFICER (AO) OF THE CLAIM FOR DEDUCTION OF OVERSEAS COMMISS ION OF RS.22,20,549/- PAID TO THE NON-RESIDENT FOREIGN SAL ES AGENTS U/S.40(A)(I) OF THE INCOME TAX ACT, 1961, ON THE BA SIS OF WRONG APPRECIATION OF THE FACTS AND THE LAW. YOUR APPELLANT SUBMITS THAT ON THE FACTS AND CIRCU MSTANCES OF THE CASE AND IN LAW AND IN ANY VIEW OF THE MATTE R, TAX IS NOT DEDUCTIBLE AT SOURCE ON PAYMENT OF COMMISSION M ADE TO FOREIGN (NON-RESIDENT)SELLING AGENTS FOR SERVICES R ENDERED OUTSIDE INDIA AND THE AO MAY BE DIRECTED TO DELETE THE DISALLOWANCE OF RS.22,20,549/- MADE U/S.40(A)(I) OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED THE RETURN OF INCOME DECLARING TOTAL INCOME TO THE TUNE OF RS. 1,21,80,421/- ON 30.10.2007. THE RETURN WAS PROCESSED U/S.143(1) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) AT THE RETURNED INC OME. THE CASE WAS SELECTED FOR SCRUTINY. NOTICE U/S.143(2) OF THE AC T WAS ISSUED ON 05.08.2008 AND SERVED UPON THE ASSESSEE ON 13.08.20 08. THEREAFTER, THE NOTICE U/S.142(1) OF THE ACT WAS ALSO ISSUED AN D SERVED UPON THE ASSESSEE. THE ASSESSEE IS A FIRM ENGAGED IN THE BU SINESS OF EXPORTS. I.T.A. NO.1264/MUM/2011,736/MUM/2012& 2176/MUM/2013 A.Y. 2007-08, 2008-09 & 2009-10 3 UNDER THE YEAR OF ASSESSMENT, THE ASSESSEE HAS PAID OVERSEAS COMMISSION TO THE TUNE OF RS.22,20,549/- AND DID NO T DEDUCT TDS ON THE SAME. THEREFORE, THE ASSESSING OFFICER DISALLO WED THE SAME COMMISSION U/S.40(A)(IA) OF THE ACT AND ADDED TO TH E INCOME OF THE ASSESSEE. BUT THE ASSESSEE WAS NOT SATISFIED WITH THE SAID ADDITION, THEREFORE, FILED AN APPEAL BEFORE CIT(A) WHO CONFIR MED THE SAID ADDITION. THEREFORE, THE ASSESSEE HAS FILED THE PR ESENT APPEAL BEFORE US. ISSUE NO.1:- 4. UNDER THIS ISSUE THE ASSESSEE HAS RAISED THE SOL E POINT WITH REGARD TO THE WRONG CONFIRMATION OF ADDITION OF OVE RSEAS COMMISSION TO THE TUNE OF RS.22,20,549/- IN VIEW OF THE SECTIO N CONTAINS IN SECTION 40(A)(I) OF THE ACT. WE HAVE HEARD THE ARGUMENTS A DVANCED BY THE LEARNED REPRESENTATIVE OF THE PARTIES AND PERUSED T HE RECORD. THE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS ARGUED T HAT THE ASSESSEE HAS MADE PAYMENT TO THE TUNE OF RS.22,20,549/- AND DID NOT DEDUCT THE TDS ON THE SAME BECAUSE THE TDS WAS NOT REQUIRED TO DEDUCTABLE AS THE SAID INCOME PAID TO THE VARIOUS PERSONS IS NOT LIABLE TO BE ASSESSED IN INDIA. THEREFORE, IN THE SAID CIRCUMSTANCES THE CIT(A) HAS WRONGLY CONFIRMED THE ADDITION WHICH IS LIABLE TO BE DELETE D IN VIEW OF THE LAW SETTLED IN GUJARAT RECLAIM & RUBBER PRODUCT LTD. 60 SOT 22 (ITAT, MUMBAI), CIT VS. GUJARAT RECLAIM & RUBBER PRODUCT L TD. IT APPEAL NO.2116 OF 2013 WITH IT APPEAL NO.169 OF 2014 (BOMB AY HIGH I.T.A. NO.1264/MUM/2011,736/MUM/2012& 2176/MUM/2013 A.Y. 2007-08, 2008-09 & 2009-10 4 COURT) AND ARMAYESH GLOBAL VS. ACIT, 12(3), MUMBAI 51 SOT 564 (ITAT-MUMBAI) AND CIT VS. EON TECHNOLOGIES PVT. LTD . 343 ITR 366 (DELHI HIGH COURT). IT IS ALSO ARGUED THAT THE LEARNED CIT(A) HAS WRONGLY ARRIVED AT THIS CONCLUSION THAT THE COMMISS ION PAID TO THE VARIOUS PERSONS IS IN MANAGERIAL IN NATURE, THEREFO RE THE TDS IS REQUIRED TO BE DEDUCTED IN ACCORDANCE WITH LAW BUT THE SAID FINDING IS NOT JUSTIFIABLE AS EACH AND EVERY TRANSACTION HAVE BROUGHT INTO THE NOTICE OF THE ASSESSING OFFICER, THEREFORE IN THE S AID CIRCUMSTANCES THE ADDITION IS NOT LIABLE TO BE SUSTAINABLE IN THE EYE S OF LAW. ON THE OTHER HAND THE LEARNED REPRESENTATIVE OF THE DEPARTMENT H AS STRONGLY RELIED UPON THE ORDER PASSED BY THE CIT(A) IN QUESTION. 5. BEFORE GOING FURTHER IT IS NECESSARY TO ADVERT T HE NATURE OF THE SERVICES PROVIDED BY THE NON-RESIDENT ON RECORD WHI CH HAS BEEN EXPLAINED BY THE ASSESSEE IN HIS LETTER DATED 21.12 .2009. SERVICES RENDERED BY COMMISSION AGENT: BUSINESS OF THE COMPANY THE COMPANY IS IN 100% EXPORT BUSINESS AND A RECOGN IZED EXPORT HOUSE, MAJORITY OF ITS EXPORTS ARE TO AFRICA , MIDDLE EAST, SOUTH EAST ETC. IT EXPORTS THE PRODUCTS LIKE FOUR WHEELER ENGINES, FUEL PUMPS, AND ITS SPARE PARTS FOR AUTOMO BILES, TRUCKS AND TRACTORS UNDER THE BRAND NAME ARROW I.T.A. NO.1264/MUM/2011,736/MUM/2012& 2176/MUM/2013 A.Y. 2007-08, 2008-09 & 2009-10 5 IT DOES NOT HAVE ANY OVERSEAS OFFICE, NEITHER ANY O VERSEAS STAFF. IN EXPORT MARKET THERE IS ALWAYS A CUT THROAT COMPE TITION FROM LOCAL AS WELL AS INTERNATIONAL TRADERS AND OEM SUPP LIERS. SO THESE COMMISSION AGENTS ARE IMPERATIVE TO WORK AS REPRESENTATIVES OF THE COMPANY AND HELD IN MARKETIN G THE BRAND AND PRODUCTS. THEY RENDER FOLLOWING SERVICES: A) THE COMPANY HAS DEVELOPED ITS OWN BRAND ARROW. IT MARKET VARIOUS PRODUCTS AS EXPLAINED ABOVE, UNDE R THIS BRAND. THE AGENT HELPS THE COMPANY TO POPULARIZE T HE BRAND AND PRODUCTS. B) HE GIVES US THE OVERALL DEMAND POSITION IN THAT COU NTRY AND APPRAISE US OF THE RESPECTIVE GOVERNMENT POLICI ES, RESTRICTIONS AND REQUIREMENTS. C) APART FROM THAT HE GIVES VALUABLE INFORMATION ABOUT THE COMPETITION, THEIR PRODUCTS THEIR STRENGTH AND WEAKNESSES. D) HE COORDINATES WITH THE EXISTING CUSTOMERS FOR THEI R PERIODICAL REQUIREMENTS, AVAILABILITY OF SHIPS, SHI PMENT SCHEDULES. E) HE COORDINATES WITH CUSTOMERS AND FOLLOWS UP FOR PAYMENT IF AND WHEN REQUIRED. I.T.A. NO.1264/MUM/2011,736/MUM/2012& 2176/MUM/2013 A.Y. 2007-08, 2008-09 & 2009-10 6 F) HE GIVES THE INFORMATION ABOUT THE NEW DEVELOPMENTS IN THE MARKETS, COMPETITION AND THEIR PRODUCTS. G) HE GIVES US INFORMATION ABOUT THE TRADE FAIRS, EXHI BITION ETC. H) HE ALSO HELPS IN OBTAINING VISA GETTING VISA FOR SOME OF THE MIDDLE EAST AND / OR AFRICAN COUNTRIES IS VERY TIME CONSUMING. BY ARRANGING FOR INVITE LETTERS FR OM EXISTING / PROSPECTIVE CONSUMERS AND ALSO THROUGH CONTACTS IN THESE COUNTRIES GOVT. DEPARTMENTS THEY HELP IN EXPEDITING VISA PROCESS. THESE AGENTS DO NOT VISIT INDIA AND RENDER SERVICES FROM ABROAD ONLY. THEIR COMMISSION PAYMENT IS DONE THRO UGH BANK, ONLY AFTER GETTING PAYMENTS FROM THE CUSTOMER S. THEY ALSO HELP US IN RESOLVING DISPUTES, IF ANY WIT H THE BUYERS. IN THIS PERIOD OF RECESSION AND INTENSE COMPETITION , MOST OF THE BIG CORPORATE HAVE THEIR OWN OFFICES AND STA FF IN ADDITION TO AGENTS. WE ARE A SMALL COMPANY WITH LI MITED RESOURCES. WE CANNOT AFFORD TO HAVE OVERSEAS OFFIC ES AND HIGH PROFILE STAFF TO TAKE CARE OF SUCH OFFICES. O UR OVERSEAS COMMISSION PAYMENT IS JUST AROUND ONE PERC ENT OF THE TOTAL TURNOVER, WHICH IS FULLY JUSTIFIED. I.T.A. NO.1264/MUM/2011,736/MUM/2012& 2176/MUM/2013 A.Y. 2007-08, 2008-09 & 2009-10 7 6. THEREAFTER, THE ASSESSING OFFICER ISSUED THE NOT ICE FOR NOT DEDUCTING THE TDS. THE ASSESSEE HAS ALSO MADE SUBM ISSION WHICH HAS BEEN MENTIONED BELOW: WE HAVE ALREADY SUBMITTED DETAILED NOTE ON THE SER VICES RENDERED BY THE FOREIGN (NON-RESIDENT) COMMISSION A GENTS VIDE OUR LETTER DT.21.12.2009. YOU WILL OBSERVE THAT TH E ENTIRE SERVICES ARE RENDERED BY THE AGENTS OUTSIDE INDIA A ND THE COMMISSION IS PAID TO THEM BY WAY OF INHERITANCE OF FOREIGN CURRENCY FROM INDIA. OUR CLIENTS HAVE NOT DEDUCTED ANY TDS ON THE COMMIS SION AMOUNT SINCE THE COMMISSION PAID TO THE FOREIGN AGE NTS DO NOT ATTRACT TDS U/S. 195 OF THE ACT IN VIEW OF THE FOLL OWING:- A. THE SALE IS EFFECTED BY OUR CLIENT ON A PRINCIPAL T O PRINCIPAL BASIS. B. THE SERVICES ARE RENDERED BY THE AGENTS OUTSIDE IND IA AND THEY DO NOT HAVE ANY PE OR ANY BRANCH OR ANY BUSINESS CONNECTION IN INDIA AND THEREFORE THERE IS NO INCOME WHICH IS DEEMED TO HAVE ACCRUED OR ARISEN IN INDIA AS PER THE PROVISION OF SECTION 9 OF THE ACT. C. CIRCULAR NO.23 DT. 23.07.1969 DEALING WITH MEANING OF BUSINESS CONNECTION HAS DEALT WITH THE TAX LIABI LITY I.T.A. NO.1264/MUM/2011,736/MUM/2012& 2176/MUM/2013 A.Y. 2007-08, 2008-09 & 2009-10 8 OF FOREIGN AGENTS OF INDIAN EXPORTERS IN PARA 3(4) OF THE CIRCULAR ISSUED BY THE CBDT, AS FOLLOWS: A FOREIGN AGENT OF INDIAN EXPORTER OPERATES IN HIS OWN COUNTY AND NO PART OF HIS INCOME ARISES IN INDI A. HIS COMMISSION IS USUALLY REMITTED DIRECTLY TO HIM AND IS, THEREFORE NOT RECEIVED BY HIM OR ON HIS BEH ALF IN INDIA. SUCH AN AGENT IS NOT LIABLE TO INCOME TA X IN INDIA ON THE COMMISSION. THIS VIEW HAS BEEN REITERATED BY THE BOARD IN CIRCU LAR NO.786 DT. 07.02.2009. D. VIDE CIRCULAR NO.7 OF 2009 THE BOARD HAS WITHDRAWN W.E.F. 22.10.2009 ITS CIRCULAR NO.23 OF 1969, CIRCU LAR NO.163 OF 1975 AND CIRCULAR NO.786 OF 2000 THESE CIRCULARS ONLY REITERATED THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN R.D.AGARWAL & CO. (56 ITR 20) AND TOSHOKU LTD. (125 ITR 525) FOR UNDERSTANDING THE CONCEPT OF BUSINESS CONNECTION AND ATTRIBUTION OF PROFITS TO A BUSINESS CONNECTION . HOWEVER, THE DECISION OF THE SUPREME COURT IN THESE CASES CANNOT BE NULLIFIED MERELY BY WITHDRAWAL OF T HE AFORESAID CIRCULARS. E. MOREOVER, THE CIRCULARS HAVE BEEN WITHDRAWN W.E.F. 22.10.2009 AND THEREFORE IT AT ALL A VIEW HAS TO BE TAKEN THAT TDS IS LIABLE TO BE DEDUCTED FROM PAYMEN T I.T.A. NO.1264/MUM/2011,736/MUM/2012& 2176/MUM/2013 A.Y. 2007-08, 2008-09 & 2009-10 9 OF COMMISSION TO FOREIGN AGENTS IRRESPECTIVE OF THE CONCLUSION WHETHER ANY INCOME HAS ACCRUED OR ARISEN IN INDIA, IT CAN BE APPLICABLE ONLY TO ANY PAYMENTS MADE OR EFFECT AFTER 22.10.2009. FURTHER THE CIRCU LARS OF THE BOARD WHICH ARE BENEFICIARY IN NATURE ARE BINDING ON THE TAX AUTHORITIES AND CANNOT BE INTERPRETED TO HAVE TAKEN EFFECT RETROSPECTIVELY. IN VIEW OF THE ABOVE, WE ON OUR CLIENTS BEHALF, SUB MIT THAT THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT ARE NOT ATTRACTED AND REQUESTED YOU TO PLEASE ALLOW THE CLA IM FOR DEDUCTION OF COMMISSION TO FOREIGN AGENTS. 7. THEREAFTER, THE ASSESSING OFFICER ARRIVED AT THI S CONCLUSION THAT THE SERVICES OFFERED BY THE SAID PERSONS ARE COVERE D UNDER THE MANAGERIAL SERVICES AND INCLUDED AS FEES FOR TECHNI CAL SERVICES. THE ASSESSEE DID NOT OBTAIN ANY SERVICES U/S.194(2) OF THE ACT, THEREFORE, THE PAYMENT MADE TO THE VARIOUS PERSONS TO THE TUNE OF RS.22,20,549/- WAS DISALLOWED U/S.40(A)(I) OF THE ACT. NO DOUBT C IT(A) HAS CONFIRMED THE SAME. NOW IT IS REQUIRED TO BE SEEN WHETHER CIT(A) HAS RIGHTLY CONFIRMED THE ORDER OR NOT. THE ASSESS EE HAS RELIED UPON THE ABOVE MENTIONED LAW AND ALSO CIRCULAR NO.786 DA TED 07.02.2009 ISSUED BY CBDT WHEREIN IT IS SPECIFICALLY MENTIONED THAT IN SUCH KIND OF PAYMENTS PROVISION U/S.40(A)(I) OF THE ACT IS NO T LIABLE TO BE ATTRACTED. THE IMPORTANT POINT TO ARRIVE AT THIS P OINT IS THAT WHETHER I.T.A. NO.1264/MUM/2011,736/MUM/2012& 2176/MUM/2013 A.Y. 2007-08, 2008-09 & 2009-10 10 THE INCOME IS CHARGEABLE TO TAX IN INDIA OR NOT. T HERE IS NOTHING ON RECORD TO WHICH IT CAN BE ASSUMED THAT THE SAID COM MISSION IS LIABLE TO BE TAXED IN INDIA. ON THIS ISSUE THE LAW HAS ALREA DY BEEN SETTLED IN CASE OF GUJARAT RECLAIM & RUBBER PRODUCTS LTD. VS. ADDITIONAL COMMISSIONER OF INCOME TAX 10(2), ITAT, MUMBAI BENC H IN WHICH IT IS SPECIFICALLY HELD THAT WHERE THE ASSESSEE HAS PA ID COMMISSION TO NON-RESIDENT AGENT OUTSIDE INDIA FOR SERVICES PROVI DED IN FOREIGN COUNTRIES AND IN ABSENCE OF PE OF NON-RESIDENT AGEN T IN INDIA SAID PAYMENT WOULD NOT BE CHARGEABLE TO TAX IN INDIA, TH EREFORE, NO DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT CAN BE MADE. THE REVENUE HAS FILED THE APPEAL AGAINST THE SAID ORDER WHICH HAS BEEN DISMISSED BY THE JURISDICTIONAL BOMBAY HIGH COURT I N ITA NO.2116 OF 2013 WITH ITA NO.169 OF 2014 IN CASE OF CIT VS. GUJARAT RECLAIM & RUBBER PRODUCTS LTD. DATED 08.12.20015. IN CASE OF SECTION 40(A)(IA) OF THE ACT THE CO-ORDINATE BENCH OF HYDRA BAD IN CASE OF DCIT VS. DIVIS LABORATORIES LTD. 131 ITD 271 HAS A LSO HELD THAT PAYMENT OF COMMISSION MADE TO OVERSEAS AGENT WITHOU T DEDUCTION OF TDS DOES NOT ATTRACT DISALLOWANCE U/S.40(A)(IA) OF THE ACT AND ALSO PLACE RELIANCE UPON THE CBDT CIRCULAR NO.7 DATED 22 .10.2009. 8. IN THE INSTANT CASE THE SERVICES HAVE BEEN RENDE RED OUTSIDE INDIA WHICH IS NOT LIABLE TO BE TAXABLE IN INDIA. MOREOV ER, IT IS PERTINENT TO SUBSCRIBE THE CONTENTS OF THE CIRCULAR NO.786 DATED 07.02.2009 ISSUED BY CBDT WHICH MAY CLARIFY MORE IN CONNECTION WITH T HE SERVICES I.T.A. NO.1264/MUM/2011,736/MUM/2012& 2176/MUM/2013 A.Y. 2007-08, 2008-09 & 2009-10 11 RENDERED OUTSIDE THE INDIA WHICH IS NOT LIABLE TO T AXED IN INDIA, IS HEREBY REPRODUCED BELOW:- SUBJECT: DEDUCTION OF TAX U/S.195 AND THE TAXABILIT Y OF EXPORT COMMISSION PAYABLE TO NON-RESIDENT AGENTS RENDERING SERVICES ABROAD CLARIFICATION REGARDING : IN THE AUDIT REPORT FOR 1997-98 (D P NO.79 (I.T). THE COMPTROLLER AND AUDITOR GENERAL (C &AG) RAISED AN OBJECTION THAT THE ASSESSING OFFICER IN COMPUTING THE PROFITS AND GAINS OF BUSINESS OR PROFESSION, IN A CASE IN MUMBAI CHARGE, HAD WRONGLY ALLOWED A DEDUCTION IN RESPECT OF A PAYMENT TO A NON- RESIDENT WHERE TAX HAD NOT BEEN DEDUCTED AT SOURCE. THE NATURE OF THE PAYMENT IN THIS CASE WAS EXPORT COMMISSION A ND CHARGES PAYABLE FOR SERVICES RENDERED OUTSIDE INDIA. IN TH E VIEW OF C&AG THE EXPENDITURE SHOULD HAVE BEEN DISALLOWED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 40(A)(I) OF THE INCOME TAX ACT, 1961. IT HAS COME TO THE NOTICE OF THE BO ARD THAT A SIMILAR VIEW, ON THE SAME SET OF FACTS HAS BEEN TAK EN BY SOME ASSESSING OFFICERS IN OTHER CHARGES. THE DEDUCTION OF TAX AT SOURCE UNDER SECTION 195 WO ULD ARISE IF THE PAYMENT OF COMMISSION TO THE NON-RESIDENT AGENT IS CHARGEABLE TO TAX IN INDIA. IN THIS REGARD ATTENTI ON TO CBDT CIRCULAR NO.23 DATED 23.07.1969 IS DRAWN, WHERE THE TAXABILITY I.T.A. NO.1264/MUM/2011,736/MUM/2012& 2176/MUM/2013 A.Y. 2007-08, 2008-09 & 2009-10 12 OF FOREIGN AGENTS OF INDIAN EXPORTERS WAS CONSIDE RED ALONGWITH CERTAIN OTHER SPECIFIC SITUATIONS. IT HA D BEEN CLARIFIED THEN WHAT WHERE THE NON-RESIDENT AGENT OPERATES OUT SIDE THE COUNTRY, NO PART OF HIS INCOME ARISES IN INDIA. FU RTHER, SINCE THE PAYMENT IS USUALLY REMITTED DIRECTLY ABROAD IT CANN OT BE HELD TO HAVE BEEN RECEIVED BY OR ON BEHALF OF THE AGENT IN INDIA. SUCH PAYMENTS WERE THEREFORE HELD TO BE NOT TAXABLE IN I NDIA. THE RELEVANT SECTIONS, NAMELY SECTION 5(2) AND SECTION 9 OF THE INCOME TAX ACT, 1961 NOT HAVING UNDERGONE ANY CHARG E IN THIS REGARD, THE CLARIFICATION IN CIRCULAR NO.23 SHALL P REVAILS. NO TAX IS THEREFORE DEDUCTIBLE UNDER SECTION 195 AND CONSE QUENTLY THE EXPENDITURE ON EXPORT COMMISSION AND OTHER RELATED CHARGES PAYABLE TO A NON-RESIDENT FOR SERVICES RENDERED OUT SIDE INDIA BECOMES ALLOWABLE EXPENDITURE. ON BEING APPRISED O F THIS POSITION, THE COMPTROLLER & AUDITOR GENERAL HAVE AG REED TO DROP THE OBJECTION REFERRED TO ABOVE. THIS MAY BE BROUGHT TO NOTICE OF ALL ASSESSING OFFI CERS WORKING IN YOUR REGION. 9. IT IS NOT IN DISPUTE THAT THE ASSESSEE PAID THE COMMISSION FOR THE SERVICES RENDERED OUTSIDE INDIA WHICH IS NOT TAXABL E IN INDIA. THEREFORE, THE ASSESSEE IS NOT UNDER OBLIGATION TO DEDUCT THE TDS U/S.40(A)(IA) OF THE ACT. ACCORDINGLY, BY RELAYING UPON THE LAW MENTIONED ABOVE WE SET ASIDE THE ORDER OF THE CIT(A ) AND DIRECT THE I.T.A. NO.1264/MUM/2011,736/MUM/2012& 2176/MUM/2013 A.Y. 2007-08, 2008-09 & 2009-10 13 ASSESSING OFFICER TO DELETE THE SAID ADDITION, THER EFORE THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVEN UE. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS H EREBY ORDERED TO BE ALLOWED. ITA NO.736/MUM/2012(A.Y.2008-09):- 10. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) -23, MUMBAI [HEREAFTER REFERRED TO AS THE CIT(A)] ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING O FFICER (AO) OF THE CLAIM FOR DEDUCTION OF OVERSEAS COMMISS ION OF RS.22,20,549/- PAID TO THE NON-RESIDENT FOREIGN SAL ES AGENTS U/S.40(A)(I) OF THE INCOME TAX ACT, 1961, ON THE BA SIS OF WRONG APPRECIATION OF THE FACTS AND THE LAW. YOUR APPELLANT SUBMITS THAT ON THE FACTS AND CIRCU MSTANCES OF THE CASE AND IN LAW AND IN ANY VIEW OF THE MATTE R, TAX IS NOT DEDUCTIBLE AT SOURCE ON PAYMENT OF COMMISSION M ADE TO FOREIGN (NON-RESIDENT)SELLING AGENTS FOR SERVICES R ENDERED OUTSIDE INDIA AND THE AO MAY BE DIRECTED TO DELETE THE DISALLOWANCE OF RS.18,59,299/- MADE U/S.40(A)(I) OF THE ACT. 2. THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE AO IN RESPECT OF PAYMENT OF FREIGHT CHARGES FOR THE SHIPMENT OF GOODS FROM THE PORTS IN INDIA TO THE DESTINATIONS OUTSIDE INDIA TO THE NON-RESIDENT SHIP PING COMPANIES AND / OR THEIR AGENTS IN INDIA TO THE EXT ENT OF RS.7,35,614/- U/S. 40(A)(IA) OF THE ACT ON THE GROU ND THAT TAX WAS NOT DEDUCTED AT SOURCE IN RESPECT OF THESE PAYMENTS. YOUR APPELLANT SUBMITS THAT NO TAX WAS DEDUCTIBLE AT SOURCE ON THE BASIS OF THE DECLARATION GIVEN BY THESE COMP ANIES RELYING ON CIRCULAR NO.723 DT. 19.09.1995 ISSUED BY CBDT I.T.A. NO.1264/MUM/2011,736/MUM/2012& 2176/MUM/2013 A.Y. 2007-08, 2008-09 & 2009-10 14 AND APPLICABLE TO THESE COMPANIES WHO ARE ASSESSED TO TAX U/S.172 OF THE INCOME TAX ACT. YOUR APPELLANT THEREFORE SUBMITS THAT THE AO MAY B E DIRECTED TO ALLOWED THE DEDUCTION OF RS.7,35,614/- AS CLAIMED. 11. THE FACTS OF THE PRESENT CASE ARE QUITE SIMILAR TO THE ABOVE SAID ITA NO.1264/MUM/2011 HOWEVER THE FIGURES ARE DIFFER ENT. THE MATTER OF CONTROVERSY INVOLVED IS ALSO THE SAME WHI CH HAS BEEN INVOLVED IN THE ABOVE MENTIONED APPEAL. IN THE INS TANT CASE THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF DISALLO WANCE MADE BY THE ASSESSING OFFICER PAID TO THE AGENTS AS OVERSEAS CO MMISSION TO THE TUNE OF RS.18,59,299/- IN VIEW OF THE PROVISION U/S .40(A)(IA) OF THE ACT. SINCE THIS MATTER OF CONTROVERSY HAS ALREADY BEEN ADJUDICATED IN ITA NO. 1264/MUM/2011, THEREFORE WE DECIDE THIS APP EAL ON THE SAME TERMS AND CONDITIONS AS HELD IN THE ABOVE SAID APPEAL AND ALLOWED THE APPEAL OF THE ASSESSEE. ITA NO.2176/MUM/2013(A.Y.2009-10):- 12. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) -23, MUMBAI [HEREAFTER REFERRED TO AS THE CIT(A)] ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING O FFICER (AO) OF THE CLAIM FOR DEDUCTION OF OVERSEAS COMMISS ION OF RS.28,83,289/- PAID TO THE NON-RESIDENT FOREIGN SAL ES AGENTS U/S.40(A)(I) OF THE INCOME TAX ACT, 1961, ON THE BA SIS OF WRONG APPRECIATION OF THE FACTS AND THE LAW. I.T.A. NO.1264/MUM/2011,736/MUM/2012& 2176/MUM/2013 A.Y. 2007-08, 2008-09 & 2009-10 15 YOUR APPELLANT SUBMITS THAT ON THE FACTS AND CIRCU MSTANCES OF THE CASE AND IN LAW AND IN ANY VIEW OF THE MATTE R, TAX IS NOT DEDUCTIBLE AT SOURCE ON PAYMENT OF COMMISSION M ADE TO FOREIGN (NON-RESIDENT)SELLING AGENTS FOR SERVICES R ENDERED OUTSIDE INDIA AND THE AO MAY BE DIRECTED TO DELETE THE DISALLOWANCE OF RS.28,83,289/- MADE U/S.40(A)(I) OF THE ACT. 13. THE FACTS OF THE PRESENT CASE ARE QUITE SIMILAR TO THE ABOVE SAID ITA NO.1264/MUM/2011 HOWEVER THE FIGURES ARE DIFFER ENT. THE MATTER OF CONTROVERSY INVOLVED IS THE SAME WHICH HA S BEEN INVOLVED IN THE ABOVE MENTIONED APPEALS. IN THE INSTANT CASE T HE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF DISALLOWANCE MADE BY THE ASSESSING OFFICER WITH REGARD TO THE COMMISSION PAID TO THE O VERSEAS AGENTS TO THE TUNE OF RS.28,83,289/- IN VIEW OF THE PROVISION U/S.40(A)(IA) OF THE ACT. SINCE THIS MATTER OF CONTROVERSY HAS ALREADY BEEN ADJUDICATED IN ITA NO. 1264/MUM/2011, THEREFORE WE DECIDE THIS APP EAL ON THE SAME TERMS AND CONDITIONS AS HELD IN THE ABOVE SAID APPEAL AND ALLOWED THE APPEAL OF THE ASSESSEE. 14. IN THE RESULT, ALL THE APPEALS FILED BY THE ASSESSEE ARE HEREBY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD SEPTEMBER , 2016. SD/- SD/- (R.C.SHARMA) (AMARJIT SINGH) # / ACCOUNTANT MEMBER %& # /JUDICIAL MEMBER ' ( MUMBAI; )# DATED : 23 RD SEPTEMBER, 2016 MP MP MP MP I.T.A. NO.1264/MUM/2011,736/MUM/2012& 2176/MUM/2013 A.Y. 2007-08, 2008-09 & 2009-10 16 * +%'#, -,(' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. * ( ) / THE CIT(A)- 4. * / CIT 5. -./ &&01 , 01' , ' ( / DR, ITAT, MUMBAI 6. /34 5 / GUARD FILE. ' / BY ORDER, - & //TRUE COPY// ./$ ! /(DY./ASSTT. REGISTRAR) , ' ( / ITAT, MUMBAI