ITO (IT), Kolkata, Kolkata V. M/S. Electrosteel Casting Limited., Kolkata

ITA 2249/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1580 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 14-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 18-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Double taxation relief; Services rendered outside India; Deemed to accrue or arise in india; Retrospective amendment; Permanent establishment; Non-deduction of tax
• Section: 143(3); 5(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SRI A.T.VARKEY, JM & SHRI M.BALAG ANESH, AM ] I.T.A NO. 2249/KOL/20 14 ASSESSMENT YEAR : 2011-1 2 I.T.O. (INTERNATIONAL TAXATION), -VS.- M/ S. ELECTROSTEEL CASTING LTD. KOLKATA KOLKATA [PAN : AAACE 4975 B] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : NONE FOR THE RESPONDENT : SHRI RAVI TULSIYAN, FCA DATE OF HEARING : 14.06.2017. DATE OF PRONOUNCEMENT : 07.07.2017 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL OF THE ASSESSEE ARISES OUT OF THE OR DER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -VI, KOLKATA [ IN SHORT THE LD CITA] IN APPEAL NO. 04/CIT(A)- VI/INTL.TAX/ITO,WD-1(1)/13-14/KOL DATED 19.09.2014 AGAINST THE ORDER PASSED BY THE I.T.O., INTERNATIONAL TAXATION-WARD-1(1), KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT) DATED 25.03.2013 FOR THE ASST YEAR 2011-12. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL OF THE REVENUE IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE DISALLOWANCE MAD E TOWARDS COMMISSION PAID TO NON- RESIDENT AGENTS WOULD BE LIABLE FOR DEDUCTION OF TA X AT SOURCE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS EE IS A COMPANY ENGAGED IN MANUFACTURING OF DUCTILE IRON PIPES AND FITTINGS NE CESSARY FOR PROVIDING A SAFE WATER 2 ITA NO.2249/KOL/2014 M/S. ELECTROSTEEL CASTING LTD. A.YR.2011-12 2 SUPPLY PIPELINE SYSTEM. THE LD AO OBSERVED THAT TH E ASSESSEE DEDUCTOR HAD REMITTED SOME AMOUNT TO DIFFERENT NON-RESIDENT AGENTS FOR SE CURING ORDERS FOR ASSESSEES PRODUCTS ABROAD, WITHOUT DEDUCTING TAXES . ACCORDINGLY SHOW CAUSE NOTICE U/S 201 OF THE ACT WAS ISSUED FOR TREATING THE ASSESSEE AS ASSESSEE I N DEFAULT. THE ASSESSEE RESPONDED THAT THE ASSESSEE COMPANY HAD INCURRED SOME EXPENSE S UNDER THE HEAD COMMISSION AND PAYMENTS WERE MADE TO DIFFERENT NON-RESIDENT IN DIVIDUALS AND COMPANIES WITHOUT DEDUCTING TAX. THE DETAILS ARE AS UNDER:- PAYMENT OF COMMISSION ; SL. NO. NAME OF THE RECIPIENT REMITTANCE AMOUNT (RS.) COUNTRY TDS AMOU NT DATE OF REMITTANCE NATURE OF PAYMENT 1. PRIME GROUP ASSOCIATES 1042448 5568326 10832518 1276770 4316014 4920574 5218172 4910549 1875582 1728223 UAE 0 0 0 0 0 0 0 0 0 0 13/04/2010 23/07/2010 22/06/2010 12/10/2010 21/09/2010 30/11/2010 18/01/2011 22/02/2011 11/03/2011 25/03/2011 COMMISSION 2. MR.EDWARD ZAMMIT 64534 319252 MALTA 0 0 08/10/2010 25/01/2011 COMMISSION 3. SPECTRUM LTD 1276770 UAE 0 12/10/2010 COMMISSION 4. ZAINAC ENGINEERING & ENTERPRISES 295870 YEMEN 0 03/11/2010 COMMISSION 5 ELECTROSTEEL EUROPE S.A 2858097 1747679 1187751 SPAIN 0 0 0 28/02/2011 22/03/2011 02/03/2011 COMMISSION 4. THE ASSESSEE EXPLAINED AS BELOW THE REASONS FOR NON-DEDUCTION OF TAX AT SOURCE ON THE AFORESAID PAYMENTS :- 'AS PER SECTION 195 OF THE ACT, ANY PERSON RESPONSI BLE FOR PAYING TO A NON-RESIDENT, NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY S UM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT ( NOT BEING INCOME CHARGEABL E UNDER THE HEAD 'SALARIES') SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHE QUE OR DRAFT OR BY ANY OTHER 3 ITA NO.2249/KOL/2014 M/S. ELECTROSTEEL CASTING LTD. A.YR.2011-12 3 MODE, WHICHEVER IS EARLIER, DEDUCT INCOME-TAX THERE ON AT THE RATES IN FORCE. THE WITHHOLDING TAX IS APPLICABLE ON THE GROSS AMOUNT W ITHOUT ANY DEDUCTION. THUS WITHHOLDING TAX UNDER SECTION 195 OF THE ACT W ILL ONLY BE APPLICABLE IF AMOUNT PAYABLE IS CHARGEABLE TO TAX UNDER THE ACT. FURTHER, AS PER SECTION 5(2) OF THE ACT, A NON-RESI DENT IS TAXABLE IN INDIA ON THE FOLLOWING INCOMES DURING THE PREVIOUS YEAR: INCOME RECEIVED/DEEMED TO BE RECEIVED IN INDIA; '. INCOME ACCRUING/ARISING OR DEEMED TO ACCRUE/ARIS E IN INDIA. IN THE INSTANT CASE, BEING A NON-RESIDENT COMPANY/I NDIVIDUAL, ONLY THE FOLLOWING INCOMES WOULD BE TAXABLE IN INDIA IN ITS HANDS: INCOME RECEIVED/DEEMED TO BE RECEIVED IN INDIA; INCOME ACCRUING/ARISING OR DEEMED TO ACCRUE/ARISE IN INDIA. AS PER SECTION 9(1)(I) OF THE ACT, ALL INCOMES ACCR UING OR ARISING, WHETHER DIRECTLY OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECT ION IN INDIA, OR THROUGH OR FROM ANY PROPERTY IN INDIA, OR THROUGH OR FROM ANY ASSET OR SOURCE OF INCOME IN INDIA, OR THROUGH THE TRANSFER OF A CAPITAL ASSET SITUATED IN INDIA, SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA. HOWEVER EVEN IF THERE IS A BUSINESS CONNECTION IN I NDIA, IF NO OPERATION OF BUSINESS IS CARRIED OUT IN INDIA, THEN THE INCOME ACCRUING O R ARISING ABROAD THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA CANNOT BE DEEMED T O ACCRUE OR ARISE IN INDIA. EXPLANATION 1 TO SECTION 9(1)(I) PROVIDES AS UNDER: 'FOR THE PURPOSES OF THIS CLAUSE- (B) IN THE CASE OF A BUSINESS OF WHICH ALL THE OPER ATIONS ARE NOT CARRIED OUT IN INDIA, THE INCOME OF THE BUSINESS DEEMED UNDER THIS CLAUSE TO ACCRUE OR ARISE IN INDIA SHALL BE ONLY SUCH PART OF THE INCOME AS IS R EASONABLY ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA'. IN THE INSTANT CASE, THE NON-RESIDENTS DOES N OT HAVE ANY OPERATIONS, IN INDIA AND ALL THE OPERATIONS WITH RESPECT TO THE RESPECTI VE AGREEMENTS WERE PERFORMED BY THE NON-RESIDENTS OUTSIDE INDIA. MOREOVER THE COMMI SSION PAYABLE IS NOT IN THE NATURE OF SALARIES, DIVIDEND, INTEREST, ROYALTY, FE ES FOR TECHNICAL SERVICES. ACCORDINGLY, THE COMMISSION RECEIVABLE BY THE NON-R ESIDENTS DOES NOT ACCRUE OR ARISE IN INDIA. MOREOVER THE COMMISSION WAS RECEIVE D BY THE NON-RESIDENTS OUTSIDE INDIA AND HENCE THE NON-RESIDENTS ARE NOT LIABLE TO TAXED IN INDIA. FURTHER, THE SERVICES RENDERED BY THE NON-RES IDENTS ALSO DO NOT QUALIFY AS FEES FOR TECHNICAL SERVICES AS THESE SERVICES CANNOT BE SAID TO BE IN NATURE OF TECHNICAL, 4 ITA NO.2249/KOL/2014 M/S. ELECTROSTEEL CASTING LTD. A.YR.2011-12 4 MANAGERIAL OR CONSULTANCY SERVICES. IN ANY CASE, TH E PAYMENT IS FOR THE SOURCE OF INCOME THAT ELECTROSTEEL HAS OUTSIDE INDIA AND SECT ION 9(L)(VII)(B) OF THE ACT SPECIFICALLY EXEMPTS ANY PAYMENTS MADE BY A RESIDEN T FOR EARNING ANY INCOME FROM A SOURCE OUTSIDE INDIA. ACCORDINGLY, ELECTROSTEEL HAS NOT DEDUCTED T AXES ON THE COMMISSION PAYMENTS TO THE NON-RESIDENTS. TO REITERATE, THERE EXISTS NO OBLIGATION TO WITHHOLD ANY TAX FOR REASON THAT SERVICES RENDERED BY THE NON-RESIDENTS HAS NOT TRIGGERED ANY TAX LIABILITY IN INDIA IN TERMS OF THE DOMESTIC TAX LAW PROVISIONS.' 5. THE LD AO ASKED THE ASSESSEE TO PRODUCE THE DOCU MENTARY EVIDENCES FROM WHICH IT COULD BE CONCLUDED THAT THE INCOME OF THE NON-RESID ENT RECIPIENTS ARE BUSINESS INCOME, BUT NO SUPPORTING DOCUMENTS /EVIDENCES WERE PRODUCE D. ACCORDINGLY THE LD AO CONCLUDED THAT THE INCOME OF THE NON-RESIDENT RECIP IENTS ARE THEIR INCOME FROM OTHER SOURCE. THEN HE REFERRED TO THE RELEVANT ARTICLE OF DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) FOR TAXATION OF OTHER INCOME AS UN DER:- DTAA WITH UAE: ARTICLE 22- OTHER INCOME-1. SUBJECT TO THE PROVISIONS OF PARAGRAPH (2), ITEMS OF INCOME OF A RESIDENT OF A C ONTRACTING STATE, WHEREVER ARISING, WHICH ARE NOT EXPRESSLY DEALT WITH IN THE FOREGOING ARTICLE OF THIS AGREEMENT, SHALL BE TAXABLE ONLY IN THAT CONTRACTIN G STATE. (2) THE PROVISIONS OF PARAGRAPH (1) SHALL NOT ONLY APPLY TO INCOME, OTHER THAN INCOME FROM IMMOVABLE PROPERTY AS DEFINED IN PARAGR APH (2) OF ARTICLE 6, IF THE RECIPIENT OF SUCH INCOME, BEING A RESIDENT OF A CON TRACTING STATE, CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATETHROUGH A PE RMANENT ESTABLISHMENT SITUATED THEREIN, OR PERFORMS IN THAT OTHER STATE INDEPENDEN T PERSONAL SERVICES FROM A FIXED BASE SITUATED THEREIN, AND THE RIGHT OR PROPERTY IN RESPECT OF WHICH THE INCOME IS PAID IS EFFECTIVELY CONNECTED WITH SUCH PERMANENT E STABLISHMENT OR FIXED BASE. IN SUCH CASE, THE PROVISIONS OF ARTICLE 7 OR ARTICLE 1 4, AS THE CASE MAY BE, SHALL APPLY. DTAA WITH MALTA : ARTICLE 23-OTHER INCOME-L. ITEMS OF INCOME OF A RESIDENT OF A CONTRACTING STATE WHEREVER ARISING, NOT DEALT WITH IN THE FOREGOING ARTICLES OF THIS AGREEMENT SHALL BE TAXABLE ONLY IN THAT STATE. 2. THE PROVISIONS OF PARAGRAPH (1) SHALL NOT ONLY A PPLY TO INCOME, OTHER THAN INCOME FROM IMMOVABLE PROPERTY AS DEFINED IN PARAGR APH (2) OF ARTICLE 6, IF THE RECIPIENT OF SUCH INCOME, BEING A RESIDENT OF A CO NTRACTING STATE, CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE THROUGH A P ERMANENT ESTABLISHMENT SITUATED THEREIN, OR PERFORMS IN THAT OTHER STATE INDEPENDEN T PERSONAL SERVICES FROM A FIXED BASE SITUATED THEREIN, AND THE RIGHT OR PROPERTY IN RESPECT OF WHICH THE INCOME IS 5 ITA NO.2249/KOL/2014 M/S. ELECTROSTEEL CASTING LTD. A.YR.2011-12 5 PAID IS EFFECTIVELY CONNECTED WITH SUCH PERMANENT ESTABLISHMENT OR FIXED BASE. IN SUCH CASE, THE PROVISIONS OF ARTICLE 7 OR ARTICLE 1 5, AS THE CASE MAY BE, SHALL APPLY. 3. NOTWITHSTANDING THE PROVISIONS OF PARAGRAPH 1 AN D 2, ITEMS OF INCOME OF A RESIDENT OF A CONTRACTING STATE NOT DEALT WITH IN T HE FOREGOING ARTICLES OF THIS CONVENTION AND ARISING IN THE OTHER CONTRACTING STA TE MAY ALSO BE TAXED IN THAT OTHER STATE. DTAA WITH OMAN: ARTICLE 24- OTHER INCOME-L. SUBJECT TO THE PROVISIONS OF PARAGRAPH 2 OF THIS ARTICLE. ITEMS OF INCOME OF A R ESIDENT OF A CONTRACTING STATE, WHEREVER ARISING, WHICH ARE NOT EXPRESSLY DEALT WIT H IN. THE FOREGOING ARTICLES OF THIS AGREEMENT, SHALL BE TAXABLE ONLY IN THE CONTRA CTING STATE . 2. THE PROVISIONS OF PARAGRAPH (1) OF THIS ARTICLE SHALL NOT APPLY TO INCOME, OTHER THAN INCOME FROM IMMOVABLE PROPERTY AS DEFINED IN P ARAGRAPH (2) OF ARTICLE 6, IF THE RECIPIENT OF SUCH INCOME, BEING A RESIDENT OF A CONTRACTING STATE, CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE THROUGH A P ERMANENT ESTABLISHMENT SITUATED THEREIN, OR PERFORMS IN THAT OTHER CONTRACTING STAT E INDEPENDENT PERSONAL SERVICES FROM A FIXED BASE SITUATED THEREIN, AND THE RIGHT O F PROPERTY IN RESPECT OF WHICH THE INCOME IS PAID IS EFFECTIVELY CONNECTED WITH SUCH P ERMANENT ESTABLISHMENT OR FIXED BASE. IN SUCH CASE, THE PROVISIONS OF ARTICLE 7 OR ARTICLE 16, AS THE CASE MAY BE, SHALL APPLY. 3. NOTWITHSTANDING THE PROVISIONS OF PARAGRAPH 1 AN D 2, ITEMS OF INCOME OF A RESIDENT OF A CONTRACTING STATE NOT DEALT WITH IN T HE FOREGOING ARTICLES OF THIS AGREEMENT AND ARISING IN THE OTHER CONTRACTING STAT E MAY ALSO BE TAXED IN THAT OTHER STATE. DTAA WITH SPAIN: ARTICLE 23-OTHER INCOME-L. S UBJECT TO THE PROVISIONS OF PARAGRAPH 2,ITEMS OF INCOME OF A RESIDENT OF A CONT RACTING STATE, WHEREVER ARISING, WHICH ARE NOT EXPRESSLY DEALT WITH IN THE FOREGOING ARTICLES OF THIS CONVENTION, SHALL BE TAXABLE ONLY IN THAT CONTRACTI NG STATE. 2. THE PROVISIONS OF PARAGRAPH (1) SHALL NOT APPLY TO INCOME, OTHER THAN INCOME FROM IMMOVABLE PROPERTY AS DEFINED IN PARAGRAPH (2) OF ARTICLE 6, IF THE RECIPIENT OF SUCH INCOME, BEING A RESIDENT OF A CONTRACTING S TATE, CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE THROUGH A PERMANENT ESTABLI SHMENT SITUATED THEREIN, OR PERFORMS IN THAT OTHER STATE INDEPENDENT PERSONAL S ERVICES FROM A FIXED BASE SITUATED THEREIN, AND THE RIGHT OR PROPERTY IN RESP ECT OF WHICH THE INCOME IS PAID IS EFFECTIVELY CONNECTED WITH SUCH PERMANENT ESTABLISH MENT, OR FIXED BASE. IN SUCH A CASE, THE PROVISIONS OF ARTICLE 7 OR ARTICLE 15, AS THE CASE MAY BE, SHALL APPLY. 3. NOTWITHSTANDING THE PROVISIONS OF PARAGRAPH 1 AN D 2, ITEMS OF INCOME OF A RESIDENT OF A CONTRACTING STATE NOT DEALT WITH IN T HE FOREGOING ARTICLES OF THIS CONVENTION AND ARISING IN THE OTHER CONTRACTING STA TE MAY BE TAXED IN THAT OTHER STATE. DTAA WITH UKRAIN :ARTICLE 22- OTHER INCOME-F. SUBJE CT TO THE PROVISIONS OF PARAGRAPH 2, ITEMS OF INCOME OF A RESIDENT OF A CON TRACTING STATE, WHEREVER 6 ITA NO.2249/KOL/2014 M/S. ELECTROSTEEL CASTING LTD. A.YR.2011-12 6 ARISING, WHICH ARE NOT EXPRESSLY DEALT WITHIN THE F OREGOING ARTICLES OF THIS CONVENTION, SHALL BE TAXABLE ONLY IN THE CONTRACTIN G STATE. 2. THE PROVISIONS OF PARAGRAPH (1) SHALL NOT APP LY TO INCOME, OTHER THAN INCOME FROM IMMOVABLE PROPERTY AS DEFINED IN PARAGRAPH (2) OF ARTICLE 6, IF THE RECIPIENT OF SUCH INCOME, BEING A RESIDENT OF A CONTRACTING S TATE, CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE THROUGH A PERMANENT ESTABLI SHMENT SITUATED THEREIN, OR PERFORMS IN THAT OTHER STATE INDEPENDENT PERSONAL S ERVICES FROM A FIXED BASE SITUATED THEREIN, AND THE RIGHT OF PROPERTY IN RESP ECT OF WHICH THE INCOME IS PAID IS EFFECTIVELY CONNECTED WITH SUCH PERMANENT ESTABLISH MENT OR FIXED BASE. IN SUCH A CASE, THE PROVISIONS OF ARTICLE 7 OR ARTICLE 15, AS THE CASE MAY BE, SHALL APPLY. 3. NOTWITHSTANDING THE PROVISIONS OF PARAGRAPH 1 AN D 2, ITEMS OF INCOME OF A RESIDENT OF A CONTRACTING STATE NOT DEALT WITHIN TH E FOREGOING ARTICLES OF THIS CONVENTION AND ARISING IN THE OTHER CONTRACTING STA TE MAY ALSO BE TAXED IN THAT OTHER CONTRACTING STATE. FROM THE ABOVE ARTICLES OF THE DTAA'S BETWEEN INDIA AND OTHER COUNTRIES, IT IS VERY MUCH CLEAR THAT THE INCOME FROM OTHER SOURCE OF A N ON-RESIDENT OF OMAN, MALTA, UKRAIN & SPAIN ARE TAXABLE IN INDIA AND SINCE THERE IS NO DTAA BETWEEN INDIA AND YEMEN, THE INCOME FROM OTHER SOURCE OF A NON-RESIDE NTS OF YEMEN IS ALSO TAXABLE IN INDIA. 6. BASED ON THE ABOVE, THE LD AO HELD THAT THE INC OME ARISING TO THE NON-RESIDENTS ON ACCOUNT OF COMMISSION FALLS U/S 5(2)(B) OF THE ACT AS THE INCOME HAS ACCRUED IN INDIA WHEN THE RIGHT TO RECEIVE THE INCOME BECAME VESTED. HE OBSERVED THAT SECTION 5(2)(B) OF THE ACT DEALS WITH THE SCOPE OF TOTAL INCOME FRO M WHATEVER SOURCE DERIVED, WHICH ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE I N INDIA DURING SUCH PREVIOUS YEAR. U/S 9(1)(I) OF THE ACT, INCOME ARISING OR ARISING DIREC TLY OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA OR SOURCE OF INCOME IN INDIA SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA. HE FINALLY HELD AS UNDER:- THE SOURCE OF INCOME OF THE NON-RESIDENTS R WHO HA D EARNED COMMISSION FROM THE BUSINESS ACTIVITY OF THE DEDUCTOR. SECTION 5 AND 9 OF THE INCOME TAX ACT 1961, THUS PROCEED ON THE ASSUMPTION THAT INCOME HAS A SITUS A ND THE SITUS HAS TO BE DETERMINED ACCORDING TO THE GENERAL PRINCIPLES OF L AW. THE MEANING OF THE WORD SITUS IS THE PLACE WHERE SOMETHING EXISTS OR ORIGIN ATES, SPECIFICALLY THE PLACE WHERE SOMETHING (AS A RIGHT) IS HELD TO BE LOCATED IN LAW . THE WORDS 'ACCRUE' OR 'ARISE' OCCURRING IN SECTION 5 HAVE MORE OR LESS A SYNONYMO US SENSE AND INCOME IS SAID TO ACCRUE OR ARISE WHEN THE RIGHT TO RECEIVE IT COMES INTO EXISTENCE. IN THE INSTANT CASE NO DOUBT THAT THE AGENTS RENDERED THEIR SERVICES AB ROAD IN THE FORM OF PROCURING 7 ITA NO.2249/KOL/2014 M/S. ELECTROSTEEL CASTING LTD. A.YR.2011-12 7 ORDERS ON BEHALF OF THE DEDUCTOR, BUT THE RIGHT TO RECEIVE THE COMMISSION ARISES IN INDIA WHEN THE ORDERS OF EXPORT ARE EXECUTED BY THE DEDUCTOR IN INDIA. THE FACT THAT THE AGENT HAVE RENDERED SERVICES ABROAD IN THE FORM OF SOLICITING THE ORDERS AND THE COMMISSION IS TO BE REMITTED TO THEM ABROAD ARE WHOLLY IRRELEVANT FOR THE PURPOSE OF DETERMINING THE SITUS OF HIS INCOME. IN THE INSTANT CASE THE COMMISSION INCOME 'ACCRUE' OR 'ARISE' TO THOSE NON-RESIDENTS W HEN THE EXPORTS ARE EXECUTED IN INDIA AND THE BILLS FOR THE SAME ARE RAISED. THEREF ORE, THE COMMISSION INCOME WAS OBVIOUSLY 'ACCRUE' OR 'ARISE' IN INDIA. HENCE, THE INCOME ARISING ON ACCOUNT OF COM MISSION PAYABLE TO THE NON- RESIDENTS ARE DEEMED TO ACCRUE AND RISE IN INDIA, A ND IS TAXABLE UNDER THE INCOME TAX ACT 1961, IN VIEW OF THE SPECIFIC PROVISIONS OF SECTION 5(2)(B) READ WITH SECTION 9(1)(I) OF THE INCOME TAX ACT, 1961. THE PROVISION OF SECTION 195 WOULD APPLY IN THIS CASE. 6.1. BASED ON THESE OBSERVATIONS, HE HELD THAT THE TAX LIABILITY OF THE DEDUCTOR COMPANY FOR THE ASST YEAR 2012-13 WOULD BE RS 33,07,019/- I NCLUDING INTEREST U/S 201(1A) OF THE ACT. 7. THE LD CITA GRANTED RELIEF TO THE ASSESSEE BY M AKING THE FOLLOWING OBSERVATIONS :- 4. I HAVE CONSIDERED THE FACTS OF THE CASE. THE I .T.O. HAD INITIALLY ISSUED SHOW CAUSE NOTICE IN RESPECT OF COMMISSION PAID TO FIVE NON-RESIDENTS. THE APPELLANT CLAIMED THAT THE COMMISSION WAS BUSINESS INCOME OF THE RECIPIENTS AND SINCE THEY WERE NOT HAVING ANY PE IN INDIA AND COMMISSION WAS EARNED IN RELATION TO SERVICES RENDERED OUTSIDE INDIA, THE INCOME WAS NOT TAXABLE IN INDIA AND HENCE, NO TAX WAS REQUIRED TO DEDUCT. THE I.T.O. HELD THAT TH E APPELLANT HAD NOT ESTABLISHED THAT THE INCOME OF NON- RESIDENT RECIPIENTS WAS BUS INESS INCOME AND HENCE TREATED THE SAME AS 'INCOME FROM OTHER SOURCE'. THEREAFTER, HE PROCEEDED TO ANALYZE THE PROVISIONS OF RELEVANT DTAAS AND OBSERVED THAT INCO ME FROM OTHER SOURCE OF RESIDENT OF OMAN, MALTA, UKRAIN AND SPAIN WAS TAXAB LE IN INDIA UNDER THE PROVISIONS OF RESPECTIVE DT AA. INCOME FROM OTHER S OURCE OF RESIDENT OF YEMEN WAS ALSO TAXABLE IN INDIA SINCE THERE WAS NO DTAA W ITH YEMEN. THEREAFTER, THE ITO HELD THAT COMMISSION HAD ACCRUED IN INDIA SINCE THE RIGHT TO RECEIVE COMMISSION HAD ARISEN IN INDIA WHERE THE BUSINESS O F THE APPELLANT WAS BEING CONDUCTED. THEREFORE, HE HELD THAT COMMISSION PAID TO THREE PERSONS VIZ. MR. EDWARD ZAMMIT, M/S ZAINAC ENGINEERING & ENTERPRISES AND ELECTROSTEEL EUROPE WAS TAXABLE IN INDIA. AS PER THE PROVISION OF SECTI ON 5(2), INCOME OF A NON-RESIDENT WHICH IS RECEIVED OR DEEMED TO BE RECEIVED IN INDIA OR WHICH ACCRUES OR ARISEN IN INDIA IS TAXABLE IN INDIA. ACCORDING TO THE I.T.O., COMMISSION INCOME OF MR. 8 ITA NO.2249/KOL/2014 M/S. ELECTROSTEEL CASTING LTD. A.YR.2011-12 8 EDWARD ZAMMIT, M/S ZAINAC ENGINEERING & ENTERPRISES AND ELECTROSTEEL EUROPE HAD ACCRUED IN INDIA. ON THE OTHER HAND, THE APPELL ANT HAS CONTENDED THAT THE SAID INCOME HAD ACCRUED OUTSIDE INDIA. 5. THUS, THERE ARE TWO ISSUES INVOLVED. FIRST, AS T O WHETHER COMMISSION INCOME OF THE AGENTS WAS IN NATURE OF BUSINESS INCOME OR 'INC OME FROM OTHER SOURCES' AND SECOND, AS TO WHETHER THE SAID INCOME CAN BE SAID T O HAVE ACCRUED OR DEEMED TO ACCRUE IN INDIA. IN ORDER TO DECIDE THESE ISSUES, T HE NATURE OF SERVICES FOR WHICH COMMISSION WAS PAID WAS EXAMINED. IT IS SEEN THAT C OMMISSION TO ELECTROSTEEL EUROPE IS PAID IN RESPECT OF SALE MADE BY THE APPEL LANT TO THE ORDER PROCURED THROUGH ELECTROSTEEL EUROPE, WHICH ALSO PROVIDES CE RTAIN SERVICES LIKE CUSTOMS CLEARANCE, TRANSPORTATION, UN-LOADING, BUNDLING, ST ORAGE & LOADING IN RESPECT OF THOSE ORDERS. M/S ZAINAC ENGINEERING & ENTERPRISES IS PAID IN RESPECT OF SERVICE RENDERED TOWARDS PROCUREMENTS AND EXECUTION OF ORDE RS. COMMISSION TO MR. EDWARD ZAMMIT IS ALSO PAID IN RESPECT OF ORDER THRO UGH HIM. CONSIDERING THIS POSITION, I AM NOT IN AGREEMENT WITH THE I.T.O., TH AT THE COMMISSION WAS TAXABLE AS 'INCOME FROM OTHER SOURCE'. IT IS VERY MUCH CLEAR F ROM THE MATERIAL ON RECORD THAT THE' COMMISSION WAS PAID IN RELATION TO PROCUREMENT OF ORDERS AND SERVICING OF CLIENTS PERFORMED BY THE AGENTS ON A REGULAR BASIS . THIS OBVIOUSLY CONSTITUTES BUSINESS ACTIVITY ON PART OF THE AGENTS. ANY INCOME DERIVED THERE FROM IS THEREFORE TO BE TREATED AS BUSINESS INCOME ONLY. AN INCOME CA N BE TREATED AS 'INCOME FROM OTHER SOURCES', ONLY IF THE SAME DOES NOT FALL UNDE R ANY OF THE SPECIFIC HEADS OF INCOME AND NOT OTHERWISE. 6. COMING NOW TO THE SECOND QUESTION, IT IS SEEN TH AT ALL THE THREE AGENTS ARE RESIDING OUTSIDE INDIA AND THE CUSTOMERS SERVICED B Y THEM ARE ALSO LOCATED OUTSIDE INDIA. THE ENTIRE SERVICES RENDERED BY THE AGENTS A RE OUTSIDE INDIA. EVEN THE I.T.O. HAS NOT DISPUTED THIS FACT. HOWEVER, HE IS OF THE V IEW THAT THE COMMISSION HAD ACCRUED/ARISEN IN INDIA. HE HAS BASED HIS OPINION O N THE FACT THAT THE EXPORT ORDERS, FOR WHICH COMMISSION WAS PAID, WERE EXECUTE D IN INDIA. THUS, THE I.T.O. HAS NOT DISPUTED THE CLAIM THAT SERVICES WERE RENDE RED ABROAD AND PAYMENTS WAS ALSO MADE ABROAD. HE HAS RATHER PLACED MORE EMPHASI S ON THE FACT THAT EVEN IN SUCH A CASE RIGHT TO RECEIVE COMMISSION HAS ACCRUED ON ACCOUNT OF EXPORT ORDERS EXECUTED FROM INDIA AND THEREFORE, ACCORDING TO HIM , SUCH COMMISSION HAS ARISEN IN INDIA. THEREFORE, IN VIEW OF SECTION 5(2)(B) REA D WITH SECTION 9(1 )(I) OF THE INCOME TAX ACT, 1961, PROVISION OF SECTION 195 WOUL D APPLY ON SUCH COMMISSION. THE LEGAL POSITION IN THIS REGARD HAS BEEN CAREFULL Y EXAMINED. AS PER CLAUSE (I) OF SECTION 9(I) FOLLOWING INCOME IS DEEMED TO HAVE ACC RUED OR ARISEN IN INDIA:- 'ALL INCOME ACCRUING / ARISEN WHETHER DIRECTLY OR I NDIRECTLY THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA OR THROUGH OR FROM ABR OAD IN INDIA OR THROUGH OR FROM ANY ASSET SOURCE OF INCOME IN INDIA OR THROUGH A TRANSFER OF CAPITAL ASSET SITUATED IN INDIA' 9 ITA NO.2249/KOL/2014 M/S. ELECTROSTEEL CASTING LTD. A.YR.2011-12 9 EXPLANATION-1 TO THE SAID SECTION PROVIDE THAT:- '(A) IN THE CASE OF A BUSINESS OF WHICH ALL THE OPERATIONS ARE NOT CARRIED OUT IN INDIA, THE INCOME OF THE BUSINESS DEEMED UNDER THIS CLAUSE ACCRUED OR ARISEN IN INDIA SHALL BE ONLY SUCH PART OF THE INCOME AS REAS ONABLY ATTRIBUTED TO THE OPERATIONS CARRIED OUT IN INDIA ' 7. THUS, IT FOLLOWS FROM EXPLANATION 1 TO SECTION 9 (1)(1 )(I) THAT IN A BUSINESS WHERE NONE OF THE OPERATIONS IS CARRIED OUT IN INDIA, NO PART OF ITS INCOME IS DEEMED TO ACCRUE OR ARISE IN INDIA. AS PER UNDISPUTED FACTS I N THE APPELLANT'S CASE, NO OPERATION WAS CARRIED OUT BY THE NON-RESIDENT AGENT S IN INDIA. THEREFORE, IT WOULD BE ERRONEOUS TO HOLD THAT THE ENTIRE COMMISSION INC OME HAD ACCRUED OR ARISEN IN INDIA. IN THE APPELLANT'S CASE, ENTIRE RENDERING OF SERVICES OF AGENTS HAD TAKEN PLACE OUTSIDE INDIA AS SUCH CUSTOMERS WERE BASED AB ROAD. THE COMMISSION WAS ALSO PAID TO THE ACCOUNT HELD ABROAD. THEREFORE, TH ERE IS NO OPERATION WHICH IS CARRIED OUT IN INDIA FOR WHICH ANY INCOME CAN BE RE ASONABLY ATTRIBUTED. THIS PRINCIPLE HAS BEEN UPHELD BY THE APEX COURT IN THE M/S. ISHIKAWAJMA-HARIMA HEAVY INDUSTRIES LTD VS DIT (288 ITR 408) AND CIT V S M/S. HYUNDAL HEAVY INDUSTRIES CO LTD (291 ITR 482) ON THE ISSUE OF COM MISSION TO FOREIGN BASED AGENT, SIMILAR VIEW HAS BEEN TAKEN BY THE APEX COUR T IN THE CASE OF CIT VS M/S.TOSHOKU LTD (125 ITR 525 (SC). SIMILAR VIEW HAS BEEN TAKEN BY DELHI HIGH COURT IN THE CASE OF CIT VS M/S. EON TECHNOLOGY (P) LTD (15 TAXMANN.COM 391). EVEN THE CSDT'S CIRCULAR NO. 163 DATED 29.05.1975 A ND CIRCULAR NO.786 DATED 07.02.2000 MAKE IT CLEAR THAT WHEN NO ACTIVITY IS C ARRIED OUT BY NON-RESIDENT COMMISSION AGENT IN INDIA, NO INCOME IS ARISEN IN I NDIA. THIS PRINCIPLE HAS BEEN UPHELD IN SEVERAL TRIBUNAL DECISIONS SUCH AS DCIT C IRCLE 1 (1) HYDERABAD VS M/S. DIVI'S LABORATORIES LTD (12 TAXMANN.COM 103). IT MA Y ALSO BE MENTIONED THAT COMMISSION PAID TO AGENT DOES NOT FALL IN PURVIEW O F FEES FOR TECHNICAL SERVICES ETC. WHERE EXPLANATION TO SECTION 9(2) HAS PROVIDED THAT SUCH INCOME OF NON-RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER C LAUSE (V),(VI) AND (VII) OF SUB SECTION-(1) WHETHER OR NOT THE NON-RESIDENT HAS REN DERED SERVICES IN INDIA. THEREFORE, PAYMENT OR COMMISSION IS NOT GOVERNED BY THE SAID EXPLANATION AND CAN BE DEEMED TO ACCRUE OR ARISE ONLY IF CERTAIN SERVIC ES HAVE BEEN RENDERED IN INDIA. 8. IN VIEW OF THE FOREGOING DISCUSSION, IT IS HELD, THAT THE COMMISSION EARNED BY THE AGENTS WAS IN NATURE OF BUSINESS INCOME. MOREOVER, SINCE IN THE COMMISSION HAD BEEN PAID TO THE PERSONS NOT HAVING ANY PERMANENT E STABLISHMENT IN INDIA AND THE SERVICES WERE RENDERED WHOLLY OUTSIDE INDIA, NO BUS INESS INCOME CAN BE TREATED AS ACCRUED OR DEEMED TO ACCRUE IN INDIA. HENCE, THE AP PELLANT WAS NO LIABLE TO DEDUCT TAX U/S 195 ON THE SAME. THE DEMAND RAISED U/S 201( 1) AND INTEREST U/S 201(1A) IS ACCORDINGLY DELETED. 10 ITA NO.2249/KOL/2014 M/S. ELECTROSTEEL CASTING LTD. A.YR.2011-12 10 8. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD.CIT(A) ERRED IN LAW IN HOLDING THAT THE COMMISSION EARNED BY THE NON RESID ENT AGENTS WERE IN THE NATURE OF BUSINESS INCOME AND THAT THEIR BUSINESS INCOME W AS NOT TAXABLE IN INDIA IN ABSENCE OF 'PERMANENT ESTABLISHMENT' IN INDIA, WITH OUT GOING INTO THE FACTS OF THE CASE TO ESTABLISH THAT THE NON RESIDENT AGENTS WERE ACTUALLY NOT HAVING ANY PERMANENT ESTABLISHMENT IN INDIA? 2 THE LD CIT (A) ERRED IN RELYING UPON THE CBDT CIR CULAR NO. 163 DATED 29/05/75 & CIRCULAR NO 786 DATE 07/02/2000, WITHOUT NOTICING THAT THESE CIRCULARS HAVE BEEN SUPERCEDED BY CBDT CIRCULAR NO. 07/2009 DATE 22/10/ 2009. 3. ANY OTHER GROUND TO BE TAKEN AT THE TIME OF HEAR ING. 9. NONE APPEARED ON BEHALF OF THE REVENUE WHEN THE CASE WAS CALLED FOR HEARING AND NO ADJOURNMENT PETITION WAS EVEN PREFERRED BY THE REVE NUE BEFORE US. HENCE WE PROCEED TO DISPOSE OFF THE APPEAL AFTER HEARING THE LD AR. 10. WE HAVE HEARD THE LD AR. THE LD CITA HAD OBSE RVED THAT COMMISSION TO ELECTROSTEEL EUROPE WAS PAID IN RESPECT OF SALE MAD E BY THE ASSESSEE TO THE ORDER PROCURED THROUGH ELECTROSTEEL EUROPE, WHICH ALSO PR OVIDES CERTAIN SERVICES LIKE CUSTOMS CLEARANCE, TRANSPORTATION, UNLOADING, BUNDLING, STO RAGE & LOADING IN RESPECT OF THOSE ORDERS. M/S ZAINAC ENGINEERING & ENTERPRISES WAS P AID IN RESPECT OF SERVICE RENDERED TOWARDS PROCUREMENT AND EXECUTION OF ORDERS. COMMI SSION TO MR EDWARD ZAMMIT WAS ALSO PAID IN RESPECT OF ORDER THROUGH HIM. BASED ON THESE FACTS, IN OUR OPINION, THE LD AO ERRED IN TREATING THE COMMISSION INCOME IN THE H ANDS OF NON-RESIDENT RECIPIENTS TO BE TAXABLE IN INDIA AS OTHER INCOME (I.E INCOME FRO M OTHER SOURCES). THE SERVICES RENDERED BY THE NON-RESIDENT AGENTS CONSTITUTE REGU LAR BUSINESS ACTIVITY ON THE PART OF THE AGENTS AND HENCE ANY INCOME DERIVED THEREFROM W OULD HAVE TO BE TREATED ONLY AS BUSINESS INCOME. WE FIND THAT THE UNDISPUTED FACT IS THAT ALL THE AFORESAID THREE AGENTS ARE RESIDING OUTSIDE INDIA AND THE CUSTOMERS SOURCE D BY THEM ARE ALSO LOCATED OUTSIDE INDIA. THE ENTIRE SERVICES RENDERED BY THE AGENTS ARE OUTSIDE INDIA. WE FIND THAT THE LD AO HAD HELD THAT THE RIGHT TO RECEIVE THE COMMIS SION HAS ACCRUED IN INDIA SINCE THE 11 ITA NO.2249/KOL/2014 M/S. ELECTROSTEEL CASTING LTD. A.YR.2011-12 11 EXPORT ORDERS ARE EXECUTED FROM INDIA AND THEREFORE SUCH COMMISSION HAS AROSE IN INDIA. IN THIS REGARD, IT WOULD BE RELEVANT TO ANALYSE THE PROVISIONS OF SECTION 9(1)(I) OF THE ACT TOGETHER WITH ITS EXPLANATION THEREON. FROM ITS AN ALYSIS, WE FIND THAT IN A BUSINESS WHERE NONE OF THE OPERATIONS WERE CARRIED OUT IN IN DIA, NO PART OF ITS INCOME WOULD BE DEEMED TO ACCRUE OR ARISE IN INDIA. 10.1. NOW THE NEXT QUESTION THAT ARISES IS WHETHER THE SAID PAYMENT WOULD FALL WITHIN THE AMBIT OF FEE FOR TECHNICAL SERVICES (FTS) AS DEFINED IN SECTION 9(1)(VII) OF THE ACT. WE FIND THAT THE NATURE OF SERVICES RENDERED BY THE NON-RESIDENT AGENTS, DOES NOT FALL UNDER THE AMBIT OF EITHER MANAGERIAL OR TEC HNICAL OR CONSULTANCY SERVICES SO AS TO FALL WITHIN THE DEFINITION OF FTS. ADMITTEDLY NO TECHNICAL SERVICES ARE RENDERED BY THE AGENTS TO THE ASSESSEE OUTSIDE INDIA. ADMITTED LY THE NON-RESIDENT AGENTS ARE NOT MANAGING THE BUSINESS OF THE ASSESSEE. THEY ARE SI MPLY IDENTIFYING THE CUSTOMERS FOR SELLING THE ASSESSEES PRODUCTS ABROAD IN LIEU OF S ELLING COMMISSION. THE SAID AGENTS ARE NOT TAKING ANY BUSINESS DECISION FOR AND ON BEH ALF OF THE ASSESSEE. HENCE THE SERVICES RENDERED BY THEM DOES NOT FALL UNDER THE A MBIT OF MANAGERIAL SERVICES. ADMITTEDLY NO PROFESSIONAL SERVICES WERE RENDERED W ITH THEIR SKILL AND EXPERTISE BY THE NON-RESIDENT AGENTS TO THE ASSESSEE. THE NON-RESI DENT AGENTS NEED NOT POSSESS ANY SPECIFIC QUALIFICATION FOR RENDERING THESE SERVICES TO THE ASSESSEE. HENCE THE SERVICES RENDERED BY THEM DOES NOT FALL UNDER THE AMBIT OF CONSULTANCY SERVICES. HENCE IT COULD BE SAFELY CONCLUDED THAT THE ENTIRE SERVICES RENDERED BY THE NON-RESIDENT AGENTS OUTSIDE INDIA IS OUTSIDE THE SCOPE OF DEFINITION OF FTS U/S 9(1)(VII) OF THE ACT. MOREOVER, WE FIND THAT THE EXPLANATION TO SECTION 9 (2) OF THE ACT WOULD BECOME APPLICABLE, WHICH IS EFFECTIVE RETROSPECTIVELY FROM 1.6.1976 ONWARDS , ONLY FOR ITEMS FALLING U/S 9(1)(V) ; 9(1)(VI) AND 9(1)(VII) OF THE ACT. THE PAYMENT OF COMMISSION TO NON-RESIDENT AGENTS DOES NOT FALL IN ANY OF THE THR EE CLAUSES OF SECTION 9(1) OF THE ACT. 12 ITA NO.2249/KOL/2014 M/S. ELECTROSTEEL CASTING LTD. A.YR.2011-12 12 10.2. IT IS WELL SETTLED THAT THE PROVISIONS OF SE CTION 195(1) OF THE ACT ARE VERY CLEAR THAT THE INCOME OF THE NON-RESIDENT SHOULD BE CHARGEABLE TO TAX IN INDIA SO AS TO WARRANT DEDUCTION OF TAX AT SOURCE BY THE DEDUCTOR. IN TH E INSTANT CASE, THE COMMISSION IS NOT CHARGEABLE TO TAX IN INDIA BY ANY MEANS. HENCE BY PLACING RELIANCE ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF GE INDIA TECHNOLO GY CENTRE P LTD VS CIT REPORTED IN (2010) 327 ITR 456 (SC), WE HOLD THAT THE COMMISSION PAID BY THE ASSESSEE TO THE NON-RESIDENT AGENTS IS NOT CHARGEABLE TO TAX IN INDIA AND HENCE THERE IS NO QUESTION OF DEDUCTION OF TAX AT SOURCE ON THE SAID PAYMENT. 10.2.1. WE FIND THAT THE HONBLE SUPREME COURT IN THE CASE OF CIT VS TOSHUKU LTD REPORTED IN 125 ITR 525 (SC) HELD THAT:- AS REGARDS THE QUESTION AS TO WHETHER THE COMMISSIO N AMOUNTS COULD BE TREATED AS INCOME ACCRUED IN INDIA TO NON-RESIDENT ASSESSEE, C LAUSE ( A ) OF THE EXPLANATION TO SECTION 9(1)(I) PROVIDES THAT IN THE CASE OF A BUSI NESS OF WHICH ALL THE OPERATIONS ARE NOT CARRIED OUT IN INDIA, THE INCOME OF THE BUSINESS DE EMED UNDER THAT CLAUSE TO ACCRUE OR ARISE IN INDIA SHALL BE ONLY SUCH PART OF THE INCOM E AS IS REASONABLY ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA. IN THE INSTANT CASE, THE NON-RESIDENT ASSESSEES DID NOT CARRY ON ANY BUSINESS OPERATIONS IN THE TAXABLE TERRITORIES. THEY ACTED AS SELLING A GENTS OUTSIDE INDIA. THE RECEIPT IN INDIA OF THE SALE PROCEEDS OF TOBACCO REMITTED OR C AUSED TO BE REMITTED BY THE PURCHASERS FROM ABROAD DID NOT AMOUNT TO AN OPERATI ON CARRIED OUT BY THE ASSESSEE IN INDIA AS CONTEMPLATED BY CLAUSE ( A ) OF THE EXPLANATION TO SECTION 9(1)(I). THE COMMISSION AMOUNTS WHICH WERE EARNED BY THE NON-RES IDENT ASSESSEES FOR SERVICES RENDERED OUTSIDE INDIA COULD NOT, THEREFORE, BE DEE MED TO BE INCOMES WHICH HAD EITHER ACCRUED OR ARISEN IN INDIA. 10.2.2. WE FIND THAT THE CO-ORDINATE BENCH OF CHENNAI TRIBUNAL IN THE CASE OF ITO VS TRIDENT EXPORTS REPORTED IN 149 ITD 361 FOR THE ASS T YEAR 2010-11 VIDE ORDER DATED 27.2.2014 HAD HELD AS UNDER:- 8. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUS ED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS OF THE CASE, IT IS EVIDENT T HAT THE ASSESSEE HAD MADE PAYMENTS TO COMMISSION AGENTS LOCATED IN FOREIGN COUNTRIES. THE SE FOREIGN AGENTS HAVE RENDERED SERVICES IN THEIR RESPECTIVE COUNTRIES AND HAD RECE IVED THE COMMISSION. IT IS ALSO EVIDENT THAT THE FOREIGN AGENTS DID NOT HAVE ANY PE IN INDI A AND THERE WAS NOTHING BROUGHT ON RECORD TO SHOW THAT THE AGREEMENTS BETWEEN THE ASSE SSEE & THE COMMISSION AGENTS WERE 13 ITA NO.2249/KOL/2014 M/S. ELECTROSTEEL CASTING LTD. A.YR.2011-12 13 ENTERED IN INDIA. IN THESE CIRCUMSTANCE THE DECISIO N RENDERED IN THE CASE OF TOSHOKU LTD. (SUPRA) IS SQUARELY APPLICABLE CONSIDERING THE FACTS OF THE CASE BEFORE US. IN THIS CASE, THE HON'BLE APEX COURT HELD THAT THE COMMISSI ON AGENTS, WHO ARE ENGAGED IN THE SERVICES EXECUTED OUTSIDE INDIA, CANNOT BE CONSIDER ED TO CARRY ON ANY BUSINESS OPERATIONS IN INDIA AND THEREFORE, PROVISIONS OF SE CTION 9(1)(I) OF THE ACT AND EXPLANATION-1A WILL NOT BE APPLICABLE. SIMILARLY, T HE HON'BLE APEX COURT, IN THE CASE OF GE INDIA TECHNOLOGY CEN. (P.) LTD (SUPRA) HAS HE LD THAT THE EXPRESSION 'CHARGEABLE UNDER THE PROVISIONS OF THE ACT IN SEC.195(1)' SHOW S THAT THE REMITTANCE HAS TO BE OF TRADING RECEIPT, THE WHOLE OR PART OF WHICH, IS LIA BLE TO TAX IN INDIA. IF TAX IS NOT SO ASSESSABLE, THERE IS NO QUESTION OF TAX AT SOURCE B EING DEDUCTED. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE DECISIONS REN DERED BY THE HON'BLE APEX COURT, WE ARE OF THE CONSIDERED VIEW THAT THE LD. LD. CIT (A) HAD DECIDED THE ISSUE IN ACCORDANCE WITH LAW. THEREFORE, WE HEREBY CONFIRMED THE ORDER OF THE LD.CIT (A). 10.3. NOW LET US GO TO THE SUPERCEDING CIRCULAR ISS UED BY THE CBDT VIDE CIRCULAR NO. 7/2009 DATED 22.10.2009. IN THIS REGARD WE HOLD TH AT IT IS WELL SETTLED THAT THE HONBLE SUPREME COURT IN THE CASE OF KERALA FINANCIAL CORPO RATION VS CIT REPORTED IN 210 ITR 129 (SC) HAD HELD THAT CIRCULARS ISSUED BY THE CBDT U/S 119 OF THE ACT CANNOT OVERRIDE OR DETRACT THE PROVISIONS OF THE ACT. THUS WITHDR AWAL OF THE EARLIER CIRCULARS (I.E CIRCULAR NO. 163 DT 29.5.75 & CIRCULAR NO. 786 DT 7 .2.2000) DOES NOT AFFECT THE SETTLED POSITION THAT EXPORT COMMISSION IS NOT TAXABLE IN I NDIA GIVEN THE FACT THAT NO RELEVANT CHANGES HAVE BEEN MADE IN SECTION 5, 9 & 195 OF THE ACT. WE FIND THAT THE CO-ORDINATE BENCH OF HYDERABAD TRIBUNAL IN THE CASE OF DCIT VS DIVIS LA BORATORIES LTD REPORTED IN (2011) 131 ITD 271 (HYD TRIB) DATED 25.3.2011 HAD HELD AS UNDER:- 8. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PAR TIES AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE MOOT QUESTION THA T ARISES OUT OF THESE APPEALS IS WHETHER THE PAYMENT OF COMMISSION MADE TO THE OVERS EAS AGENTS WITHOUT DEDUCTION OF TAX IS ATTRACTED DISALLOWANCE UNDER SECTION 40(A)( IA) OF THE ACT OR NOT. WHETHER THE PAYMENT IN DISPUTE MADE BY WAY OF CHEQUE OR DEMAND DRAFT BY POSTING THE SAME IN INDIA WOULD AMOUNT TO PAYMENT IN INDIA AND CONSEQUE NTLY WHETHER MERE PAYMENT WOULD BE SAID TO ARISE OR ACCRUE IN INDIA OR NOT? FIRST W E WILL TAKE UP THE ISSUE WHETHER THE PAYMENT OF COMMISSION TO OVERSEAS AGENTS WITH OUT D EDUCTION OF TAX IS ATTRACTED DISALLOWANCE UNDER SECTION 40(A)( IA) OF THE ACT OR NOT. WE FIND THAT THE CBDT BY ITS RECENT CIRCULAR NO. 7 DATED 22-10-2009 WITHDRAWN IT S EARLIER CIRCULAR NOS.23 DATED 23-7-2009, 163 DATED 29-5-1975 AND 786 DATED 7-2-20 00. THE EARLIER CIRCULARS ISSUED BY THE CBDT HAVE CLEARLY DEMONSTRATED THE ILLUSTRAT IONS TO EXPLAIN THAT SUCH COMMISSION PAYMENTS CAN BE PAID WITHOUT DEDUCTION O F TAX. THUS, THE MAIN THRUST IN SUCH A SITUATION IS WHETHER THE COMMISSION MADE TO OVERSEAS AGENTS, WHO ARE NON- 14 ITA NO.2249/KOL/2014 M/S. ELECTROSTEEL CASTING LTD. A.YR.2011-12 14 RESIDENT ENTITIES, AND WHO RENDER SERVICES ONLY AT SUCH PARTICULAR PLACE, IS ASSESSABLE TO TAX. SECTION 195 OF THE ACT VERY CLEARLY SPEAKS THA T UNLESS THE INCOME IS LIABLE TO BE TAXED IN INDIA, THERE IS NO OBLIGATION TO DEDUCT TA X. NOW, IN ORDER TO DETERMINE WHETHER THE INCOME COULD BE DEEMED TO BE ACCRUED OR ARISEN IN INDIA, SECTION 9 OF THE ACT IS THE BASIS. THIS SECTION, IN OUR OPINION, DOES NOT PROVI DE SCOPE FOR TAXING SUCH PAYMENT BECAUSE THE BASIC CRITERIA PROVIDED IN THE SECTION IS ABOUT GENESIS OR ACCRUING OR ARISING IN INDIA, BY VIRTUE OF CONNECTION WITH THE PROPERTY IN INDIA, CONTROL AND MANAGEMENT VESTED IN INDIA, WHICH ARE NOT SATISFIED IN THE PRESENT CASES. UNDER THESE CIRCUMSTANCES, WITHDRAWAL OF EARLIER CIRCULARS ISSU ED BY THE CBDT HAS NO ASSISTANCE TO THE DEPARTMENT, IN ANY WAY, IN DISALLOWING SUCH EXP ENDITURE. IT APPEARS THAT AN OVERSEAS AGENT OF INDIAN EXPORTER OPERATES IN HIS O WN COUNTRY AND NO PART OF HIS INCOME ARISES IN INDIA AND HIS COMMISSION IS USUALLY REMIT TED DIRECTLY TO HIM BY WAY OF TT OR POSTING OF CHEQUES/DEMAND DRAFTS IN INDIA AND THERE FORE THE SAME IS NOT RECEIVED BY HIM OR ON HIS BEHALF IN INDIA AND SUCH AN OVERSEAS AGEN T IS NOT LIABLE TO INCOME-TAX IN INDIA ON THESE COMMISSION PAYMENTS. THIS VIEW IS FORTIFIE D BY THE JUDGMENT OF APEX COURT IN THE CASE OF TOSHOKU LTD. (SUPRA). 9. IT IS PERTINENT TO NOTE THAT THE SECTION 195 OF TH E ACT HAS TO BE READ ALONG WITH THE CHARGING SECTIONS 4, 5 AND 9 OF THE ACT. ONE SHOULD NOT READ SECTION 195 TO MEAN THAT THE MOMENT THERE IS A REMITTANCE; THE OBLIGATION TO DEDUCT TDS AUTOMATICALLY ARISES. IF WE WERE TO ACCEPT SUCH CONTENTION, IT WOULD MEAN TH AT ON MERE PAYMENT IN INDIA, INCOME WOULD BE SAID TO ARISE OR ACCRUE IN INDIA. T HESE ARE THE OBSERVATIONS MADE IN THE JUDGMENT OF APEX COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE (P.) LTD. (SUPRA), RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE, FOR THE PROPOSITION THAT PROVISIONS RELATING TO DEDUCTION O F TAX APPLIES ONLY TO THOSE SUMS WHICH ARE CHARGEABLE TO TAX UNDER THE INCOME-TAX ACT. IF THE CONTENTIONS OF THE DEPARTMENT, ARE TO BE TAKEN AS CORRECT, THAT ANY PERSON MAKING PAYMENT TO A NON-RESIDENT IS NECESSARILY REQUIRED TO DEDUCT TAX, THEN THE CONSEQ UENCE WOULD BE THAT THE DEPARTMENT WOULD BE ENTITLED TO APPROPRIATE THE MONIES DEPOSIT ED BY THE PAYER EVEN IF THE SUM PAID IS NOT CHARGEABLE TO TAX BECAUSE THERE IS NO PROVIS ION IN THE INCOME-TAX ACT BY WHICH A PAYER CAN OBTAIN REFUND. AS PER SECTION 237 READ WI TH SECTION 199 OF THE ACT IMPLIES THAT ONLY THE RECIPIENT OF THE SUM I.E., PAYEE WOULD SEEK A REFUND. IN VIEW OF THE ABOVE, HENCE, NO TAX IS DEDUCTIBLE UNDER SECTION 195 OF TH E ACT ON COMMISSION PAYMENTS AND CONSEQUENTLY THE EXPENDITURE ON EXPORT COMMISSION P AYABLE TO NON-RESIDENT FOR SERVICES RENDERED OUTSIDE INDIA BECOMES ALLOWABLE EXPENDITUR E AND THE SAME IS OUTSIDE RIGORS OF THE SECTION 40(A)( IA) OF THE ACT. 10. THE JUDGMENT OF THE KARNATAKA HIGH COURT IN THE CA SE OF CIT V. SAMSUNG ELECTRONICS CO. LTD. [2009] 185 TAXMAN 313 /[2010] 320 ITR 209 , RELIED ON BY THE DEPARTMENT, DEALT ON WHETHER TAX IS TO BE DEDUCTED AT SOURCE, UNDER SECTION 195 OF THE ACT, IN RESPECT OF PAYMENT MADE TO NON-RESIDENT, ON IMPORT OF SOFTWARE. THE JUDGMENT OF THE KARNATAKA HIGH COURT IS LARGELY BASED ON THE JU DGMENT OF SUPREME COURT IN THE CASE OF TRANSMISSION CORPN. OF AP LTD. V. CIT [1999 ] 239 ITR 587 / 105 TAXMAN 742 . HOWEVER, THE KARNATAKA HIGH COURT NOT FOLLOWED THE SUBSEQUENT BINDING JUDGMENT OF 15 ITA NO.2249/KOL/2014 M/S. ELECTROSTEEL CASTING LTD. A.YR.2011-12 15 THE SUPREME COURT IN THE CASE OF VIJAY SHIP BREAKIN G CORPN. V. CIT [2008] 175 TAXMAN 77 /[2009] 314 ITR 309 WHEREIN THE APEX COURT HAS CATEGORICALLY HELD THAT, THE RESIDENT IS NOT REQUIRED TO DEDUCT TDS UNDER SECTION 195(1) OF THE ACT, IF THE INCOME OF NON- RESIDENT RECIPIENT IS NOT TAXABLE IN INDIA. GIVEN T HIS BINDING PRECEDENT, THE JUDGMENT OF KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRO NICS CO. LTD. (SUPRA) WOULD NOT APPLY TO THE CASES WHERE THE NON-RESIDENT RECIPIENT IS NOT TAXABLE IN INDIA. WE ALSO FIND THAT THE JUDGMENT OF APEX COURT IN THE CASE OF ISHI KAWAJMA-HARIMA HEAVY INDUSTRIES LTD. V. DIT [2007] 288 ITR 408 / 158 TAXMAN 259 WHEREIN IT WAS HELD THAT FOR SECTION 195 IS TO BE ATTRACTED, THE SERVICES RENDERED BY THE NO N-RESIDENT SHOULD HAVE BEEN RENDERED IN INDIA AND ALSO SHOULD HAVE BEEN USED IN INDIA AN D THAT, THIS TWIN TESTS HAS TO BE SATISFIED FOR SECTION 195 IS TO BE ATTRACTED. WE FI ND THAT THE LEGISLATION INTRODUCED THE EXPLANATION TO SECTION 9(2) OF THE ACT, AFTER THIS JUDGMENT, WI TH RETROSPECTIVE EFFECT FROM 1-6-1976 IN THE FINANCE ACT, 2007. DESPITE THI S INTRODUCTION OF EXPLANATION TO SECTION 9(2) OF THE ACT, THE KARNATAKA HIGH COURT I N THE CASE OFJINDAL THERMAL POWER CO. LTD. V. DY. CIT ( TDS) [2010] 321 ITR 31 /[2009] 182 TAXMAN 252 HELD THAT THE LAW LAID DOWN BY THE APEX COURT IN THE CASE OF ISHIKAWA JMA-HARIMA HEAVY INDUSTRIES LTD. (SUPRA) STILL HOLDS GOOD DESPITE THE RETROSPEC TIVE AMENDMENT TO SECTION 9 OF THE ACT. IN OUR OPINION, THE REQUIREMENT OF SERVICES OF THE NON-RESIDENT BEING RENDERED IN INDIA AND BEING UTILIZED IN INDIA IS STILL VALID, DESPITE THE JUDGMENT OF THE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS CO. LTD. ( SUPRA) AND WITHDRAWAL OF EARLIER CIRCULARS ISSUED ON THIS SUBJECT BY CBDT. 10.4. TO SUMMARISE, WE HOLD :- A) THE ASSESSEE HAD PAID COMMISSION TO NON-RESIDENT AGENTS SITUATED OUTSIDE INDIA FOR SECURING ORDERS FOR SELLING THE ASSESSEES PRODUCTS ABROAD. HENCE IT IS PURELY A SIMPLE MARKETING SERVICE. B) APART FROM THAT , THE NON-RESIDENT AGENTS ALSO P ROVIDE CERTAIN SERVICES LIKE CUSTOMS CLEARANCE, TRANSPORTATION, UNLOADING, BUNDLING, STO RAGE & LOADING IN RESPECT OF THESE ORDERS. C) ADMITTEDLY THE NON-RESIDENT AGENTS RENDERED SERV ICES OUTSIDE INDIA. D) THE COMMISSION PAID TO NON-RESIDENT AGENTS WOULD ONLY BE TAXABLE AS BUSINESS INCOME IN THE HANDS OF THE NON-RESIDENTS. ADMITTED LY THE NON-RESIDENT AGENTS DO NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. HENCE T HE INCOME DERIVED BY THE NON- RESIDENT AGENTS DOES NOT BECOME CHARGEABLE TO TAX I N INDIA U/S 195(1) OF THE ACT SO AS TO WARRANT DEDUCTION OF TAX AT SOURCE. 16 ITA NO.2249/KOL/2014 M/S. ELECTROSTEEL CASTING LTD. A.YR.2011-12 16 E) THE SERVICES RENDERED BY THE NON-RESIDENT AGENTS TO THE ASSESSEE ARE NOT UTILIZED IN INDIA. 10.5. IN VIEW OF OUR AFORESAID FINDINGS IN THE FACT S AND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE VARIOUS JUDICIAL PRECEDE NTS RELIED UPON HEREINABOVE, WE HOLD THAT THE ASSESSEE PAYER IS NOT LIABLE FOR DEDUCTION OF TAX AT SOURCE FOR THE COMMISSION PAYMENTS MADE TO NON-RESIDENT AGENTS OUTSIDE INDIA FOR SERVICES RENDERED OUTSIDE INDIA. ACCORDINGLY, WE HOLD THAT THE ASSESSEE CANNOT BE TR EATED AS ASSESSEE IN DEFAULT IN THE INSTANT CASE AND CONSEQUENTLY CANNOT BE FASTENED WI TH THE LIABILITY U/S 201 AND 201(1A) OF THE ACT. HENCE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD CITA . ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE COURT ON 07.07.2017 SD/- SD/- [A.T.VARKEY] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 07.07.2017 [RG PS] COPY OF THE ORDER FORWARDED TO: 1.ELECTROSTEEL CASTING LIMITED, 19, CAMAC STREET, K OLKATA-700017. 2. I.T.O. (INTERNATIONAL TAXATION), KOLKATA. . 3..C.I.T.(A)-VI, KOLKATA 4. C.I.T.-II, KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S 17 ITA NO.2249/KOL/2014 M/S. ELECTROSTEEL CASTING LTD. A.YR.2011-12 17