Appeal Details
Counselvise Citation
[2017] 126 COUNSELVISE.COM (IT) 8713 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
2 year(s) 5 month(s) 13 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
25-10-2017
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
Not Allotted
Assessment Year
2010-2011
Appeal Filed On
12-05-2015
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH F MUMBAI BEFORE SHRI MAHAVIR SINGH , JM AND SHRI RAJESH KUMAR, AM , , ITA NO. 3825 / MUM / 20 1 5 ( / ASSESSMENT YEAR: 2 0 10 - 11 ) ASSTT. COMMISSIONER OF INCOME TAX - 2 7(3) , TOWER NO.6 4 TH FLOOR, VASHI RAILWAY STATION COMPLEX,VASHI, NAVI MUMBAI - 400703 / VS. M/S VEEN DEEP OILTEK EXPORTS - A - 67, MIDC, TALOJA NAVI MUMBAI - 410218 ( / APPELLANT) : ( / RESPONDENT ) ITA NO. 4295/ MUM/ 2015 ( / ASSESSMENT YEAR: 2 010 - 11 ) M/S VEEN DEEP OILTEK EXPORTS - A - 67, MIDC, TALOJA NAVI MUMBAI - 410218 / VS. CIT(A) - 25 , MUMBAI ( / APPELLANT) : ( / RE SPONDENT ) ./ PAN : AACFV3377M ( / APPELLANT) : ( / RESPONDENT ) / ASSESSEE BY : SHRI VYOMA RAO / REVENUE BY : SHRI T A KHAN / DATE OF HEARING : 2 2 .8. 2017 / DATE OF PRONOUNCEMENT : 25. 10. 201 7 2 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 / O R D E R PER RAJESH KUMAR, A. M: THE CAPTIONED ARE CROSS - APPEAL S BY THE REVENUE AND THE ASSESSEE PERTAINING TO ASSESSMENT YEAR 20 10 - 11 . THE SE APPEAL S ARE DIRECTED AGAINST THE ORDER OF THE CIT(A) - 2 5 , MUMBAI DATED 31.3.2015 WHICH IN TURN HAS ARISEN FROM AN ORDER S PASSED BY THE ASSESSING OFFICER DATED 4.3.201 3 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. SINCE, THESE APPEALS PERTAIN TO THE SAME ASSESSEE, FOR THE SAKE OF CONVENIENCE, THERE WERE C LUBBED TOGETHER, HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. ITA NO.3825/MUM/2015 2. ONLY ISSUE RAISED IN THIS APPEAL BY THE REVENUE IS AGAINST THE DELETION OF DISALLOWANCE OF RS.1,53,25,661/ - BY THE LD. CIT(A) AS MADE THE AO ON A/C OF NON DEDUCTION OF TAX AT SOURCE FROM THE PAYMENTS TO PARTIES BEING CONSULTANCY CHARGE S AND COMMISSION PAID TO THE FOREIGN PARTIES U/S 40(IA)(A) OF THE ACT . 3. FACTS OF THE CASE ARE THAT THE AO NOTICED THAT THE ASSESSEE MADE PAYMENTS OF RS.1,53 ,25,661/ - DURING THE YEAR COMPRISING CONSULTANCY CHARGES OF RS. 1,28,83,906/ - FOR ERECTION OF PLANT AND MACHINERY IN SEOL, SOUTH KOREA AND COMMISSION ON EXPORT ORDERS OF RS. 24,41,755/ - . THE AO 3 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 FOUND THAT THE ASSESSEE DID NOT DEDUCT TDS U/S 195 OF THE ACT AND ACCORDINGLY ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE TO SHOW CAUSE AS TO WHY THE SAID EXPENSES SHOULD NOT BE DISALLOWED UNDER SECTION 40(A)(IA) OF THE ACT. THE ASSESSEE SUBMIT T ED BEFORE THE AO TH A T THE COMMISSION PAYMENT S WERE MADE TO NON - R ESI D ENT AND PAYMENT MADE TO NON - RESIDENT TOWARDS FOR PROCURING THE EXPORT ORDER, AND THE SERVICES RENDERED AT CLIENTS REQUESTS WE RE NOT LIABLE TO BE SUBJECTED DEDUCT ION OF TAX AT SOURCE. HOWEVER, THE AO DID NOT ACCEPT THE REPLY OF THE ASSESSEE AND A CCORDINGLY DISALLOWED THE CLAIM OF THE ASSESSEE BY ADDING A SUM OF RS.1,53,25,661/ - TO THE INCOME OF THE ASSESSEE BY OBSERVING TH A T THE PAYMENT WA S HIT BY THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT . THE MATTER WAS CARRIED TO THE FIRST APPELLATE AUTHORITY, WHO VIDE PARA 5.5. TO 5.10 ALLOWED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER : 5.5 I HAVE GONE THROUGH THE ORDER OF THE ASSE SS MENT A S WELL AS SUBMISSIONS OF THE APPELLANT CARERF8ULLY. THE FAC T S IN QUESTIONS AS S T A T ED A BOVE A R E NOT IN DISPUTEL THE ONLY GROUND ON WHICH THE AO DISALLOWED THESE EXPENSES UNDER SECTION 40(A)(IA) OF THE ACT APPELLANT DID NOT DEDUCTS TAX AT SOURCE WITHOUT OBTAINING CERTIFICATE U/S 195 (2) OF THE ACT OR CA CERTIFICATE IN FORM 15CB 5.6 THE PAYMEN TS IN QUESTIONS HAVE BEEN MADE TO NON - RESIDENTS IN THE COURSE OF THE EXPORT BUSINESS OF THE APPELLANT. NO PART OF ACTIVITIES OF THE NON - RESIDENTS WAS; ATTRIBUTABLE TO INDIA. THE PAYMENTS ARE UNDOUBTEDLY MADE FOR THE PURPOSE OF MAKING OR EARNING INCOME FROM A SOURCE OUTSIDE INDIA. THEREFORE, BY EXPRESS 4 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 PROVISIONS OF SECTION 9(1(VII) OF THE ACT, SUCH INCOME SHALL NOT BE LIABLE TO TAX IN INDIA IN THE HANDS OF THE PAYEE NON - RESIDENTS. ONCE, IT IS ESTABLISHED THAT ENTIRE PAYMENTS IN QUESTIONS ARE NOT TAXABLE I N THE HANDS OF THE NON - RESIDENT PAYEE, PROVISIONS OF SECTION 195 ARE ALSO NOT ATTRACTED AS HELD BY THE HON SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE (P) LTD VS. CIT & ANR AND SAMSUNG ELECTRONICS CO LTD VS. CIT WHERE THE HON. SUPREME COURT HE LD THAT THE PAYER IS BOUND TO DEDUCT TAX AT SOURCE ONLY IF THE SUM PAID IS ASSESSABLE TO TAX IN INDIA. IT HAS BEEN FURTHER HELD THAT SECTION 195 OF THE ACT ALSO COVERS COMPOSITE PAYME NTS WHICH HAVE AN ELEMENT OF INCOME EMBEDDED OR INCORPORATED IN THEM. T HE COURT HAS CLARIFIED THAT THOUGH THERE IS AN OBLIGATION TO DEDUCT TAX IN RESPECT OF SUCH COMPOSITE PAYMENT BUT THE OBLIGATION IS LIMITED TO THE APPROPRIATE PORTION OF INCOME WHICH IS CHARGEABLE UNDER THE HEAD AND IN CASE OF SUCH PAYMENTS WHICH INCLUDE AM OUNTS ON WHICH NO TAX IS PAYABLE, RECOURSE IS TO BE MADE U / S 195(2) OF THE ACT AND IN THE ABSENCE OF SAME, TAX IS TO BE DEDUCTED ON THE ENTIRE COMPOSITE PAYMENT. THE SUPREME COURT OBSERVED THAT : THE MOST IMPORTANT EXPRESSION IN SECTION 195(1) CONSISTS OF THE WORDS 'CHARGEABLE UNDER THE PROVISIONS OF THE ACT'. A PERSON PAYING INTEREST OR ANY OTHER SUM TO A NON - RESIDENT IS NOT LIABLE TO DEDUCT TAX IF SUCH SUM IS NOT CHARGEABLE TO TAX UNDER THE I.T. ACT . FOR INSTANCE, WHERE THERE IS NO OBLIGATION ON THE PART OF THE PAYER AND NO RIGHT TO RECEIVE THE SUM BY THE RECIPIENT AND THAT THE PAYMENT DOES NOT ARISE OUT OF ANY CONTRACT OR OBLIGATION BETWEEN T HE PAYER AND THE RECIPIENT BUT IS MADE VOLUNTARILY, SUCH PAYMENTS CANNOT BE REGARDED AS INCOME UNDER THE I.T. ACT . IT MAY BE NOTED THAT SECTION 195 C ONTEMPLATES NOT MERELY AMOUNTS, THE WHOLE OF WHICH ARE PURE INCOME PAYMENTS, IT ALSO COVERS COMPOSITE PAYMENTS WHICH HAS AN ELEMENT OF INCOME EMBEDDED OR INCORPORATED IN THEM. THUS, WHERE AN AMOUNT IS PAYABLE TO A NON - RESIDENT, THE PAYER IS UNDER AN OBLIGA TION TO DEDUCT TAS IN RESPECT OF SUCH COMPOSITE PAYMENTS. THE OBLIGATION TO DEDUCT TAS IS, HOWEVER, LIMITED TO THE APPROPRIATE PROPORTION OF INCOME CHARGEABLE UNDER THE ACT FORMING PART OF THE GROSS SUM OF MONEY PAYABLE TO THE NON - RESIDENT. THIS OBLIGATION BEING LIMITED TO THE APPROPRIATE PROPORTION OF INCOME FLOWS FROM THE 5 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 WORDS USED IN SECTION 195(1) , NAMELY, 'CHARGEABLE UNDER THE PROVISIONS OF THE ACT'. IT IS FOR THIS REASON THAT VIDE CIRCULAR NO. 728 DATED OCTOBER 30, 1995 THE CBDT HAS CLARIFIED THAT THE TAX DEDUCTOR CAN TAKE INTO CONSIDERATION THE EFFECT OF DTAA IN RESPECT OF PAYMENT OF ROYALTIES AND TECHNICAL FEES WHILE DEDUCTING TAS. IT MAY ALSO BE NOTED THAT SECTION 195(1) IS IN IDENTICAL TERMS WITH SECTION 18(3B) OF THE 1922 ACT. IN CIT VS. COOPER ENGINEERING [68 ITR 457] IT WAS POINTED OUT THAT IF THE PAYMENT MADE BY THE RESIDENT TO THE NON - RESIDENT WAS AN AMOUNT WHICH WAS NOT CHARGEABLE TO TAX IN INDIA, THEN NO TAX IS DEDUCTIBLE AT SOURCE EVEN THOUGH THE ASSESSEE HAD NOT MADE AN APPLICATION UNDER SECTION 18(3B) (NOW SECTION 195(2) OF THE I.T. ACT). THE APPLICATION OF SECTION 195(2) PRE - SUPPOSES THAT THE PERSON RESPONSIBLE FOR MAKING THE PAYMENT TO THE NON - RESIDENT IS IN NO DOUBT THAT TAX IS PAYABLE IN RESPECT OF SOME PART OF THE AMOUNT TO BE REMITTED TO A NON - RESIDENT BUT IS NOT SURE AS TO WHAT SHOULD BE THE PORTION SO TAXABLE OR IS NOT SURE AS TO THE AMOUNT OF TAX TO BE DEDUCTED. IN SUCH A SITUATION, HE IS REQUIRED TO MAKE AN APPLICAT ION TO THE ITO(TDS) FOR DETERMINING THE AMOUNT. IT IS ONLY WHEN THESE CONDITIONS ARE SATISFIED AND AN APPLICATION IS MADE TO THE ITO(TDS) THAT THE QUESTION OF MAKING AN ORDER UNDER SECTION 195(2) WILL A RISE. IN FACT, AT ONE POINT OF TIME, THERE WAS A PROVISION IN THE I.T. ACT TO OBTAIN A NOC FROM THE DEPARTMENT THAT NO TAX WAS DUE. THAT CERTIFICATE WAS REQUIRED TO BE GIVEN TO RBI FOR MAKING REMITTANCE . IT WAS HELD IN THE CASE OF CZECHOSLOVAK OCEAN SHIPPING INTERNATIONAL JOINT STOCK COMPANY VS. ITO [81 ITR 162(CALCUTTA)] THAT AN APPLICATION FOR NOC CANNOT BE SAID TO BE AN APPLICATION UNDER SECTION 195 (2) OF THE ACT. WHILE DECIDING THE SCOPE OF SECTION 195(2) IT IS IMPORTANT TO NOTE THAT THE TAX WHICH IS REQUIRED TO BE DEDUCTED AT SOURCE IS DEDUCTIBLE ONLY OUT OF THE CHARGEABLE SUM. THIS IS THE UNDE RLYING PRINCIPLE OF SECTION 195 . HENCE, APART FROM SECTION 9(1) , SECTIONS 4 , 5 , 9 , 90 , 91 AS WELL AS THE PROVISIONS OF DTAA ARE ALSO RELEVANT , WHILE APPLYING TAX DEDUCTION AT SOURCE PROVISIONS. REFERENCE TO ITO(TDS) UNDER SECTION 195(2) OR 195(3) EITHER BY THE NON - RESIDENT OR BY THE RESIDENT PAYER IS TO AVOID ANY FUTURE HASSLES FOR BOTH RESI DENT AS WELL AS NON - RESIDENT. IN OUR VIEW, SECTIONS 195(2) AND 195(3) ARE SAFEGUARDS. THE SAID PROVISIONS ARE OF 6 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 PRACTICAL IMPORTANCE. THIS REASONING OF OURS IS BASED ON THE DECISION OF THIS COURT IN TRANSMISSION CORPORATION (SUPRA) IN WHICH THIS COURT HAS OBSERVED THAT THE PROVISION OF SECTION 195(2) IS A SAFEGUARD. FROM THIS IT FOLLOWS THAT WHERE A PERSON RESPONSIBLE FOR DEDUCTION IS FAIRLY CERTAIN THEN HE CAN MAKE HIS OWN DETERMINATION AS TO WHETHER THE TAX WAS DEDUCTIBLE AT SOURCE AND, IF SO, WHAT SHOULD BE THE AMOUNT THEREOF. 4. WE HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF AUTHORITIES BELOW. THE UNDISPUTED FACTS ARE THAT THE PAYMENT IN THE PRESENT CASE HAS BEEN MADE TO NON - RESIDENTS FOR HAVING PE IN INDIAN AND ALL THE ACTIVITIES GIVING RISE TO THE SAID PAYMEN T S IN THE HANDS OF THE FOREIGN RESIDENTS W E RE CARRIED OUT OUTSIDE INDIA AND THUS, INCOME FALLS UNDER THE HEAD FEES FOR TECHNICAL SERVICES U/S 9 ( 1 ) ( VII ) OF THE ACT. HOWEVER, THE SAID ACTIVITIES OF THE NON - RESIDENT WERE CONNECTED WITH THE EXPORT BUSINESS O F THE ASSESSEE AND DIRECTLY RELATED TO EARNING OF INCOME FROM SOURCES OF OUTSIDE INDIA AND THEREFORE NOT OBLIGED TO DEDUCT ION OF TAX AT SOURCE U/S 195 OF THE ACT AND CONSEQUENTLY SECTION 40(A)(IA) COULD BE APPLIED TO MAKE THE DISALLOWANCE. THE LD. AR RELIED ON THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V/S PAHILAJRAI JAIKISHAN IN ITA NO.1562 AND 994/MUM/2014, DATED 1.2.2016 AND IN THE SAID ORDER THE TRIBUNAL HAS HELD AS UNDER : 7 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 19. WE HAVE CONSIDERED THE RIVAL CONT ENTIONS AND PERUSED THE MATERIAL ON RECORD INCLUDING CASE LAWS RELIED UPON. WE HAVE OBSERVED THAT THE ASSESSEE FIRM HAS PAID THE EXPORT COMMISSION OF RS. 34,18,126/ - TO THE FOREIGN AGENTS FOR RENDERING SERVICES ABROAD IN RELATION TO SOURCING OF EXPORT ORDE RS AND FOR COLLECTING PAYMENTS ON BEHALF OF THE ASSESSEE FIRM, ON WHICH NO TAX WAS DEDUCTED AT SOURCE BY THE ASSESSEE FIRM U/ S 195 OF THE ACT. THE AO HAS DISALLOWED THE EXPENSES OF RS. 34,18,126/ - ON ACCOUNT OF EXPORT COMMISSION PAID BY THE ASSESSEE FIRM U / S 40(I)(A) OF THE ACT, READ WITH SECTION 195 OF THE ACT BY HOLDING THE SAID SERVICES TO BE MANAGERIAL/TECHNICAL SERVICES AS DEFINED UNDER EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT. THE FACTS AS EMERGING FROM RECORDS REVEALS THAT THESE FOREIGN AGENTS D O NOT HAVE ANY PERMANENT ESTABLISHMENT OR ANY PLACE OF ESTABLISHMENT IN INDIA. THESE FOREIGN AGENTS ARE OPERATING IN THEIR RESPECTIVE COUNTRIES AND RENDERING SERVICES TO THE ASSESSEE FIRM FROM ABROAD AND NO PART OF THE SUCH INCOME CAN BE REASONABLY ATTRIBU TABLE TO ANY OPERATION CARRIED OUT IN INDIA BY THESE FOREIGN BROKERS AS PER THE FACTS WHICH HAS EMERGED FROM RECORDS. THE PAYMENTS TO SAID FOREIGN BROKERS HAVE BEEN SENT BY THE ASSESSEE FIRM FROM INDIA DIRECTLY TO THEIR BANK ACCOUNTS ABROAD THROUGH BANKING CHANNELS WITH THE APPROVAL OF RESERVE BANK OF INDIA OR PAYMENTS ARE DEDUCTED BY THE FOREIGN BUYERS FROM THE PAYMENT DUE TO THE ASSESSEE FIRM FOR MAKING PAYMENT TO THESE FOREIGN AGENTS DIRECTLY. WE HAVE OBSERVED FROM THE FACTS AS EMERGING FROM RECORDS THAT COMMISSION INCOME NEITHER ACCRUED NOR AROSE IN INDIA IN VIEW OF THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF EON TECHNOLOGY (P.) LTD. (SUPRA) REVENUE HAS NOT BROUGHT ON RECORD ANY COGENT MATERIAL TO SUBSTANTIATE THAT THERE IS ANY PE OR BUSINESS ASSOCIATION IN INDIA OF THESE FOREIGN AGENTS, NOR ANY EVIDENCE IS BROUGHT ON RECORD TO ESTABLISH THAT THERE IS ANY PORTION OF SERVICES RENDERED BY THESE FOREIGN AGENTS FROM INDIA. IN OUR CONSIDERED VIEW, THESE FOREIGN AGENTS HAVE RENDERED SERVICES FOR SOU RCING EXPORT ORDERS AND FOR COLLECTING PAYMENTS FOR AND ON BEHALF OF THE ASSESSEE FIRM WHICH IS THEIR BUSINESS INCOME NOT LIABLE TO TAX IN INDIA. THE OTHER SERVICES SUCH AS SAMPLE APPROVALS ETC. ARE INCIDENTAL TO THE MAIN ACTIVITY OF SOURCING OF EXPORT ORD ERS BY THESE FOREIGN BROKERS FOR THE ASSESSEE FIRM. THESE SERVICES CANNOT BE DESCRIBED AS MANAGERIAL, CONSULTANCY OR TECHNICAL SERVICES AS CONTEMPLATED UNDER EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT TO COME WITHIN DEEMING PROVISIONS OF SECTION 9(1)(VI I) OF THE ACT, RATHER THE FOREIGN BROKERS HAVE RENDERED SERVICES FROM ABROAD TO THE ASSESSEE FIRM FOR SOURCING OF EXPORT ORDERS 8 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 IN FAVOUR OF THE ASSESSEE FIRM AND COLLECTION OF PAYMENTS FOR THE ASSESSEE FIRM. UNDER SECTION 9(1)(VII) OF THE ACT, INCOME IS D EEMED TO ACCRUED OR ARISE IN INDIA IF FEES PAYABLE FOR ANY TECHNICAL SERVICES UTILISED IN A BUSINESS OR PROFESSION IN INDIA OR FOR EARNING ANY INCOME FROM ANY SOURCE IN INDIA. FEES FOR TECHNICAL SERVICES INCLUDE MANAGERIAL, TECHNICAL OR CONSULTANCY AS STIP ULATED IN EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT. THE HON'BLE DELHI HIGH COURT IN THE JUDGMENT IN THE CASE OF PANALFA AUTOELEKTRIC LTD. (SUPRA) FOR THE ASSESSMENT YEAR 2010 - 11 HAS ELABORATELY DISCUSSED THE EXPORT COMMISSIONS PAYABLE FOR GENERATION O F EXPORT ORDERS IN THE HAND OF TAXPAYER AND HAS HELD THAT THESE SERVICES CANNOT BE HELD TO BE MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES TO FALL WITHIN THE DEFINITION AS CONTEMPLATED UNDER EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT AND HELD THAT COMM ISSION PAID TO FOREIGN AGENT IS FOR PERFORMING SALES RELATED ACTIVITY I.E. PROCUREMENT OF ORDER AND DOES NOT CONSTITUTE MANAGERIAL SERVICES. THE DECISION OF HON'BLE DELHI HIGH COURT IS REPRODUCED AS UNDER: 'THE PRESENT APPEAL BY THE REVENUE, WHICH ARISES O UT OF PROCEEDINGS UNDER SECTION 195/197 OF THE INCOME - TAX ACT, 1961 ('ACT', FOR SHORT), RELATING TO ASSESSMENT YEAR 2010 - 11 ON AN APPLICATION FILED BY PANALFA AUTOELEKTRIK LTD. (ASSESSEE, FOR SHORT), REQUIRES ADJUDICATION OF THE FOLLOWING SUBSTANTIAL QUEST ION OF LAW: 'WHETHER THE ITAT WAS RIGHT IN HOLDING THAT THE COMMISSION PAID TO AGENTA WORLD TRADING AND CONSULTING ESTABLISHMENT FOR PROCURING EXPORT ORDERS, IS NOT FEE FOR TECHNICAL SERVICES UNDER SECTION 9(I)(VII) OF THE INCOME - TAX ACT, 1961?' 2. FOR TH E SAKE OF CLARITY, WE RECORD THAT THE IMPUGNED ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL ('TRIBUNAL', FOR SHORT) IS DATED 25TH OCTOBER, 2013 AND WAS PASSED IN ITA 4654/DEL/2012. 3. THE ASSESSEE MADE AN APPLICATION DATED 16TH FEBRUARY, 2010 UNDER SE CTION 195(2) FOR AUTHORIZATION TO REMIT EURO 1,40,055.53 AS COMMISSION FOR ARRANGING EXPORT SALES AND REALIZING PAYMENTS TO AGENTA WORLD TRADING AND CONSULTING ESTABLISHMENT, A NON - RESIDENT COMPANY REGISTERED IN LIECHTENSTEIN. THERE IS NO DOUBLE TAXATION A VOIDANCE AGREEMENT BETWEEN INDIA AND LIECHTENSTEIN AND, THEREFORE, IN THE PRESENT APPEAL WE ARE ONLY CONCERNED WITH 9 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 THE QUESTION OF RECEIPT, ACCRUAL OR DEEMED ACCRUAL OF THE SAID INCOME IN INDIA AS PER THE MANDATE OF THE ACT. 4. THE ASSESSING OFFICER RELYI NG UPON THE DECISION OF THE AUTHORITY FOR ADVANCE RULINGS IN IN RE: WALLACE PHARMACEUTICALS (P.) LTD., IN RE [2005] 278 ITR 97/48 TAXMAN 347 (AAR) HELD THAT THE COMMISS ION PAYMENT TO THE NON - RESIDENT COMPANY ON PROCURING ORDERS WAS TAXABLE AS 'FEE FOR TECHNICAL SERVICE' UNDER SUB - CLAUSE (B) TO SECTION 9(1)(VII) OF THE ACT. THE INITIAL DIRECTION THAT THE TAX SHOULD BE DEDUCTED AT SOURCE @ 20% RECORDED IN THE ORDER DATED 4 TH MAY, 2010, WAS MODIFIED/REDUCED TO 10% VIDE ORDER DATED 8TH NOVEMBER, 2010 AFTER RECORDING THAT DEDUCTION AT A HIGHER RATE WOULD NOT BE APPLICABLE IN THE PRESENT CASE. 5. THE COMMISSIONER OF INCOME TAX (APPEALS), HOWEVER, REVERSED THE AFORESAID FINDING HOLDING THAT THE COMMISSION PAYMENT IN THE PRESENT CASE WAS NOT IN THE NATURE OF 'FEE FOR TECHNICAL SERVICE' AND HE DISTINGUISHED THE DECISION IN THE CASE OF WALLACE PHARMACEUTICALS (P.) LTD. (SUPRA). THE SAID FINDING HAS BEEN AFFIRMED BY THE TRIBUNAL IN T HE IMPUGNED ORDER. 6. IN ORDER TO APPRECIATE THE CONTROVERSY, WE WOULD FIRST LIKE TO REFER AND INTERPRET SECTIONS 5(2), 9(1)(I) AND 9(1)(VII) OF THE ACT, THOUGH, THE ASSESSING OFFICER IN THE PRESENT CASE HAD NOT INVOKED SECTION 9(1)(I) OF THE ACT. THE RELE VANT PROVISIONS READ AS UNDER: '5. SCOPE OF TOTAL INCOME. ** ** ** (2) SUBJECT TO THE PROVISIONS OF THIS ACT, THE TOTAL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A NON - RESIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH - (A) IS REC EIVED OR IS DEEMED TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON; OR (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA DURING SUCH YEAR. EXPLANATION 1. - INCOME ACCRUING OR ARISING OUTSIDE INDIA SHALL NOT BE DE EMED TO BE RECEIVED 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. 10 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 ** ** ** 9. INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. - (1) THE FOLLOWING INCOMES SHALL BE DEE MED TO ACCRUE OR ARISE IN INDIA (I) ALL INCOME ACCRUING OR ARISING, WHETHER DIRECTLY OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA, OR THROUGH OR FROM ANY PROPERTY IN INDIA, OR THROUGH OR FROM ANY ASSET OR SOURCE OF INCOME IN INDIA, OR T HROUGH THE TRANSFER OF A CAPITAL ASSET SITUATE IN INDIA. EXPLANATION - 1 - FOR THE PURPOSES OF THIS CLAUSE - (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 TO ACCRUE OR ARISE IN INDIA SHALL BE ONLY SUCH PART OF THE INCOME AS IS REASONABLY ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA; ** ** ** EXPLANATION 4 - FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE EXPRESSION 'THROUGH' SHALL MEAN AND INCLUDE AND SHALL BE DEEMED TO HAVE ALWAYS MEANT AND INCLUDED 'BY MEANS OF', 'IN CONSEQUENCE OF' OR 'BY REASON OF'. ** ** ** (VII) INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYABLE BY ** ** ** (B) A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE FEES ARE PAYA BLE IN RESPECT OF SERVICES UTILISED IN A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA; OR ** ** ** EXPLANATION 2. - FOR THE PURPOSES OF THIS CLAUSE, 'FEES FOR TECHNICAL SERVICES' MEANS ANY CONSIDERATION (INCLUDING ANY LUMPSUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDE RATION FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY 11 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 THE RECIPIENT, OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD 'SALARIES'.' 7. SECTION 5(2) STATES THAT TOTAL INCOME OF A PERSON, WHO IS A NON - RES IDENT, INCLUDES INCOME FROM ALL SOURCES WHICH (A) IS RECEIVED OR DEEMED TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON; (B) ACCRUES OR ARISES IN INDIA; OR (C) IS DEEMED TO ACCRUE OR ARISE IN SUCH YEAR IN INDIA. EXPLANATION 1 OF THE AFO RESAID SECTION CLARIFIES THAT INCOME ACCRUING OR ARISING OUT OF INDIA SHALL NOT BE DEEMED TO BE RECEIVED IN INDIA BY REASON OF THE FACT THAT IT IS TAKEN INTO ACCOUNT IN A BALANCE SHEET PREPARED IN INDIA. WE ARE REQUIRED TO DECIDE, WHETHER THE COMMISSION PA ID TO NON - RESIDENT WOULD BE INCOME DEEMED TO BE EARNED IN INDIA. 8. SECTION 9, AS IS CLEAR FROM THE HEADING ITSELF, DOES NOT DEAL WITH INCOME WHICH IS RECEIVED OR ACCRUED OR HAS ARISEN IN INDIA BUT DEALS WITH INCOME WHICH DOES NOT FALL UNDER ANY OF THE AFO RESAID CATEGORIES. SECTION 9 CREATES A DEEMING FICTION OF INCOME WHICH IS NOT RECEIVED IN INDIA OR ACCRUES OR ARISES IN INDIA BUT IS DEEMED TO ACCRUE OR ARISE IN INDIA. WHILE INTERPRETING A DEEMING CLAUSE, THE COURTS HAVE TO BE CAUTIOUS THAT THEY SHOULD NO T EXPAND THE SCOPE BEYOND WHAT IS MANDATED AND REQUIRED BY THE DEEMING CLAUSE. THE DEEMING CLAUSE BY ITS VERY NATURE ENACTS A FICTION TO TREAT WHAT IS UNREAL AS REAL AND, THEREFORE, UNLESS THE SITUATION IS COVERED UNDER THE LANGUAGE OF THE PROVISION, ITS S COPE SHOULD NOT BE EXPANDED AND WIDENED BEYOND WHAT IS CLEARLY APPARENT AND PERCEIVABLE. IN SUCH CASES, PURPOSE SHOULD BE ASCERTAINED WHY THE LEGAL FICTION IS CREATED AND THEN FULL EFFECT SHOULD BE GIVEN TO IT WITHOUT BEING BOGGLED DOWN OR BIDDEN WHEN IT C OMES TO THE INEVITABLE COROLLARIES, BECAUSE WE IMAGINE THE UNREAL AS REAL. 9. SECTION 9(1)(I) BRINGS TO TAX INCOME OF A NON - RESIDENT ACCRUING OR ARISING, WHETHER DIRECTLY OR INDIRECTLY, THROUGH AND FROM ANY BUSINESS CONNECTION IN INDIA, OR THROUGH OR FROM ANY PROPERTY IN INDIA ETC. 10. WHAT IS MEANT BY 'BUSINESS CONNECTION' HAS BEEN INTERPRETED BY THE SUPREME COURT IN THE CASE OF CIT V . R.D. AGGARWAL & CO. [1965] 56 ITR 20 AND SUBSEQUENTLY IN BARENDRA PRASAD RAY V . ITO [1981] 129 ITR 295/6 TAXMAN 19 (SC) . WE NEED NOT DWELL ON THE SAID ASPECT IN DETAIL FOR SEVERAL REASONS, THOUGH CIRCULAR NO. 23 DATED 23RD JULY, 1969 ISSUED BY THE CENTRAL BOARD 12 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 OF DIRECT TAXES WOULD NOT BE APPLICABLE AS IT STANDS WITHDRAWN WITH EFFECT FROM 22ND OCTOBER, 2009 VIDE CIRCULAR NO. 7 OF 2009. FIRSTLY, THE ASSESSING OFFICER HAD NOT INVOKED THE SAID PROVISION; SECONDLY, AS PER EXPLANATION 1 CLAUSE (A) TO SECTION 9, IN CASE OF A BUSINESS OF WHICH AL L OPERATIONS ARE NOT CARRIED OUT IN INDIA, ONLY SUCH PART OF INCOME AS IS REASONABLY ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA IS DEEMED TO BE ACCRUED OR ARISEN IN INDIA UNDER CLAUSE 9(1)(I). BY FINANCE ACT, 2012, EXPLANATION 4 HAS BEEN ADDED WIT H RETROSPECTIVE EFFECT FROM 1ST APRIL, 1962, CLARIFYING THE EXPRESSION 'THROUGH' TO HAVE ALWAYS MEANT AND INCLUDED, 'BY MEANS OF', 'IN CONSEQUENCE OF' OR 'BY REASON OF'. THERE IS NO FINDING BY THE ASSESSING OFFICER AND THERE IS NO ALLEGATION THAT A NON - RES IDENT WAS CARRYING ON ANY OPERATION WHATSOEVER IN INDIA. THUS, THERE IS NO QUESTION OF ATTRIBUTING ANY INCOME TO OPERATIONS CARRIED ON BY THE NON - RESIDENT IN INDIA. NO SUCH ARGUMENT HAS BEEN ADDRESSED. 11. THE ASSESSING OFFICER IN HIS ORDER UNDER SECTION 1 95/197 OF THE ACT HAS RELIED UPON THE JUDGMENT IN THE CASE OF WALLACE PHARMACEUTICALS (P.) LTD. (SUPRA), WHICH HAS BEEN DISTINGUISHED ON FACTS BY THE FIRST APPELLATE AUTHORITY AND THE TRIBUNAL. THE FACTUAL MATRIX, INCLUDING THE AGREEMENT BETWEEN THE ASSESS EE AND THE NON - RESIDENT AND THE TERMS, HAVE NOT BEEN SPOKEN OF BY THE ASSESSING OFFICER. THESE HAVE BEEN REFERRED TO AND EXAMINED BY THE COMMISSIONER OF INCOME TAX (APPEALS). BUT FIRST, WE EXAMINE SECTION 9(1)(VII) OF THE ACT. 12. IN THE PRESENT CASE, CLAU SE (B) TO SECTION 9(1)(VII) WOULD BE APPLICABLE AS THE RESPONDENT - ASSESSEE, THE PAYER WAS A RESIDENT OF INDIA. THE EXCEPTIONS CARVED OUT UNDER CLAUSE (B) ARE NOT APPLICABLE AS IT IS NOT THE CASE OF THE RESPONDENT - ASSESSEE THAT THE FEE PAID WAS IN RESPECT O F SERVICES TO BE UTILISED IN BUSINESS OR PROFESSION CARRIED OUT BY THE PAYER OUTSIDE INDIA, OR FOR THE PURPOSE OF MAKING OR EARNING OF ANY INCOME FROM ANY SOURCE OUTSIDE INDIA. THE RESPONDENT - ASSESSEE'S MANUFACTURING UNIT WAS IN INDIA AND IT WOULD BE PROPE R TO HOLD THAT THE SOURCE OF INCOME WOULD BE THE MANUFACTURING UNIT OF THE RESPONDENT - ASSESSEE IN INDIA, EVEN IF THE SALE PROCEEDS WERE ON ACCOUNT OF EXPORTS. 13. THE MAIN QUESTION AND ISSUE, WHICH WOULD ARISE IS WHETHER THE PAYMENT MADE TO THE NON - RESIDEN T WOULD BE COVERED UNDER THE EXPRESSION, 'FEE FOR TECHNICAL SERVICES' AS DEFINED IN EXPLANATION 2 13 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 QUOTED ABOVE. THERE ARE THREE CATEGORIES OF TECHNICAL SERVICES AS PER EXPLANATION 2; MANAGERIAL SERVICES, TECHNICAL SERVICES AND CONSULTANCY SERVICES, AND IT INCLUDES PROVISIONS FOR SERVICES OF TECHNICAL AND OTHER PERSONNEL ALBEIT THERE ARE SPECIFIC EXCLUSIONS, BUT WE ARE NOT CONCERNED WITH THE SAME IN THE PRESENT APPEAL. 14. THE EXPRESSIONS 'MANAGERIAL, TECHNICAL AND CONSULTANCY SERVICES' HAVE NOT BEEN DEFINED EITHER UNDER THE ACT OR UNDER THE GENERAL CLAUSES ACT, 1897. THE SAID TERMS HAVE TO BE READ TOGETHER WITH THE WORD 'SERVICES' TO UNDERSTAND AND APPRECIATE THEIR PURPORT AND MEANING. WE HAVE TO EXAMINE THE GENERAL OR COMMON USAGE OF THESE WORDS OR EXPRESSI ONS, HOW THEY ARE INTERPRETED AND UNDERSTOOD BY THE PERSONS ENGAGED IN BUSINESS AND BY THE COMMON MAN WHO IS AWARE AND UNDERSTANDS THE SAID TERMS. THE EXPRESSION 'MANAGEMENT SERVICES' WAS ELUCIDATED UPON BY THIS COURT IN J.K. ( BOMBAY ) LTD. V . CBDT [1979] 118 ITR 312/1 TAXMAN 537 IN THE FOLLOWING TERMS: '6. IT MAY BE ASKED WHETHER MANAGEMENT IS NOT A TECHNICAL SERVICE. ACCORDING TO AN ARTICLE ON 'MANAGEMENT SCIENCES', IN 14 ENCYCLOPAEDIA BRITANNICA 747, THE MANAGEMENT IN ORGANISATIONS INCLUDE AT LEAST THE FOLLOWING: '(A) DISCOVERING, DEVELOPING, DEFINING AND EVALUATING THE GOALS OF THE ORGANIZATION AND THE ALTERNATIVE POLICIES THAT WILL LEAD TOWARD THE GOALS, (B) GET TING THE ORGANIZATION TO ADOPT THE POLICIES, (C) SCRUTINIZING THE EFFECTIVENESS OF THE POLICIES THAT ARE ADOPTED, (D) INITIATING STEPS TO CHANGE POLICIES WHEN THEY ARE JUDGED TO BE LESS EFFECTIVE THAN THEY OUGHT TO BE.' MANAGEMENT THUS PERVADES ALL ORGANISATIONS. TRADITIONALLY ADMINISTRATION WAS DISTINGUISHED FROM MANAGEMENT, BUT IT IS NOW RECOGNISED THAT MANAGEMENT HAS A ROLE EVEN IN CIVIL SERVICES. ACCORDING TO THE FONTANA DICTIONARY OF MODERN THOUGHT, PAGE 366, MANAGEMENT WAS TRADITIONALLY IDENTIF IED WITH THE RUNNING OF BUSINESS. THEREFORE, MANAGEMENT AS A PROCESS IS PRACTISED THROUGHOUT EVERY ORGANIZATION FROM TOP MANAGEMENT THROUGH MIDDLE MANAGEMENT TO OPERATIONAL MANAGEMENT.' 14 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 RECENTLY THIS COURT IN CIT V . BHARTI CELLULAR LTD. [2009] 319 ITR 139/[2008] 175 TAXMAN 573 HAD OBSERVED: 'THE WORD 'MANAGER' HAS BEEN DEFINED, INTER ALIA, AS: 'A PERSON WHOSE OFFICE IT IS TO MANAGE AN ORGANIZATION, BUSINESS ESTABLISHMEN T, OR PUBLIC INSTITUTION, OR PART OF ONE; A PERSON WITH THE PRIMARILY EXECUTIVE OR SUPERVISORY FUNCTION WITHIN AN ORGANIZATION, ETC., A PERSON CONTROLLING THE ACTIVITIES OF A PERSON OR TEAM IN SPORTS, ENTERTAINMENT, ETC.' IT IS, THEREFORE, CLEAR THAT A MAN AGERIAL SERVICE WOULD BE ONE WHICH PERTAINS TO OR HAS THE CHARACTERISTIC OF A MANAGER. IT IS OBVIOUS THAT THE EXPRESSION 'MANAGER' AND CONSEQUENTLY 'MANAGERIAL SERVICE' HAS A DEFINITE HUMAN ELEMENT ATTACHED TO IT. TO PUT IT BLUNTLY, A MACHINE CANNOT BE A M ANAGER.' REFERENCE CAN BE ALSO MADE TO THE DECISION OF THE AUTHORITY FOR ADVANCE RULINGS IN INTERTEK TESTING SERVICES INDIA (P.) LTD., IN RE [2008] 307 ITR 418/175 TAXMA N 375 , WHEREIN IT WAS ELUCIDATED: 'FIRST, ABOUT THE CONNOTATION OF THE TERM 'MANAGERIAL'. THE ADJECTIVE 'MANAGERIAL' RELATES TO MANAGER OR MANAGEMENT. MANAGER IS A PERSON WHO MANAGES AN INDUSTRY OR BUSINESS OR WHO DEALS WITH ADMINISTRATION OR A PERSON WH O ORGANIZES OTHER PEOPLE'S ACTIVITY [NEW SHORTER OXFORD DICTIONARY]. AS POINTED OUT BY THE SUPREME COURT IN R. DALMIA V . CIT [1977] 106 ITR 895, 'MANAGEMENT' INCLUDES THE ACT OF MANAGING BY DIRECTION, OR REGULATION OR SUPERINTENDENCE. THUS, MANAGERIAL SERV ICE ESSENTIALLY INVOLVES CONTROLLING, DIRECTING OR ADMINISTERING THE BUSINESS.' 15. THE SERVICES RENDERED, THE PROCUREMENT OF EXPORT ORDERS, ETC. CANNOT BE TREATED AS MANAGEMENT SERVICES PROVIDED BY THE NON - RESIDENT TO THE RESPONDENT - ASSESSEE. THE NON - RESI DENT WAS NOT ACTING AS A MANAGER OR DEALING WITH ADMINISTRATION. IT WAS NOT CONTROLLING THE POLICIES OR SCRUTINISING THE EFFECTIVENESS OF THE POLICIES. IT DID NOT PERFORM AS A PRIMARY EXECUTOR, ANY SUPERVISORY FUNCTION WHATSOEVER. THIS IS CLEAR FROM THE FA CTS AS RECORDED BY THE COMMISSIONER OF INCOME TAX (APPEALS), WHICH HAVE BEEN AFFIRMED BY THE TRIBUNAL. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS QUOTED EXCERPTS OF THE AGREEMENT BETWEEN THE RESPONDENT - ASSESSEE, WHO HAS BEEN DESCRIBED AS 'PAL', AND THE N ON - RESIDENT, 15 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 WHO HAS BEEN DESCRIBED AS 'AGENTA'. THE RELEVANT PORTIONS THEREOF READ AS UNDER: '2. APPOINTMENT (1) PAL HEREBY APPOINT AGENTA AS ITS COMMISSION AGENT FOR SALE OF ITS PRODUCTS WITHIN THE TERRITORY TO THE PURCHASER( S ) DURING THE TERMS OF THIS AGREEMENT, SUBJECT TO AND IN ACCORDANCE WITH TERMS AND CONDITIONS SET OUT HEREIN AND AGENTA AGREES TO AND ACCEPTS THE SAME. (2) IT IS AGREED BY AND BETWEEN THE PARTIES THAT AGENTA'S REPRESENTATIONS AND ACTS ON BEHALF AND FOR PAL VIZ - A - VIZ ANY THIRD PARTY S HALL BE LEGALLY BINDING ON PAL ONLY WHEN THE SAME ARE AUTHORIZED BY VIRTUE OF A WRITTEN AND SIGNED AUTHORISATION EXECUTED BY PAL IN FAVOUR OF AGENTA. ** ** ** 4. COMMISSION (A) PAL AGREES AND AGENTA ACCEPTS THAT THE AMOUNT OF COMMISSION PAYABLE TO IT S HALL BE THE DIFFERENCE BETWEEN CONSIDERATION WHICH PAL RECEIVES IN TERMS OF THE PURCHASE CONTRACT/ORDER FROM THE PURCHASER( S ) AND THE PRE - DETERMINED GUARANTEED CONSIDERATION SETTLED AND AGREED BETWEEN THE PARTIES, AS DESCRIBED IN ANNEXURE 1 ANNEXED HERETO; (B) THE PARTIES AGREE THAT ALL THE TAXES APPLICABLE AND REQUIRED TO BE DEDUCTED IN INDIA TO THE TRANSACTION CONTEMPLATED HEREIN AT THE DATE OF EXECUTION OF THIS AGREEMENT AND AT ANY TIME IN FUTURE DURING THE TERMS OF THIS AGREEMENT SHALL BE DEDUCTED FR OM THE COMMISSION (AS DESCRIBED HEREIN ABOVE) BEFORE THE SAME IS PAID AND TRANSFERRED TO THE BANK ACCOUNT OF AGENTA (HEREIN REFERRED TO AS THE COMMISSION PAYABLE)' 16. THE NON - RESIDENT, IT IS CLEAR WAS APPOINTED AS A COMMISSION AGENT FOR SALE OF PRODUCTS WITHIN THE TERRITORIES SPECIFIED AND SUBJECT TO AND IN ACCORDANCE WITH THE TERMS SET OUT, WHICH THE NON - RESIDENT ACCEPTED. THE NON - RESIDENT, THEREFORE, WAS ACTING AS AN AGENT FOR PROCURING ORDERS AND NOT RENDERING MANAGERIAL ADVICE OR MANAGEMENT SERVICES. FURTHER, THE RESPONDENT - ASSESSEE WAS LEGALLY BOUND WITH THE NON - RESIDENTS' REPRESENTATIONS AND ACTS, 16 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 ONLY WHEN THERE WAS A WRITTEN AND SIGNED AUTHORIZATION ISSUED BY THE RESPONDENT - ASSESSEE IN FAVOUR OF THE NON - RESIDENT. THUS, THE RESPONDENT - ASSESSEE DICTA TED AND DIRECTED THE NON - RESIDENT. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ALSO DEALT WITH QUANTIFICATION OF THE COMMISSION AND AS PER CLAUSE 4, THE COMMISSION PAYABLE WAS THE DIFFERENCE BETWEEN THE PRICE STIPULATED IN THE AGREEMENT AND THE CONSIDERAT ION THAT THE RESPONDENT - ASSESSEE RECEIVED IN TERMS OF THE PURCHASE CONTRACT OR ORDER, IN ADDITION TO A PREDETERMINED GUARANTEE CONSIDERATION. AGAIN, AN INDICATION CONTRA TO THE CONTENTION THAT THE NON - RESIDENT WAS PROVIDING MANAGEMENT SERVICE TO THE RESPON DENT - ASSESSEE. 17. THE REVENUE, WHICH IS THE APPELLANT BEFORE US, HAS NOT PLACED COPY OF THE AGREEMENT TO CONTEND THAT THE AFORESAID CLAUSES DO NOT REPRESENT THE TRUE NATURE OF THE TRANSACTION. THE ASSESSING OFFICER IN HIS ORDER HAD NOT BOTHERED TO REFER A ND TO EXAMINE THE RELEVANT CLAUSES, WHICH CERTAINLY WAS NOT THE RIGHT WAY TO DEAL WITH THE ISSUE AND QUESTION. 18. IT WOULD BE INCONGRUOUS TO HOLD THAT THE NON - RESIDENT WAS PROVIDING TECHNICAL SERVICES. TO QUOTE FROM SKYCELL COMMUNICATIONS LTD. V . DY CIT [2001] 251 ITR 53/119 TAXMAN 496 (MAD) , THE WORD 'TECHNICAL' HAS BEEN INTERPRETED IN THE FOLLOWING MANNER: 'THUS WHILE STATING THAT 'TECHNICAL SERVICE' WOULD INCLUDE MAN AGERIAL AND CONSULTANCY SERVICE, THE LEGISLATURE HAS NOT SET OUT WITH PRECISION AS TO WHAT WOULD CONSTITUTE 'TECHNICAL' SERVICE TO RENDER IT 'TECHNICAL SERVICE'. THE MEANING OF THE WORD 'TECHNICAL' AS GIVEN IN THE NEW OXFORD DICTIONARY IS ADJECTIVE 1. OF O R RELATING TO A PARTICULAR SUBJECT, ART OR CRAFT OR ITS TECHNIQUES: TECHNICAL TERMS (ESPECIALLY OF A BOOK OR ARTICLE) REQUIRING SPECIAL KNOWLEDGE TO BE UNDERSTOOD: A TECHNICAL REPORT. 2. OF INVOLVING, OR CONCERNED WITH APPLIED AND INDUSTRIAL SCIENCES: AN I MPORTANT TECHNICAL ACHIEVEMENT. 3. RESULTING FROM MECHANICAL FAILURE: A TECHNICAL FAULT. 4. ACCORDING TO A STRICT APPLICATION OR INTERPRETATION OF THE LAW OR THE RULES: THE ARREST WAS A TECHNICAL VIOLATION OF THE TREATY. HAVING REGARD TO THE FACT THAT THE TERM IS REQUIRED TO BE UNDERSTOOD IN THE CONTEXT IN WHICH IT IS USED, 'FEE FOR TECHNICAL SERVICES' COULD ONLY BE MEANT TO COVER SUCH THINGS TECHNICAL AS ARE CAPABLE OF BEING PROVIDED BY WAY OF SERVICE FOR A FEE. THE POPULAR 17 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 MEANING ASSOCIATED WITH 'TECHNIC AL' IS 'INVOLVING OR CONCERNING APPLIED AND INDUSTRIAL SCIENCE'. 19. THE SAID TERM WAS ALSO INTERPRETED BY THIS COURT IN CASE OF BHARTI CELLULAR LTD. (SUPRA) WHERE EMPHASIS WAS LAID ON THE ELEMENT OF HUMAN INTERVENTION, BUT WE ARE NOT CONCERNED WITH THE SA ID ASPECT IN THE PRESENT CASE. THE NON - RESIDENT HAD NOT UNDERTAKEN OR PERFORMED 'TECHNICAL SERVICES', WHERE SPECIAL SKILLS OR KNOWLEDGE RELATING TO A TECHNICAL FIELD WERE REQUIRED. TECHNICAL FIELD WOULD MEAN APPLIED SCIENCES OR CRAFTSMANSHIP INVOLVING SPEC IAL SKILLS OR KNOWLEDGE BUT NOT FIELDS SUCH AS ARTS OR HUMAN SCIENCES (SEE PARAGRAPH 24 BELOW). 20. THE MOOT QUESTION AND ISSUE IS WHETHER THE NON - RESIDENT WAS PROVIDING CONSULTANCY SERVICES. IN OTHER WORDS, WHAT DO YOU MEAN BY THE TERM 'CONSULTANCY SERVIC ES'? THIS COURT IN BHARTI CELLULAR LTD. (SUPRA) HAD REFERRED TO THE TERM 'CONSULTANCY SERVICES' IN THE FOLLOWING WORDS: '14. SIMILARLY, THE WORD 'CONSULTANCY' HAS BEEN DEFINED IN THE SAID DICTIONARY AS 'THE WORK OR POSITION OF A CONSULTANT; A DEPARTMENT O F CONSULTANTS.' 'CONSULTANT' ITSELF HAS BEEN DEFINED, INTER ALIA, AS 'A PERSON WHO GIVES PROFESSIONAL ADVICE OR SERVICES IN A SPECIALIZED FIELD.' IT IS OBVIOUS THAT THE WORD 'CONSULTANT' IS A DERIVATIVE OF THE WORD 'CONSULT' WHICH ENTAILS DELIBERATIONS, CO NSIDERATION, CONFERRING WITH SOMEONE, CONFERRING ABOUT OR UPON A MATTER. CONSULT HAS ALSO BEEN DEFINED IN THE SAID DICTIONARY AS 'ASK ADVICE FOR, SEEK COUNSEL OR A PROFESSIONAL OPINION FROM; REFER TO (A SOURCE OF INFORMATION); SEEK PERMISSION OR APPROVAL F ROM FOR A PROPOSED ACTION'. IT IS OBVIOUS THAT THE SERVICE OF CONSULTANCY ALSO NECESSARILY ENTAILS HUMAN INTERVENTION. THE CONSULTANT, WHO PROVIDES THE CONSULTANCY SERVICE, HAS TO BE A HUMAN BEING. A MACHINE CANNOT BE REGARDED AS A CONSULTANT.' THE AAR IN THE CASE OF ADVANCE RULING P. NO. 28 OF 1999, IN RE [1999] 242 ITR 208/105 TAXMAN 218 (AAR - NEW DELHI) HAD OBSERVED: 'BY TECHNICAL SERVICES, WE MEAN IN THIS CONTEXT S ERVICES REQUIRING EXPERTISE IN TECHNOLOGY. BY CONSULTANCY SERVICES, WE MEAN IN THIS CONTEXT ADVISORY SERVICES. THE CATEGORY OF TECHNICAL AND CONSULTANCY SERVICES ARE TO SOME EXTENT OVERLAPPING BECAUSE A CONSULTANCY SERVICE COULD ALSO BE TECHNICAL SERVICE. HOWEVER, THE 18 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 CATEGORY OF CONSULTANCY SERVICES ALSO INCLUDES AN ADVISORY SERVICE, WHETHER OR NOT EXPERTISE IN TECHNOLOGY IS REQUIRED TO PERFORM IT.' 21. THE WORD 'CONSULTANT' REFERS TO A PERSON, WHO IS CONSULTED AND WHO ADVISES OR FROM WHOM INFORMATION IS S OUGHT. IN BLACK'S LAW DICTIONARY, EIGHTH EDITION, THE WORD 'CONSULTATION' HAS BEEN DEFINED AS AN ACT OF ASKING THE ADVICE OR OPINION OF SOMEONE (SUCH AS A LAWYER). IT MAY MEAN A MEETING IN WHICH PARTIES CONSULT OR CONFER. FOR CONSULTATION SERVICE UNDER EXP LANATION 2, THERE SHOULD BE A PROVISION OF SERVICE BY THE NON - RESIDENT, WHO UNDERTAKES TO PERFORM IT, WHICH THE ACQUIRER MAY USE. THE SERVICE MUST BE RENDERED IN THE FORM OF AN ADVICE OR CONSULTATION GIVEN BY THE NON - RESIDENT TO THE RESIDENT INDIAN PAYER. 22. IN THE PRESENT CASE COMMISSION PAID FOR ARRANGING OF EXPORT SALES AND RECOVERY OF PAYMENTS CANNOT BE REGARDED AS CONSULTANCY SERVICE RENDERED BY THE NON - RESIDENT. THE NON - RESIDENT HAD NOT RENDERED ANY CONSULTATION OR ADVICE TO THE RESPONDENT - ASSESSEE. THE NON - RESIDENT NO DOUBT HAD ACQUIRED SKILL AND EXPERTISE IN THE FIELD OF MARKETING AND SALE OF AUTOMOBILE PRODUCTS, BUT IN THE FACTS, AS NOTICE BY THE TRIBUNAL AND THE COMMISSIONER OF INCOME TAX (APPEALS), THE NON - RESIDENT DID NOT ACT AS A CONSULTANT, WH O ADVISED OR RENDERED ANY COUNSELLING SERVICES. THE SKILL, BUSINESS ACUMEN AND KNOWLEDGE ACQUIRED BY THE NON - RESIDENT WERE FOR HIS OWN BENEFIT AND USE. THE NON - RESIDENT PROCURED ORDERS ON THE BASIS OF THE SAID KNOWLEDGE, INFORMATION AND EXPERTISE TO SECURE 'THEIR' COMMISSION. IT IS A CASE OF SELF - USE AND BENEFIT, AND NOT GIVING ADVICE OR CONSULTATION TO THE RESPONDENT - ASSESSEE ON ANY FIELD, INCLUDING HOW TO PROCURE EXPORT ORDERS, HOW TO MARKET THEIR PRODUCTS, PROCURE PAYMENTS ETC. THE RESPONDENT - ASSESSEE UP ON RECEIPT OF EXPORT ORDERS, MANUFACTURED THE REQUIRED ARTICLES/GOODS AND THEN THE GOODS PRODUCED WERE EXPORTED. THERE WAS NO ELEMENT OF CONSULTATION OR ADVISE RENDERED BY THE NON - RESIDENT TO THE RESPONDENT - ASSESSEE. 23. DECISION IN THE CASE OF WALLACE PHA RMACEUTICALS (P.) LTD. (SUPRA) IS CLEARLY DISTINGUISHABLE AS IN THE SAID CASE THE NON - RESIDENT CONSULTANT HAD TO PERFORM SEVERAL SERVICES IN THE NATURE OF ATTENDING MEETINGS ON MUTUALLY AGREEABLE DATES AND PROVIDING ADVICE AND COUNSELLING, WHICH WERE IN TH E NATURE OF CONSULTANCY SERVICES AS THEY ENTAILED SUPPORT FROM A PRODUCT TEAM, COMPLIANCE WITH ALL LEGAL AND ADMINISTRATIVE FORMALITIES, INCLUDING REGISTRATION 19 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 AND MARKETING STRATEGY, CREATION OF ENTRY INTO NEW MARKETS, DEVELOPMENT AND DISTRIBUTION CHANNEL S, ETC. THE WORK BEING RENDERED WAS IN THE NATURE OF SERVICES AS A CONSULTANT TO THE INDIAN ASSESSEE. IT INCLUDED AN ELEMENT OF ADVICE AND WAS CERTAINLY RECOMMENDATORY IN NATURE. 24. THE OECD REPORT ON E - COMMERCE TITLED, TAX TREATY CHARACTERISATION ISSUES ARISING FROM E - COMMERCE: REPORT TO WORKING PARTY NO. 1 OF THE OECD COMMITTEE ON FISCAL AFFAIRS DATED 01ST FEBRUARY 2001, HAS ELUCIDATED: 'TECHNICAL SERVICES 39. FOR THE GROUP, SERVICES ARE OF TECHNICAL NATURE WHEN SPECIAL SKILLS OR KNOWLEDGE RELATED TO A TECHNICAL FIELD ARE REQUIRED FOR THE PROVISION OF SUCH SERVICES. WHILST TECHNIQUES RELATED TO APPLIED SCIENCE OR CRAFTSMANSHIP WOULD GENERALLY CORRESPOND TO SUCH SPECIAL SKILLS OR KNOWLEDGE, THE PROVISION OF KNOWLEDGE ACQUIRED IN FIELDS SUCH AS ARTS OR HUM AN SCIENCES WOULD NOT. AS AN ILLUSTRATION, WHILST THE PROVISIONS OF ENGINEERING SERVICES WOULD BE OF A TECHNICAL NATURE, THE SERVICES OF A PSYCHOLOGIST WOULD NOT. 40. THE FACT THAT TECHNOLOGY IS USED IN PROVIDING A SERVICE IS NOT INDICATIVE OF WHETHER THE SERVICE IS OF A TECHNICAL NATURE. SIMILARLY, THE DELIVERY OF A SERVICE VIA TECHNOLOGICAL MEANS DOES NOT MAKE THE SERVICE TECHNICAL. THIS IS ESPECIALLY IMPORTANT IN THE E - COMMERCE ENVIRONMENT AS THE TECHNOLOGY UNDERLYING THE INTERNET IS OFTEN USED TO PROVID E SERVICES THAT ARE NOT, THEMSELVES, TECHNICAL (E.G. OFFERING ONLINE GAMBLING SERVICES THROUGH THE INTERNET). 41. IN THAT RESPECT, IT IS CRUCIAL TO DETERMINE AT WHAT POINT THE SPECIAL SKILL OR KNOWLEDGE IS USED. SPECIAL SKILL OR KNOWLEDGE MAY BE USED IN DE VELOPING OR CREATING INPUTS TO A SERVICE BUSINESS. THE FEE FOR THE PROVISION OF A SERVICE WILL NOT BE A TECHNICAL FEE, HOWEVER, UNLESS THAT SPECIAL SKILL OR KNOWLEDGE IS REQUIRED WHEN THE SERVICE IS PROVIDED TO THE CUSTOMER. FOR EXAMPLE, SPECIAL SKILL OR K NOWLEDGE WILL BE REQUIRED TO DEVELOP SOFTWARE AND DATA USED IN A COMPUTER GAME THAT WOULD SUBSEQUENTLY BE USED IN CARRYING ON THE BUSINESS OF ALLOWING CONSUMERS TO PLAY THIS GAME ON THE INTERNET FOR A FEE. SIMILARLY, SPECIAL SKILL OR KNOWLEDGE IS USED TO C REATE A TROUBLESHOOTING DATABASE THAT CUSTOMERS WILL PAY TO ACCESS OVER THE INTERNET. IN THESE EXAMPLES, HOWEVER, THE RELEVANT SPECIAL SKILL OR KNOWLEDGE IS NOT USED WHEN PROVIDING THE SERVICE 20 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 FOR WHICH THE FEE IS PAID, I.E. ALLOWING THE CONSUMER TO PLAY T HE COMPUTER GAME OR CONSULT THE TROUBLESHOOTING DATABASE. 42. MANY CATEGORIES OF E - COMMERCE TRANSACTIONS SIMILARLY INVOLVE THE PROVISION OF THE USE OF, OR ACCESS TO, DATA AND SOFTWARE (SEE, FOR EXAMPLE, CATEGORIES 7, 8, 9, 11, 13, 15, 16, 20 AND 21 IN ANNE X 2). THE SERVICE OF MAKING SUCH DATA AND SOFTWARE, OR FUNCTIONALITY OF THAT DATA OR SOFTWARE, AVAILABLE FOR A FEE IS NOT, HOWEVER, A SERVICE OF A TECHNICAL NATURE. THE FACT THAT THE DEVELOPMENT OF THE NECESSARY DATA AND SOFTWARE MIGHT ITSELF REQUIRE SUBST ANTIAL TECHNICAL SKILLS IS IRRELEVANT AS THE SERVICE PROVIDED TO THE CLIENT IS NOT THE DEVELOPMENT OF THAT DATA AND SOFTWARE (WHICH MAY WELL BE DONE BY SOMEONE OTHER THAN THE SUPPLIER) BUT RATHER THE SERVICE OF MAKING THE DATA AND SOFTWARE AVAILABLE TO THA T CLIENT. FOR EXAMPLE, THE MERE PROVISION OF ACCESS TO A TROUBLESHOOTING DATABASE WOULD NOT REQUIRE MORE THAN HAVING AVAILABLE SUCH A DATABASE AND THE NECESSARY SOFTWARE TO ACCESS IT. A PAYMENT RELATING TO THE PROVISION OF SUCH ACCESS WOULD NOT, THEREFORE, RELATE TO A SERVICE OF A TECHNICAL NATURE. MANAGERIAL SERVICES 43. THE GROUP CONSIDERS THAT SERVICES OF A MANAGERIAL NATURE ARE SERVICES RENDERED IN PERFORMING MANAGEMENT FUNCTIONS. THE GROUP DID NOT ATTEMPT TO GIVE A DEFINITION OF MANAGEMENT FOR THAT PUR POSE BUT NOTED THAT THIS TERM SHOULD RECEIVE ITS NORMAL BUSINESS MEANING. THUS, IT WOULD INVOLVE FUNCTIONS RELATED TO HOW A BUSINESS IS RUN AS OPPOSED TO FUNCTIONS INVOLVED IN CARRYING ON THAT BUSINESS. AS AN ILLUSTRATION, WHILST THE FUNCTIONS OF HIRING AN D TRAINING COMMERCIAL AGENTS WOULD RELATE TO MANAGEMENT, THE FUNCTIONS PERFORMED BY THESE AGENTS (I.E. SELLING) WOULD NOT. 44. THE COMMENTS IN PARAGRAPHS 40 TO 42 ABOVE ARE ALSO RELEVANT FOR THE PURPOSES OF DISTINGUISHING MANAGERIAL SERVICES FROM THE SERVI CE OF MAKING DATA AND SOFTWARE (EVEN IF RELATED TO MANAGEMENT), OR FUNCTIONALITY OF THAT DATA OR SOFTWARE, AVAILABLE FOR A FEE. THE FACT THAT THIS DATA AND SOFTWARE COULD BE USED BY THE CUSTOMER IN PERFORMING MANAGEMENT FUNCTIONS OR THAT THE DEVELOPMENT OF THE NECESSARY DATA AND SOFTWARE, AND THE MANAGEMENT OF THE BUSINESS OF PROVIDING IT TO CUSTOMERS, MIGHT ITSELF REQUIRE SUBSTANTIAL MANAGEMENT EXPERTISE IS IRRELEVANT AS THE SERVICE PROVIDED TO THE CLIENT IS NEITHER MANAGING THE CLIENT'S 21 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 BUSINESS, MANAGING THE SUPPLIER'S BUSINESS NOR DEVELOPING THAT DATA AND SOFTWARE (WHICH MAY WELL BE DONE BY SOMEONE OTHER THAN THE SUPPLIER) BUT RATHER MAKING THE SOFTWARE AND DATA AVAILABLE TO THAT CLIENT. THE MERE PROVISION OF ACCESS TO SUCH DATA AND SOFTWARE DOES NOT REQ UIRE MORE THAN HAVING AVAILABLE SUCH A DATABASE AND THE NECESSARY SOFTWARE. A PAYMENT RELATING TO THE PROVISION OF SUCH ACCESS WOULD NOT, THEREFORE, RELATE TO A SERVICE OF A MANAGERIAL NATURE. CONSULTANCY SERVICES 45. FOR THE GROUP, 'CONSULTANCY SERVICES' REFER TO SERVICES CONSTITUTING IN THE PROVISION OF ADVICE BY SOMEONE, SUCH AS A PROFESSIONAL, WHO HAS SPECIAL QUALIFICATIONS ALLOWING HIM TO DO SO. IT WAS RECOGNISED THAT THIS TYPE OF SERVICES OVERLAPPED THE CATEGORIES OF TECHNICAL AND MANAGERIAL SERVICES TO THE EXTENT THAT THE LATTER TYPES OF SERVICES COULD WELL BE PROVIDED BY A CONSULTANT.' WE BROADLY AGREE WITH THE AFORESAID OBSERVATIONS. HOWEVER, IN THE CASE OF SELLING AGENTS, WE ADD A NOTE OF CAUTION THAT TAXABILITY WOULD DEPEND UPON THE NATURE OF THE CHARACTER OF SERVICES RENDERED AND IN A GIVEN FACTUAL MATRIX, THE SERVICES RENDERED MAY POSSIBLY FALL IN THE CATEGORY OF CONSULTANCY SERVICES. PARAGRAPHS 41 AND 42 DO NOT EMANATE FOR CONSIDERATION IN THE PRESENT CASE, AND EFFECT THEREOF CAN BE EXAMINED IN AN APPROPRIATE CASE [HOWEVER, SEE CIT V . ESTEL COMMUNICATION (P.) LTD. [2009] 318 ITR 185 (DEL) AND SKYCELL COMMUNICATIONS LTD. (SUPRA)]. 25. THUS, THE TECHNICAL SERVICES CONSISTS OF SERVICES OF TECHNICAL NATURE, WHEN SPECIAL SKILLS OR KNOWLEDGE RELATING T O TECHNICAL FIELD ARE REQUIRED FOR THEIR PROVISION, MANAGERIAL SERVICES ARE RENDERED FOR PERFORMING MANAGEMENT FUNCTIONS AND CONSULTANCY SERVICES RELATE TO PROVISION OF ADVICE BY SOMEONE HAVING SPECIAL QUALIFICATION THAT ALLOW HIM TO DO SO. IN THE PRESENT CASE, THE AFORESAID REQUISITES AND REQUIRED NECESSITIES ARE NOT SATISFIED. INDEED, TECHNICAL, MANAGERIAL AND CONSULTANCY SERVICES MAY OVERLAP AND IT WOULD NOT BE PROPER TO VIEW THEM IN WATERTIGHT COMPARTMENTS, BUT IN THE PRESENT CASE THIS ISSUE OR DIFFEREN TIATION IS AGAIN NOT RELEVANT. 26. IN VIEW OF THE AFORESAID DISCUSSION, THE SUBSTANTIAL QUESTION OF LAW MENTIONED ABOVE HAS TO BE ANSWERED IN FAVOUR OF THE RESPONDENT - ASSESSEE AND AGAINST THE APPELLANT - REVENUE. THE 22 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 APPEAL IS ACCORDINGLY DISMISSED. THERE WI LL BE NO ORDER AS TO COSTS'. REVENUE HAS TO BRING ON RECORD COGENT MATERIAL TO PROVE THAT THE TECHNICAL KNOWLEDGE IS MADE AVAILABLE TO THE ASSESSEE FIRM WHICH COULD BE USED IN FUTURE. IN THE ABSENCE OF COGENT MATERIAL, IT COULD NOT BE SAID THAT THE FOREIGN BROKERS HAVE ANY MANAGERIAL EXPERTISE AND THE SERVICES RENDERED BY THEM IS FOR THEIR SELF - USE AND THEIR OWN BENEFIT TO MAXIMIZE COMMISSION INCOME. THUS IN OUR CONSIDERED VIEW, NO INCOME OF THESE FOREIGN AGENTS HAVE ACCRUED OR ARISEN IN INDIA OR DEEMED TO HAVE ACCRUED OR ARISEN IN INDIA AS CONTEMPLATED U/ S 9 OF THE ACT TO BRING IN WITHIN THE FOLD OF CHARGEABILITY OF TAX UNDER THE ACT AND HENCE THE SAME CANNOT BE BROUGHT TO TAX WITHIN THE PROVISIONS OF THE ACT. AS THE INSTANT APPEAL IS FOR ASSESSMENT YEAR 20 10 - 11 WHEREBY VIDE CIRCULAR NO 07/2009 DATED 22.10.2009, CBDT HAS WITHDRAWN CIRCULAR NO. 23 DATED 23 - 07 - 1969 AND CIRCULAR NO. 786 DATED 07 - 02 - 2000, WE HAVE TO SEE THE EFFECT IN CONTEXT OF WITHDRAWAL OF EARLIER CIRCULARS. THE HON'BLE HYDERABAD TRIBUNAL IN T HE CASE OF DIVI'S LABORATORIES LTD. (SUPRA) HAS DISCUSSED THE EFFECT OF WITHDRAWAL OF THE CIRCULARS AND HELD THAT : '8. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE MOOT QUESTION THAT ARI SES OUT OF THESE APPEALS IS WHETHER THE PAYMENT OF COMMISSION MADE TO THE OVERSEAS 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 CONSEQUENTLY WHETHER MERE PAYMENT WOULD BE SAID TO ARISE OR ACCRUE IN INDIA OR NOT? FIRST WE WILL TAKE UP THE ISSUE WHETHER THE PAYMENT OF COMMISSION TO OVERSEAS AGENTS WITHOUT DEDUCTION 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 ITS EARLIER CIRCULAR NOS. 23 DATED 23 - 7 - 2009, 163 DATED 29 - 5 - 1975 AND 786 DATED 7 - 2 - 2000. THE EARLIER CIRCUL ARS ISSUED BY THE CBDT HAVE CLEARLY DEMONSTRATED THE ILLUSTRATIONS TO EXPLAIN THAT SUCH COMMISSION PAYMENTS CAN BE PAID WITHOUT DEDUCTION OF TAX. THUS, THE MAIN THRUST IN SUCH A SITUATION IS WHETHER THE COMMISSION MADE TO OVERSEAS AGENTS, WHO ARE NON - RESID ENT ENTITIES, AND WHO RENDER SERVICES ONLY AT SUCH PARTICULAR PLACE, IS ASSESSABLE TO TAX. SECTION 23 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 195 OF THE ACT VERY CLEARLY SPEAKS THAT UNLESS THE INCOME IS LIABLE TO BE TAXED IN INDIA, THERE IS NO OBLIGATION TO DEDUCT TAX. NOW, IN ORDER TO DETERMINE WH ETHER 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 PROVIDE SCOPE FOR TAXING SUCH PAYMENT BECAUSE THE BASIC CRITERIA PROVIDED IN THE SECTION IS ABOUT GENESIS OR ACCRUI NG 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 ISSUED BY THE CBDT HAS NO ASSISTANC E TO THE DEPARTMENT, IN ANY WAY, IN DISALLOWING SUCH EXPENDITURE. IT APPEARS THAT AN OVERSEAS AGENT OF INDIAN EXPORTER OPERATES IN HIS OWN COUNTRY AND NO PART OF HIS INCOME ARISES IN INDIA AND HIS COMMISSION IS USUALLY REMITTED DIRECTLY TO HIM BY WAY OF TT OR POSTING OF CHEQUES/DEMAND DRAFTS IN INDIA AND THEREFORE THE SAME IS NOT RECEIVED BY HIM OR ON HIS BEHALF IN INDIA AND SUCH AN OVERSEAS AGENT IS NOT LIABLE TO INCOME - TAX IN INDIA ON THESE COMMISSION PAYMENTS. THIS VIEW IS FORTIFIED BY THE JUDGMENT OF AP EX COURT IN THE CASE OF TOSHOKU LTD. (SUPRA). 9. IT IS PERTINENT TO NOTE THAT THE SECTION 195 OF THE 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; T HE OBLIGATION TO DEDUCT TDS AUTOMATICALLY ARISES. IF WE WERE TO ACCEPT SUCH CONTENTION, IT WOULD MEAN THAT ON MERE PAYMENT IN INDIA, INCOME WOULD BE SAID TO ARISE OR ACCRUE IN INDIA. THESE 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 OF TAX APPLIES ONLY TO THOSE SUMS WHICH ARE CHARGEABLE TO TAX UNDER THE INCOME - TAX ACT. IF THE CO NTENTIONS 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 CONSEQUENCE WOULD BE THAT THE DEPARTMENT WOULD BE ENTITLED TO APPROPRIATE THE MONIES DEPOSITED BY THE PAYER EVEN IF THE SUM PAID IS NOT CHARGEABLE TO TAX BECAUSE THERE IS NO PROVISION IN THE INCOME - TAX ACT BY WHICH A PAYER CAN OBTAIN REFUND. AS PER SECTION 237, READ WITH SECTION 199, OF THE ACT IMPLIES THAT ONLY THE RECIPIENT OF THE SUM I.E., PAYEE WOULD S EEK A REFUND. IN VIEW OF THE ABOVE, HENCE, NO TAX IS DEDUCTIBLE UNDER SECTION 195 OF THE ACT ON COMMISSION PAYMENTS AND CONSEQUENTLY 24 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 THE EXPENDITURE ON EXPORT COMMISSION PAYABLE TO NON - RESIDENT FOR SERVICES RENDERED OUTSIDE INDIA BECOMES ALLOWABLE EXPENDIT URE AND THE SAME IS OUTSIDE RIGORS OF THE SECTION 40(A)(IA) OF THE ACT.' SECTION 195 OF THE ACT REQUIRES ANY PERSON RESPONSIBLE FOR PAYING TO ANY NON - RESIDENT, ANY SUM CHARGEABLE UNDER THE ACT, TO DEDUCT THE APPLICABLE TAX AT SOURCE. THE HON'BLE APEX COURT IN THE CASE OF TRANSMISSION CORPN. OF AP LTD. V . CIT [1999] 105 TAXMAN 742/239 ITR 587 AND GE INDIA TECHNOLOGY CENTRE (P.) LTD. (SUPRA) HAS HELD THAT THE OBLIGATION TO DEDUCT TAX AT SOURCE U/ S 195 OF THE ACT ARISES ONLY WHEN THE PAYMENT IS CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT, IN THE HANDS OF NON - RESIDENT. THUS, DETERMINATION OF TAXABILITY OF THE INCOME OF THE NON - RESIDENT IS GOVERNED BY THE PROVISIONS OF T HE ACT, RATHER THAN BY THE CIRCULARS ISSUED BY THE CBDT. WE HAVE ALSO OBSERVED THAT MUMBAI TRIBUNAL IN THE DECISIONS OF M/ S . INDO INDUSTRIES LTD. (SUPRA), FOR THE ASSESSMENT YEAR 2010 - 11 HAS ALLOWED THE CLAIM OF THE TAXPAYER FOR DEDUCTION OF COMMISSION PAI D TO VARIOUS NON - RESIDENTS FOREIGN BROKERS FOR RENDERING SERVICES OUTSIDE INDIA IN RELATION TO EXPORT ORDERS AND RECOVERY OF SALE PROCEEDS, WHEREBY THE SAID FOREIGN BROKERS DID NOT HAVE PLACE OF ESTABLISHMENT IN INDIA AS UNDER: '9. WE HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND ALSO DELIBERATED ON THE JUDICIAL PRONOUNCEMENTS CITED BEFORE US IN THE CONTEXT OF FACTUAL MATRIX OF THE CASE. FROM THE RECORD WE FOUND THAT DURING THE YEAR ASSESSEE HAS PAID COMMI SSION TO VARIOUS NON - RESIDENT FOREIGN BROKERS AMOUNTING TO RS. 92,14,509/ - FOR RENDERING SERVICES OUTSIDE INDIA IN RELATION TO EXPORT ORDERS AND RECOVERY OF THE SALE PROCEEDS. NOTHING WAS BROUGHT ON RECORD BY THE AO TO ESTABLISH THAT THE SAID NON - RESIDENT BROKERS HAVE THEIR PLACE OF ESTABLISHMENT IN INDIA BECAUSE THEY WERE OPERATING IN THEIR RESPECTIVE COUNTRIES. THE SAID NON - RESIDENT BROKERS ARE NOT LIABLE TO ANY TAX IN INDIA INSOFAR AS IT IS ALSO NOT THE CASE OF REVENUE THAT SERVICES WERE RENDERED IN INDI A, THEREFORE, NEITHER THERE WAS ACCRUAL NOR RECEIPT OF INCOME IN INDIA. WE FOUND THAT THE NON - RESIDENT BROKERS HAVE NOT RENDERED ANY SERVICES IN INDIA, THEREFORE, COMMISSION INCOME NEITHER ACCRUED NOR AROSE IN INDIA IN VIEW OF THE DECISION OF THE HON'BLE D ELHI HIGH COURT IN THE CASE OF EON TECHNOLOGY PVT. LTD. 343 ITR 366 (DEL). THERE IS NO DISPUTE TO THE WELL SETTLED PROPOSITION THAT PROVISIONS OF SECTION 195 DOES 25 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 NOT APPLY WHEN NO INCOME IS FOUND TO BE TAXABLE IN INDIA, THEREFORE, THERE WAS NO REASON FOR MAKING ANY DISALLOWANCE UNDER PROVISIONS OF SECTION 40(A)(I) IN VIEW OF DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF G.E. INDIA TECHNOLOGY CENTRE PVT. LTD. 327 ITR 456. THERE ARE ALSO JUDICIAL PRONOUNCEMENTS SUPPORTING THIS PROPOSITION, WHICH ARE R EPORTED IN 10 ITR 501 (TRIB.), 86 ITD 102 AND 10 ITR 147 (TRIB.) . 10. PAYMENT OF BROKERAGE TO THE SAID NON - RESIDENT BROKERS FOR NON - TECHNICAL SERVICES IS THE BUSINESS I NCOME OF THE PAYEE AND THEREFORE, NOT LIABLE TO TAX IN INDIA AS WAS HELD IN THE CASE OF SRI SUBHARAMAN SUBRAMANIAN 30 TAXMANN.COM 236 (BANG.). WE DO NOT FIND ANY MERIT IN THE CONTENTION OF THE LEARNED DR THAT BROKERAGE SO PAID TO THE NON - RESIDENT BROKERS W AS FEE FOR TECHNICAL SERVICES. OUR VIEW IS SUPPORTED BY THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ADIDAS SOURCING LTD. 28 TAXMANN.COM 267 (DEL). EVEN THE AMENDED SECTION 9 APPLIES ONLY TO TECHNICAL SERVICES AND NOT TO BROKERAGE. ACCORD INGLY, THE PAYMENT OF BROKERAGE TO NON - RESIDENT DID NOT ATTRACT THE PROVISIONS OF SECTION 9 R.W.S.195 AS WAS HELD BY THE DELHI BENCH IN THE CASE OF ANGELIQUE INTERNATIONAL LTD. 28 TAXMANN.COM 219 (DEL) AND ALLAHABAD BENCH OF THE TRIBUNAL IN THE CASE OF MOD EL EXIMS42 TAXMANN.COM 446 (ALL). 11. IN VIEW OF THE ABOVE, WE CAN SAFELY CONCLUDE THAT MERELY BECAUSE PAYMENTS HAVE BEEN MADE FROM INDIA, THE SAME CANNOT BE MADE LIABLE TO BE TAXED IN INDIA INSOFAR AS PAYMENT WAS MADE TO NON - RESIDENT FOR THE SERVICES REND ERED OUTSIDE INDIA AS WAS HELD IN THE CASE OF DR. REDDY'S LABORATORY58 ITD 104 (HYD.). 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED.' WE HAVE ALSO OBSERVED THAT THE SIMILAR VIEW HAVE BEEN TAKEN BY DELHI - TRIBUNAL IN THE CASE OF WELSPRING UNIVERSAL V . JT. CIT [2015] 153 ITD 496/56 TAXMANN.COM 174 FOR ASSESSMENT YEAR 2011 - 12 WHEREBY THE TRIBUNAL HELD AS UNDER : 'THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE OR DER PASSED BY THE CIT U/ S 263 OF THE INCOME - TAX ACT, 1961 (HEREINAFTER ALSO CALLED 'THE ACT') ON 8.7.14 IN RELATION TO THE ASSESSMENT YEAR 2011 - 12. 26 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING OF ENGINEERING IT EMS. THE AO OBSERVED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT A SUM OF RS. 23,58,813/ - WAS PAID BY THE ASSESSEE AS A FOREIGN COMMISSION WITHOUT DEDUCTION OF TAX AT SOURCE. ON BEING CALLED UPON TO JUSTIFY SUCH NON - DEDUCTION, THE ASSESSEE TENDERED EX PLANATION WHICH HAS BEEN REPRODUCED ON PAGES 2 - 4 OF THE ASSESSMENT ORDER. GETTING CONVINCED WITH THE ASSESSEE'S SUBMISSIONS, THE AO CHOSE NOT TO MAKE ANY DISALLOWANCE U/ S 40(A)(I) OF THE ACT. WHILE EXERCISING REVISIONAL POWER U/ S 263 OF THE ACT, THE LD. CI T OPINED THAT IN VIEW OF THE AMENDMENT TO SECTION 195, THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE ON SUCH PAYMENT OF COMMISSION TO FOREIGN PARTIES. HAVING NOT DONE SO, THE LD. CIT HELD THAT THE ASSESSMENT ORDER PASSED BY THE AO ON THIS SCORE WAS ERRON EOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IN SUPPORT OF HIS CONCLUSION, THE LD. CIT ALSO RELIED ON THE OPINION OF THE AUTHORITY OF ADVANCE RULING IN SKF BOILERS & DRIERS (P.) LTD., IN RE [2012] 343 ITR 385/206 TAXMAN 19/18 TAXMANN.COM 325 (AAR - NEW DELHI) AND RAJIV MALHOTRA, IN RE [2006] 284 ITR 564/155 TAXMAN 101 (AAR - N EW DELHI) . THE ASSESSEE IS AGGRIEVED AGAINST THE REVISIONAL ORDER DIRECTING THE AO TO MAKE DISALLOWANCE U/ S 40(A)(I) OF THE ACT. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE ON THE FACTUAL ASPECT OF THE MATTER THAT THE ASSESSEE PAID COMMISSION TO A NON - RESIDENT FOR PROCURING EXPORT ORDERS AND SUCH COMMISSION WAS PAID WITHOUT DEDUCTING TAX AT SOURCE. THE ASSESSEE PLEADED FOR THE CORRECTNESS OF ITS ACTION IN NOT MAKING SUCH DEDUCTION U/ S 195 BY STATI NG THAT THE NON - RESIDENT COMMISSION AGENT PROVIDED SERVICES OUTSIDE INDIA AND, HENCE, THE AMOUNT WAS NOT CHARGEABLE TO TAX IN HIS HANDS. IT GOES WITHOUT SAYING THAT LIABILITY FOR DEDUCTION OF TAX AT SOURCE ARISES ONLY WHEN THE AMOUNT IS CHARGEABLE TO TAX I N THE HANDS OF THE PAYEE. IF THE AMOUNT ITSELF IS NOT SO CHARGEABLE TO TAX, THE LIABILITY FOR DEDUCTION OF TAX AT SOURCE IS ALSO OBLITERATED. 4. FIRSTLY, WE WILL ENDEAVOUR TO DETERMINE IF THE AMOUNT OF COMMISSION IS TAXABLE IN THE HANDS OF THE NON - RESIDENT AGENT. THE SCOPE OF TOTAL INCOME OF A NON - RESIDENT IS GOVERNED BY SECTION 5(2) OF THE ACT. THIS SECTION PROVIDES THAT ALL INCOME OF A NON - RESIDENT FROM WHATEVER SOURCE DERIVED WHICH (A) IS RECEIVED OR IS DEEMED 27 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR O N BEHALF OF SUCH PERSON OR (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA DURING SUCH YEAR, SHALL BE INCLUDED IN HIS TOTAL INCOME. IT IS PATENT THAT THE NON - RESIDENT DID NOT RECEIVE SUCH INCOME IN INDIA INASMUCH AS THE ASSESSEE MADE PAYMENT FOR SUCH COMMISSION TO THE NON - RESIDENT OUTSIDE INDIA. SECTION 7 DEFINES 'INCOME DEEMED TO BE RECEIVED'. IT REFERS TO THE ANNUAL ACCRETION TO THE BALANCE AT THE CREDIT OF AN EMPLOYEE PARTICIPATING IN A RECOGNIZED PROVIDENT FUND; TRANSFERRED BALANCE IN A RPF TO SOME EXTENT; AND THE CONTRIBUTION MADE BY THE CENTRAL GOVERNMENT OR ANY OTHER EMPLOYER TO THE ACCOUNT OF AN EMPLOYEE UNDER PENSION SCHEME REFERRED TO IN SECTION 80CCD. FROM THE DESCRIPTION OF THE CONTENTS OF SECTION 7, IT CAN BE SEEN THAT THE COMMISSION RECEIVED BY A NON - RESIDENT CANNOT BE CHARACTERIZED AS 'INCOME DEEMED TO BE RECEIVED' IN INDIA. THE NEXT INGREDIENT OF SECTION 5(2) IS THE INCOME WHICH 'ACCRUES OR ARISES IN INDIA.' SINCE THE CHARGEABILITY TO TAX UNDER THIS SEGMENT IS ATTRACTED I F THE INCOME ACCRUES OR ARISES TO THE NON - RESIDENT IN INDIA, IT BECOMES CRUCIAL TO FIND OUT THE PLACE WHERE INCOME FROM EXPORT COMMISSION ACCRUES OR ARISES. IN THIS REGARD, THE SOURCE OF ACCRUAL OR ARISING OF INCOME CANNOT BE RELEVANT BECAUSE THE INCIDENCE OF TAX IS ATTACHED WITH THE PLACE OF ACCRUAL OF INCOME AND NOT ITS SOURCE. ORDINARILY, THERE CAN BE SEVERAL PLACES INVOLVED IN A TRANSACTION, SUCH AS, A PLACE WHERE AN AGREEMENT IS ENTERED INTO OR A PLACE WHERE SERVICES ARE ACTUALLY PERFORMED OR A PLACE W HERE THE SERVICES ARE UTILIZED OR A PLACE WHERE ENTRIES ARE MADE IN THE BOOKS OR A PLACE WHERE CONSIDERATION IS PAID OR RECEIVED ETC. IN THE CONTEXT OF RENDERING OF SERVICES FOR PROCURING EXPORT ORDERS BY A NON - RESIDENT FROM THE COUNTRIES OUTSIDE INDIA, TH ERE CAN BE NO WAY FOR CONSIDERING THE ACTUAL EXPORT FROM INDIA AS THE PLACE FOR THE ACCRUAL OF COMMISSION INCOME OF THE NON - RESIDENT. ONE SHOULD KEEP IN MIND THE DISTINCTION BETWEEN THE ACCRUAL OF INCOME OF EXPORTER FROM EXPORTS AND THAT OF THE FOREIGN AGE NT FROM COMMISSION. AS A FOREIGN AGENT OF INDIAN EXPORTER OPERATES OUTSIDE INDIA FOR PROCURING EXPORT ORDERS AND FURTHER THE GOODS IN PURSUANCE TO SUCH ORDERS ARE ALSO SOLD OUTSIDE INDIA, NO PART OF HIS INCOME CAN BE SAID TO ACCRUE OR ARISE IN INDIA. THE L AST COMPONENT OF SECTION 5(2) IS INCOME WHICH 'IS DEEMED TO ACCRUE OR ARISE' IN INDIA. THE EXPRESSION - 'INCOME DEEMED TO ACCRUE OR ARISE IN INDIA' - HAS BEEN DEFINED IN SECTION 9(1) OF THE ACT. SUB - SECTION (1) OF SECTION 9 HAS SEVEN CLAUSES. 28 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 CLAUSE (I) DE ALS WITH INCOME ACCRUING OR ARISING, WHETHER DIRECTLY OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA OR FROM ANY PROPERTY IN INDIA OR THROUGH OR FROM ANY ASSET OR SOURCE OF INCOME IN INDIA OR THROUGH THE TRANSFER OF THE CAPITAL ASSET SITUA TED IN INDIA. IT IS QUITE APPARENT THAT THE COMMISSION INCOME CANNOT BE ASSOCIATED WITH THE LATER CONTENTS OF THIS CLAUSE, NAMELY, ANY PROPERTY OR ASSET OR SOURCE OF INCOME IN INDIA. AT THE MOST, IT CAN BE CONSIDERED AS HAVING SOME 'BUSINESS CONNECTION.' E XPLANATION 3 TO SECTION 9(1)(I) PROVIDES THAT IF BUSINESS IS CARRIED ON IN INDIA, ONLY SO MUCH OF THE INCOME AS IS ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA, SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA. THUS, IT IS CLEAR THAT IN ORDER TO BRING AN Y INCOME WITHIN THE AMBIT OF SECTION 9(1)(I), IT IS SINE QUA NON THAT THE ACTIVITY RESULTING INTO SUCH INCOME SHOULD BE CARRIED OUT IN INDIA. NOTWITHSTANDING THE EXISTENCE OF A BUSINESS CONNECTION IN INDIA, AS EVEN UNDERSTOOD IN THE WIDEST POSSIBLE AMPLITU DE, AN INCOME WILL FALL U/ S 9(1)(I) ONLY TO THE EXTENT IT RESULTS FROM THE OPERATIONS CARRIED OUT IN INDIA. IF NO OPERATIONS FOR EARNING SUCH INCOME FROM BUSINESS CONNECTION ARE CARRIED OUT IN INDIA, THE APPLICABILITY OF CLAUSE (I) TO THIS EXTENT IS RULED OUT. AS, ADMITTEDLY, THE NON - RESIDENT PAYEE CARRIED OUT HIS OPERATIONS OUTSIDE INDIA, THE COMMAND OF CLAUSE (I) OF SECTION 9(1) CANNOT APPLY. THE OTHER SIX CLAUSES OF SECTION 9(1), NAMELY, CLAUSES (II) & (III) DEALING WITH INCOME UNDER THE HEAD 'SALARIES'; CLAUSE (IV) DEALING WITH 'DIVIDEND'; CLAUSE ( V ) DEALING WITH 'INTEREST'; CLAUSE (VI) DEALING WITH 'ROYALTY'; AND CLAUSE (VII) DEALING WITH 'FEES FOR TECHNICAL SERVICES', HAVE NO APPLICATION TO THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE. THE AMOUNT OF COMMISSION PAID TO THE NON - RESIDENT CANNOT BE DESCRIBED AS SALARY OR DIVIDEND OR INTEREST OR ROYALTY OR FEES FOR TECHNICAL SERVICES. 5. THE ARGUMENT OF THE LD. DR THAT EXPLANATION BELOW SECTION 9(2) WILL BRING THE INSTANT CASE WITHIN THE FOLD OF SECTION 9 (1), IS DEVOID OF ANY MERIT. THIS EXPLANATION SIMPLY STATES THAT FOR THE PURPOSES OF THIS SECTION, INCOME OF A NON - RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CLAUSES ( V ) OR (VI) OR (VII) OF SUB - SECTION (1) AND SHALL BE INCLUDED IN THE TOTAL INCOME OF THE NON - RESIDENT WHETHER OR NOT THE NON - RESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA OR THE NON - RESIDENT HAS RENDERED SERVICES IN INDIA. A BARE PERUSAL OF THE EXPLANATION DIVULGES THAT IF THERE IS SOME INCOME OF THE NON - RESIDENT WHICH IS 29 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 IN THE NATURE OF INTEREST OR ROYALTY OR FEES FOR TECHNICAL SERVICES, THEN, SUCH INCOME SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA IRRESPECTIVE OF THE NON - RESIDENT RENDERING SERVICES IN OR OUTSIDE INDIA ETC. THE PRE - CONDITION FOR MAGNETIZING THIS EXPLANATION IS THAT THE INCOME OF THE NON - RESIDENT SHOULD BE IN THE NATURE OF INTEREST OR ROYALTY OR FEES FOR TECHNICAL SERVICES. IT IS ONLY IN RESPECT OF THESE THREE CATEGORIES OF INCOMES THAT THE DEEMING PROVISION IS ATTRACTED NOTWITHSTA NDING THE NON - RESIDENT NOT HAVING A PLACE OF BUSINESS IN INDIA OR NOT RENDERING SERVICES IN INDIA. AS THE COMMISSION INCOME OF NON - RESIDENT DOES NOT FALL IN ANY OF THESE THREE CLAUSES, NAMELY, ( V ), (VI) OR (VII) OF SECTION 9(1) OF THE ACT, WE HOLD THAT EXP LANATION BELOW SECTION 9(2) CANNOT HELP THE REVENUE'S CASE. 6. IN VIEW OF THE FOREGOING DISCUSSION, IT IS APPARENT THAT THE COMMISSION INCOME IN THE HANDS OF THE NON - RESIDENT CAN NEITHER BE CONSIDERED AS RECEIVED OR DEEMED TO BE RECEIVED IN INDIA OR ACCRUI NG OR ARISING OR DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA IN TERMS OF SECTION 5(2) OF THE ACT. ONCE IT IS HELD THAT THE COMMISSION INCOME OF A NON - RESIDENT FOR RENDERING SERVICES OUTSIDE INDIA DOES NOT FALL WITHIN THE SCOPE OF HIS TOTAL INCOME, IT AUTOMAT ICALLY IMPLIES THAT THE SAME IS NOT CHARGEABLE TO TAX IN HIS HANDS. 7. SUB - SECTION (1) OF SECTION 195 PROVIDES THAT ANY PERSON RESPONSIBLE FOR PAYING TO A NON - RESIDENT, NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY INTEREST OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT, NOT BEING INCOME CHARGEABLE 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, WHICHEVER IS EARLIER, SHALL DEDUCT INCOME - TAX THEREON AT THE RATES IN FORCE. A CIRCUMSPECTION OF THIS PROVISION INDICATES THAT IN ORDER TO ATTRACT THE WITHHOLDING OF TAX ON A PAYMENT MADE TO A NON - RESIDENT, IT IS ESSENTIAL THAT THE SUM SHOULD BE CHARGEABLE TO TAX IN THE HANDS OF THE PAYEE UNDER THE PROVISIONS OF THI S ACT. IT IS QUITE NATURAL ALSO BECAUSE A LIABILITY FOR DEDUCTION OF TAX AT SOURCE PRE - SUPPOSES TAX LIABILITY IN THE HANDS OF THE PAYEE. IF THERE IS NO TAX LIABILITY IN RESPECT OF THE PAYMENTS MADE TO THE PAYEE, THERE CAN BE NO QUESTION OF DEDUCTING ANY IN COME - TAX AT SOURCE FROM SUCH PAYMENT. ONLY IF THE AMOUNT IS CHARGEABLE TO TAX IN THE HANDS OF THE RECIPIENT THAT THE QUESTION OF DEDUCTING ANY TAX AT SOURCE 30 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 THEREFROM ARISES. IN AN EARLIER PARA, WE HAVE SEEN THAT THE EXPORT COMMISSION IS NOT CHARGEABLE TO TAX IN THE HANDS OF NON - RESIDENT IN TERMS OF SECTION 5(2) OF THE ACT. THE NATURAL OUTCOME, WHICH, THEREFORE, EMERGES IS THAT THERE CAN BE NO OBLIGATION OF THE ASSESSEE - PAYER TO DEDUCT TAX AT SOURCE ON SUCH COMMISSION PAYMENT TO THE NON - RESIDENT. 8. NOW, WE TURN TO THE AMENDMENT TO SECTION 195, WHICH HAS BEEN INVOKED BY THE LD. CIT TO FORTIFY HIS VIEW THAT THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE BEFORE MAKING PAYMENT OF COMMISSION TO THE NON - RESIDENT. BEFORE EVALUATING SUCH A SUBMISSION, IT WOULD B E APPOSITE TO CONSIDER THE PRESCRIPTION OF THE EXPLANATION 2, AS UNDER: 'EXPLANATION 2. - FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE OBLIGATION TO COMPLY WITH SUB - SECTION (1) AND TO MAKE DEDUCTION THEREUNDER APPLIES AND SHALL BE DEEMED TO HAVE ALWAYS APPLIED AND EXTENDS AND SHALL BE DEEMED TO HAVE ALWAYS EXTENDED TO ALL PERSONS, RESIDENT OR NON - RESIDENT, WHETHER OR NOT THE NON - RESIDENT PERSON HAS (I) A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA; OR (II) ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER IN INDIA.' 9. A GLANCE AT THE ABOVE EXPLANATION INSERTED BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 1.4.1962 REVEALS THAT THE OBLIGATION TO COMPLY WITH SUB - SECTION (1), FOR MAKING DEDUCTION OF TAX AT SOURCE B Y THE PAYER, APPLIES AND SHALL BE DEEMED TO HAVE ALWAYS APPLIED TO ALL THE PERSONS, RESIDENT OR NON - RESIDENT, WHETHER OR NOT THE NON - RESIDENT PERSON HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA OR ANY OTHER PRESENCE IN ANY MANNER WH ATSOEVER IN INDIA. THE EXPLANATION SIMPLY CLARIFIES THAT THE OBLIGATION TO DEDUCT TAX AT SOURCE IN TERMS OF SECTION 195(1) IS NOT RESTRICTED ONLY TO THE RESIDENTS, BUT ALSO EXTENDS TO THE NON - RESIDENTS IRRESPECTIVE OF SUCH NON - RESIDENT NOT HAVING A PLACE O F BUSINESS OR A BUSINESS CONNECTION IN INDIA ETC. SINCE THE MAIN PART OF SUB - SECTION (1) OF SECTION 195 CASTS OBLIGATION FOR WITHHOLDING OF TAX AT SOURCE ON THE PAYER, THUS, IT BECOMES AXIOMATIC THAT THE EXPLANATION 2 AMPLIFYING THE SCOPE OF SUB - SECTION (1 ) OF SECTION 195 SHALL ALSO APPLY TO A PAYER AND NOT A 31 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 PAYEE. AS THE EXTANT ASSESSEE PAYER IS A RESIDENT OF INDIA, IT IS EVEN OTHERWISE OBLIGED TO DEDUCT TAX AT SOURCE FROM THE PAYMENTS MADE TO NON - RESIDENT IN TERMS OF THE MAIN SUB - SECTION (1), WITHOUT APP LICABILITY OF THE EXPLANATION 2, IF THE REQUISITE CONDITIONS AS PRESCRIBED IN THE SECTION ARE FULFILLED. IN OTHER WORDS, IF A PAYMENT IS MADE ON ACCOUNT OF ANY SUM WHICH IS CHARGEABLE UNDER THE PROVISIONS OF THIS ACT, THEN, THERE WILL BE AN OBLIGATION TO D EDUCT TAX AT SOURCE. PER CONTRA, IF THE AMOUNT IS NOT CHARGEABLE TO TAX IN THE HANDS OF THE PAYEE, THEN, NO LIABILITY TO DEDUCT TAX AT SOURCE CAN BE FASTENED ON THE PAYER. THUS IT IS VIVID THAT THE INSERTION OF THE EXPLANATION 2 HAS NOT BROUGHT ANY CHANGE TO THE FACTUAL POSITION OBTAINING BEFORE US. THE EFFECT OF INSERTION OF EXPLANATION TO SECTION 195(1) IS SIMPLY TO CLARIFY ABOUT LIABILITY OF DEDUCTOR. IT HAS NOT DONE AWAY WITH THE PRE - REQUISITE CONDITION OF SECTION 195(1) WHICH MANDATES THAT AMOUNT SHOUL D BE CHARGEABLE TO TAX IN THE HANDS OF THE PAYEE. IN OUR CONSIDERED OPINION, THE LD. CIT ERRED IN INVOKING EXPLANATION 2 TO SECTION 195(1) FOR TREATING THE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE ON ACCOUNT OF NON - DEDUCTIO N OF TAX AT SOURCE FROM THE COMMISSION PAYMENT TO THE NON - RESIDENT AND THE CONSEQUENTIAL NON - MAKING OF DISALLOWANCE U/ S 40(A)(I) OF THE ACT. 10. THE LD. DR VEHEMENTLY ACCENTUATED ON CIRCULAR NO. 7 OF 2009 TO CONTEND THAT WITH THE WITHDRAWAL OF THE EARLIER B ENEVOLENT CIRCULARS ON THIS ISSUE, THE INSTANT COMMISSION PAYMENT HAS BECOME CHARGEABLE TO TAX IN THE HANDS OF THE PAYEE AND IN THE ABSENCE OF THE ASSESSEE HAVING DEDUCTED TAX AT SOURCE, THE LD. CIT WAS JUSTIFIED IN SETTING ASIDE THE ASSESSMENT ORDER ALLOW ING DEDUCTION FOR SUCH COMMISSION PAYMENT. 11. WE DO NOT FIND ANY FORCE IN THIS ARGUMENT. IT IS RELEVANT TO NOTE THAT CIRCULAR NO 23 DT. 23/07/1969 CLARIFIED THAT NO PART OF THE INCOME OF A FOREIGN AGENT OF INDIAN EXPORTER ARISES IN INDIA AND HENCE SUCH AN AGENT IS NOT LIABLE TO INCOME - TAX IN INDIA ON THE COMMISSION. THEN CIRCULAR NO. 786 DT. 7/02/2000 FURTHER ELABORATED THE CONSEQUENCE OF CIRCULAR NO. 23 BY STATING THAT SINCE SUCH COMMISSION INCOME OF FOREIGN AGENT IS NOT LIABLE TO TAX IN INDIA, NO TAX IS THEREFORE, DEDUCTIBLE AT SOURCE UNDER SECTION 195 AND CONSEQUENTLY THE EXPORT COMMISSION PAYABLE TO A NON - RESIDENT FOR SERVICES RENDERED OUTSIDE INDIA IS NOT DISALLOWABLE U/ S 40(A)(I) OF THE ACT. THEREAFTER, CIRCULAR NO. 7 DATED 22/10/2009 WAS ISSUED 32 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 WITHD RAWING, INTER ALIA, THE ABOVE TWO CIRCULAR NOS. 23 AND 786. THE LEGAL POSITION CONTAINED IN SECTION 5(2), READ WITH SECTION 9, AS DISCUSSED ABOVE ABOUT THE SCOPE OF TOTAL INCOME OF A NON - RESIDENT SUBSISTING BEFORE THE ISSUANCE OF CIRCULAR NOS. 23 AND 786 O R AFTER THE ISSUANCE OF CIRCULAR NO. 786 HAS NOT UNDERGONE ANY CHANGE. IT IS NOT AS IF THE EXPORT COMMISSION INCOME OF A FOREIGN AGENT FOR SOLICITING EXPORT ORDERS IN COUNTRIES OUTSIDE INDIA WAS EARLIER CHARGEABLE TO TAX, WHICH WAS EXEMPTED BY THE CBDT THR OUGH THE ABOVE CIRCULARS AND NOW WITH THE WITHDRAWAL OF SUCH CIRCULARS, THE HITHERTO INCOME NOT CHARGEABLE TO TAX, HAS BECOME TAXABLE. THE LEGAL POSITION REMAINS THE SAME DE HORS ANY CIRCULAR INASMUCH AS SUCH INCOME OF A FOREIGN AGENT IS NOT CHARGEABLE TO TAX IN INDIA BECAUSE IT NEITHER ARISES IN INDIA NOR IS RECEIVED BY HIM IN INDIA NOR ANY DEEMING PROVISION OF RECEIPT OR ACCRUAL IS ATTRACTED. IT IS FURTHER RELEVANT TO NOTE THAT THE LATTER CIRCULAR SIMPLY WITHDRAWS THE EARLIER CIRCULAR, THEREBY THROWING TH E ISSUE ONCE AGAIN OPEN FOR CONSIDERATION AND DOES NOT STATE THAT EITHER THE EXPORT COMMISSION INCOME HAS NOW BECOME CHARGEABLE TO TAX IN THE HANDS OF THE FOREIGN RESIDENTS OR THE PROVISIONS OF SECTION 195, READ WITH SEC. 40(A)(I) ARE ATTRACTED FOR THE FAI LURE OF THE PAYER TO DEDUCT TAX AT SOURCE ON SUCH PAYMENTS. 12. EX CONSEQUENTI, WE HOLD THAT THE AMOUNT OF COMMISSION INCOME FOR RENDERING SERVICES IN PROCURING EXPORT ORDERS OUTSIDE INDIA IS NOT CHARGEABLE TO TAX IN THE HANDS OF THE NON - RESIDENT AGENT AND HENCE NO TAX IS DEDUCTIBLE UNDER SECTION 195 ON SUCH PAYMENT BY THE PAYER. RESULTANTLY, NO DISALLOWANCE IS CALLED FOR U/ S 40(A)(I) OF THE ACT. 13. IT CAN BE SEEN THAT THE LD. CIT RELIED ON TWO DECISIONS OF THE AUTHORITY OF ADVANCE RULING IN SKF BOILERS & DRIERS (P.) LTD. (SUPRA) AND RAJIV MALHOTRA (SUPRA). IT IS CORRECT THAT AT LEAST IN SKF BOILERS (SUPRA), THE AUTHORITY HAS HELD THAT THE PAYMENT OF COMMISSION ON EXPORT ORDERS IS CHARGEABLE TO TAX U/ S 5(2)(B), READ WITH SECTION 9(1)(I) OF THE ACT. BY AN IN DEPENDENT EVALUATION OF THE MATTER IN THE LIGHT OF THE PROVISIONS OF SECTION 5(2), READ WITH SECTION 9 OF THE ACT, WE HAVE HELD ABOVE THAT THE FOREIGN COMMISSION IS NOT CHARGEABLE TO TAX IN THE HANDS OF THE NON - RESIDENT. BE THAT AS IT MAY, IT IS IMPORTANT TO NOTE THAT IT IS NOT A SOLITARY PRECEDENT AVAILABLE ON THE SUBJECT. THE HON'BLE JURISDICTIONAL HIGH COURT IN DIT V . PANALFA AUTO ELEKTRIK LTD. [2004] 33 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 272 CTR (DELHI) 117, HAS HELD THAT THE SERVICES RENDERED BY NON - RESIDENT AGENT FOR PROCURING EXPORT ORDE RS FOR THE ASSESSEE CANNOT BE HELD AS FEES FOR TECHNICAL SERVICES U/ S 9(1)(VII) OF THE ACT. IN THIS CASE, THE ASSESSEE MADE AN APPLICATION U/ S 195(2) FOR AUTHORIZATION TO REMIT CERTAIN AMOUNT AS COMMISSION FOR ARRANGING EXPORT SALES AND REALIZING PAYMENT T O NON - RESIDENT COMPANY. THE AO HELD THAT THE COMMISSION PAYMENT WAS TAXABLE AS FEES FOR TECHNICAL SERVICES U/ S 9(1)(VII) OF THE ACT. THAT IS HOW, WHEN ASSAILED, THE HON'BLE HIGH COURT HELD THAT THE PAYMENT OF COMMISSION CANNOT BE CONSIDERED AS FEES FOR TEC HNICAL SERVICES IN TERMS OF SECTION 9(1)(VII) SO AS TO CALL FOR ANY DEDUCTION OF TAX AT SOURCE. THE HON'BLE MADRAS HIGH COURT IN CIT V . FAIZAN SHOES (P.) LTD. [2014] 367 ITR 155/226 TAXMAN 115/48 TAXMANN.COM 48 , HAS ALSO HELD THAT NO DISALLOWANCE CAN BE MADE U/ S 40A(I) IN RESPECT OF COMMISSION PAID TO NON - RESIDENT AGENT FOR PROVIDING SERVICES OUTSIDE INDIA. 14. AT THIS JUNCTURE, IT IS PERTINENT TO NOTE THAT WE ARE DEALIN G WITH AN APPEAL AGAINST THE ORDER PASSED U/ S 263 OF THE ACT. IT IS SETTLED LEGAL POSITION THAT THERE CAN BE NO REVISION ON A DEBATABLE ISSUE. THE HON'BLE SUPREME COURT HAS HELD SO IN MALABAR INDUSTRIAL CO. LTD. V . CIT [2000] 243 ITR 83/109 TAXMAN 66 . THIS VIEW HAS BEEN REITERATED BY THE HON'BLE APEX COURT IN CIT V . MAX INDIA LTD. [200 7] 295 ITR 282/[2008] 166 TAXMAN 188 . IN THIS CASE, THE HON'BLE SUMMIT COURT HELD THAT WHEN TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTEREST OF THE REVENUE, UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. ADVERTING TO THE FACTS OF THE INSTANT CASE, IT CAN BE SEEN THAT THE AO, AFTER CONSIDERING CERTAIN DECISIONS RELIED BY THE ASSESSEE FAVOURING NON - DEDUCTION OF TAX AT SOURCE IN THE PRESEN T CIRCUMSTANCES, ACCEPTED THE ASSESSEE'S CONTENTION. THE FACT THAT THE DECISION OF THE AUTHORITY FOR ADVANCE RULING, RELIED BY THE LD. CIT, FAVOURS THE REVENUE'S CASE, AT THE MAXIMUM, MAKES THE ISSUE ABOUT DEDUCTION OF TAX AT SOURCE FROM FOREIGN COMMISSION , A DEBATABLE ONE. IN VIEW OF SUCH A CLEAVAGE OF OPINION, THIS DEBATABLE ISSUE GOES OUTSIDE THE PURVIEW OF SECTION 263 IN THE LIGHT OF THE ABOVE REFERRED TWO SUPREME COURT JUDGMENTS. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER. 15. IN THE RESULT, THE APPEA L IS ALLOWED.' 34 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 BASED ON OUR ABOVE DETAILED DISCUSSIONS AND REASONING, WE HOLD THAT KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE INSTANT APPEAL, THE ASSESSEE FIRM IS ENTITLED FOR DEDUCTION OF EXPORT COMMISSION OF RS. 34,18,126/ - PAID TO FOREIGN AGENTS FOR SOURCING OF EXPORT ORDERS IN FAVOUR OF THE ASSESSEE FIRM WITHOUT DEDUCTION OF TAX AT SOURCE U/ S 195 OF THE ACT, AS THESE EXPORT COMMISSION PAYMENTS TO THE FOREIGN BROKERS IN NOT A SUM CHARGEABLE TO TAX IN THE HANDS OF THE FOREIGN BROKERS AS CONTEMPLAT ED U/ S 195 OF THE ACT AND IS NEITHER A FEE FOR TECHNICAL/MANAGERIAL SERVICES AS DEFINED IN EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT TO BRING IT TO TAX UNDER FICTION CREATED BY THE DEEMING PROVISIONS OF SECTION 9 OF THE ACT. WE ORDER ACCORDINGLY. 20. I N THE RESULT, THE REVENUE'S APPEAL IS DISMISS 5. THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE RATIO LAID DOWN BY THE TRIBUNAL IN THE ABOVE MENTIONED CASE AND WE, RESPECTFULLY FOLLOWING THE SAME, UPHOLD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE BY DISMISSING THE GROUND RAISED BY THE REVENUE. RESULTANTLY THE R EVENUES APPEAL IS DISMISSED. ITA NO.4295/MUM/2015 6. ONLY ISSUE RAISED BY THE ASSESSEE IN THIS APPEAL IS AGAINST THE UPHOLDING THE ADDITION OF RS.75,24,729/ - BY THE LD.CIT(A) AS MADE BY THE AO FOR NON - DEDUCTION OF TAX AT SOURCES U/S 40(A)(IA) OF THE ACT. 7 . FACTS IN BRIEF ARE THAT THE ASSESSEE HAS MADE PAYMENT TOWARDS TRANSPORT AND FREIGHT CHARGES FOR SHIPMENT OF MACHINERY ABROAD TO SOME PARTIES NAMELY (A) INTRA EXPRESS LOGISTIC PVT LTD RS.10,64,201/ - (B) JALNATH SHIPPING AGENCY RS.23,49,884/ - , (C ) JAGUAR SHIPPING AND LOGISTICS PVT 35 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 LTD RS.36,56,250/ - AND BUSHSHIP CARRY ALL CARGO. COM RS.4,25,394/ - . ACCORDING TO THE AO THE ASSESSEE WAS LIABLE FOR DEDUCTION OF TAX AT ASOURCE ON T HE SAID PAYMENTS AND ACCORDINGLY ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE TO SHOW CAUSE AS TO WHY THE SAID PAYMENT SHOULD NOT BE DISALLOWED U/S 40(A)9IA) OF THE ACT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE FOR NON DEDUCTION OF TAX AT SOURCE WHICH WAS REPLIED BY THE ASSESSEE THAT T HE SAID PAYMENTS WE RE ON ACCOUNT OF RE - IMBURSEMENT TO THE NON - RESIDENT OF FREIGHT CHARGES , CARRYING AND FORWARDING CHARGES AND THEREFORE NOT LIABLE FO R TDS. THE REPLY OF THE ASSESSEE DID NOT FIND F AVOUR WITH THE AO AND A S A RESULT HE ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) ALSO DISMISSED THE APPEAL OF THE ASSESSEE ON THE GROUND THAT THE NATURE OF PAYMENTS WERE OF REIMBURSEMENT TO THE COMPANIES AND NOT TO THE AG ENTS FOR HANDLING CHARGES IN CONNECTION WITH EXPORT BY THE ASSESSEE THE RELEVANT PORTION OF THE CIT(A) IS REPRODUCED BELOW : 4.4 I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSION OF THE APPELLANT CAREFULLY. IT IS UNDISPUTED FACT THAT APPELLANT IS ENGAGED IN THE EXPORT BUSINESS AND HAND TO DISPATCH MACHINERIES OUTSIDE INDIA. PAYMENT IN QUESTION IS IN TWO PARTS . FIRSTLY, IT RELATES TO OCEAN AND AIR FREIGHT (RS.69,42,641/ - ) AND MINOR PORTION REPRESENT HANDLING CHARGES (RS.5,82,088/ - ). THE SAMPLE I NVOICE COPIES OF SHIPPING BILLS/AIR WAY BILLS ARE SUBMITTED BEFORE ME AND ARE PLACED ON RECORD. THE PAYMENT OF FREIGHT IN THE INSTANT CASE IS MADE TO INDIA COMPANIES AND NOT TO AGENTS OF FOREIGN SHIPPING COMPANIES PROVISIONS OF SECTION 172 APPLY TO FOREIG N SHIPPING COMPANIES OR 36 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 AGENTS OF FOREIGN SHIPPING COMPANIES. IN THE INSTANT CASE, APPELLANT DID NOT SUBMIT ANY COGENT MATERIAL ON RECORD IN SUPPORT OF IS CLAIM THAT PAYMENTS IN QUESTION ARE MADE TO AGENTS OF FOREIGN SHIPPING COMPANIES . 4.5 FACTS IN THE PRESENT CASE ARE SIMILAR TO THE FACTS BEFORE HER HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V./ S ORIENT GOA PVT LTD. THE RELEVANT PARA 11 OF THE SAID ORDER IS REPRODUCED BELOW: 11. WE MAY NOTICE HERE THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE MATTER OF UNION OF INDIA V. GOSALIA SHIPPING (P.) LTD. [1978] 113 ITR 307 . THIS JUDGMENT SEEMS TO BE THE BASIC JUDGMENT WHICH IS BEING REFERRED TO BY THE LEARNED SINGLE BENCH OF THE KARNATAKA HIGH COURT. IN THAT CASE, GOSALIA SHIPPING (P.) LTD., A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE INDIAN COMPANIES ACT, 1956 INDULGED AT THE RELEVANT TIME IN BUSINESS OF CLEARING AND FORWARDING AND AS STEAMSHIP AGENTS. GOSALIA SHIPPING (P.) LTD., HAD ACTED AS THE SHIPPING AGENT OF 'ALUMINIUM COMPANY OF CANADA LIMITED' WHICH WAS A NON - RESIDENT COMPANY. THAT NON - RESIDENT COMPANY HAD CHARTERED A SHIP 'M.V. SPARTO' BELONGING TO A NON - RESIDENT COMPANY CALLED SPARTO COMPANIA NAVIERA OF PANAMA. THE SAID SHIP CALLED AT THE PORT OF BETUL, GOA ON 1 - 3 - 1970. ON 20 - 3 - 1970, THE SHIP HAD LEFT FOR CANADA. THE SHIP WAS ALLOWED TO LEAVE PORT OF BETUL ON THE BASIS OF GUARANTEE BOND, EXECUTED BY THE RESPONDENT IN FAVOUR OF THE PRESIDENT OF INDIA. O N 15 - 4 - 1970, THE FIRST INCOME - TAX OFFICER, MARGAO, GOA ISSUED A DEMAND NOTICE TO THE RESPONDENT GOSALIA SHIPPING (P.) LTD. FOR PAYMENT OF RS. 51,000 AND ODD AMOUNT, BY WAY OF INCOME - TAX. WE HAVE NOTICED ALL THESE FACTS ONLY TO SAY THAT IN THE CASE ON HAND, THERE ARE NO PLEADINGS OR MATERIAL BROUGHT ON RECORD TO SHOW THAT THE CASE IS GOVERNED BY OCCASIONAL SHIPPING WITHIN THE MEANING OF SECTION 172 OF THE ACT, 1961 AND SAID SECTION APPLIES. (EMPHASIS SUPPLIED). 4.6 FURTHER IN PARA 8 OF THE SAID ORDER HONBL E HIGH COURT OBSERVED AS UNDER : ON OUR QUERY TO THE LEARNED SENIOR ADVOCATE SHRI USGAONKAR AS TO MATERIAL ON RECORD FOR OCCASIONAL SHIPPING, PART OF PARA 3 37 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 FROM THE JUDGMENT OF THE LEARNED COMMISSIONER OF INCOME - TAX HAS BEEN POINTED OUT TO US. HIS OBSER VATIONS ARE IN VERY FEW LINES. WE MAY REPRODUCE THE SAID PORTION HEREIN BELOW. ' 3. WE HAVE HEARD THE RIVAL SUBMISSIONS IN THE LIGHT OF MATERIAL PLACED BEFORE US. ASSESSEE CLAIMED DEDUCTION OF RS. 1,08,53,980 BEING THE AMOUNT OF DEMURRAGE PAYABLE TO MITSUI CO. LTD., JAPAN. THE ASSESSING OFFICER OPINED THAT SINCE THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE, AS SUCH THE CASE OF THE ASSESSEE FALLS WITHIN THE MISCHIEF OF SECTION 40(A)( I) OF THE INCOME - TAX ACT, 1961'. PROVISIONS OF SECTION 172 ARE TO APPLY NOTWIT HSTANDING ANYTHING CONTAINED IN THE OTHER PROVISIONS OF THE ACT. THEREFORE, IN SUCH CASES, THE PROVISIONS OF SECTIONS 194C AND 195 RELATING TO TAX DEDUCTION AT SOURCE, ARE NOT APPLICABLE. THE RECOVERY OF TAX IS TO BE REGULATED FOR VOYAGE UNDERTAKEN FROM AN Y PORT IN INDIA BY A SHIP, UNDER THE PROVISIONS OF SECTION 172. IN THIS VIEW, THESE OBSERVATIONS OF THE LEARNED VICE PRESIDENT OF INCOME - TAX APPELLATE TRIBUNAL HAVE NO CONCERN WITH THE FACTUAL ASPECT THAT IT IS A CASE OF OCCASIONAL SHIPPING, PLEADED OR RAI SED BY ASSESSEE. THERE IS NO DISPUTE ABOUT INTERPRETATION OF SECTION 172 OR SECTION 195. CRUCIAL POINT IS AS TO HOW SECTION 172 APPLIES TO THE FACTS OF THE PRESENT CASE WHEREIN THE RESPONDENT - ASSESSEE IS AN INDIAN COMPANY, INCORPORATED UNDER THE PROVISIONS OF INDIAN COMPANIES ACT, 1956. IN OUR VIEW, THE LEARNED VICE PRESIDENT OF THE ITAT HAS RECORDED A PERVERSE OBSERVATION/FINDING IN PARA 3 REGARDING APPLICATION OF SECTIONS 44B AND 172 OF THE 1961 ACT. (EMPHASIS SUPPLIED) 4.7 THUS, AS IN CASE OF ORIENT GOA, IN THE PRESENT APPEAL TOO APPELLANT DID NOT BRING ON RECORD ANY MATERIAL PROVING THAT PAYMENTS IN QUESTION ARE INDEED MADE EITHER TO NON - RESIDENT SHIPPING COMPANIES OR THEIR AGENTS IN INDIA. THEREFORE, I HOLD THAT AO WAS JUSTIFIED IN DISALLOWING TH E PAYMENTS OF RS.75,24,729/ - U/S 40(A)(IA) OF THE ACT. THIS GROUND OF APPEAL IS DISMISSED. 8 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF AUTHORITIES BELOW AND 38 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 CASE LAW RELIED UP ON BY THE ASSESSEE. THE UNDISPUTED FACTS OF THE ISSUE ARE THAT THE ASSESSEE HAS PAID CARRY FORWAR D AND HANDLING CHARGES OF RS.75,24,729/ - TO THE AGENTS WHO HAVE INCURRED TH E EXPENDITURE ON BEHALF OF T HE ASSESSEE AS PER THE DETAILS MENTIONED HEREINABOVE . WE OBSERVE THAT THE ASSESSEE HAS FILE D NECESSARY DETAILS OF RE - IMBURSEMENT OF PAYMENT TO AGENTS IN CONNECTION WITH BUSINESS AND EXPORT OF THE MATERIAL. IT IS SETTLED LEGAL POSITION THAT THE RE - IMBURSEMENT OF EXPENSES BY THE PRINCIPLE TO THE AGENTS IS NOT SUBJECT TO TAX DEDUCTION AT SOURCE AND THEREFORE, WE ARE NOT IN AGREEMENT WITH THE CONCLUSION DRAWN BY T HE LD. CIT(A) ON THIS ISSUE AS THE ISSUE HAS BEEN SETTLED BY A SERI ES OF DECISION S NAMELY IN THE CASE OF PCIT V/S CONSSUME R MARKETING (INDIA) (P) LT D REPORTED IN (2015) 64 TAXMANN.COM 16 (GUJ) (II) ACIT V/S MINPRO IND ((2012) 143 TTJ 0331 AND (III) MADHU MEHTA V/ DCIT (2016) 143 DTR 0155(MUM). 9 . WE ARE , THEREFORE RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE ABOVE SAID DECISIONS , INCLINED TO SE T ASIDE THE ORDER OF LD. CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION MADE BY THE AO. RESULTANTLY, THE APPEAL OF THE ASSESSEE STANDS ALL OWED. 39 ITA NO. 4295//MUM/2015 ITA NO.3825/2015 10 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED AND THAT OF ASSESSEE IS ALLOWED. ORDER PRONO UNCED IN THE OPEN COURT ON 25TH OCT , 2017. SD SD ( / MAHAVIR SINGH ) ( / RAJESH KUMAR) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 25TH OCT .2017 SRL,SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, TR UE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI
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