M/s. Rajinder Kumar Aggarwal (HUF), New Delhi V. DCIT, New Delhi

ITA 2996/DEL/2016

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3382 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Appeal Filed On: 26-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Double taxation relief; Principle of natural justice; Services rendered outside India; Deemed to accrue or arise in india; Retrospective amendment; Permanent establishment; TDS; Set aside
• Section: 143(3); 5(2); 205; 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: E NEW DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER [THROUGH VIDEO CONFERENCING] ITA NO.2996/DEL/2016 ASSESSMENT YEAR: 2012-13 RAJINDER KUMAR AGGARWAL (HUF), 40, PRITHVI RAJ MARKET, NEW DELHI VS. DCIT, CIRCLE-31(1), NEW DELHI PAN :AAAEHR4026B (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORD ER DATED 21/04/2016 PASSED BY THE LEARNED COMMISSIONER OF IN COME-TAX (APPEALS)-18, NEW DELHI [IN SHORT THE LEARNED CIT( A)] FOR ASSESSMENT YEAR 2012-13, RAISING FOLLOWING GROUNDS: 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) (LD. CIT (A)) HAS ERRED ON FACTS AND IN LAW IN SUSTAINING THE DIS ALLOWANCE OF RS. 1,16,99,172/- BEING THE AMOUNT OF COMMISSION PA ID TO NON- RESIDENT FOREIGN PAYEE, M/S ACE TRADING COMPANY, FR ANCE, FOR APPELLANT BY SH. ANIL CHOPRA, ADV. SH. KSHITIJ KHANNA, CA SH. PRAVEEN KUMAR, CA RESPONDENT BY SH. GAURAV PUNDIR, SR.DR DATE OF HEARING 05.10.2021 DATE OF PRONOUNCEMENT 14.10.2021 2 ITA NO.2996/DEL/2016 PROCURING EXPORT ORDERS IN FRANCE, WHICH WAS DISALL OWED BY THE LD. AO FOR NON DEDUCTION OF TDS THEREON. 2. THAT THE ORDER OF LD. CIT(A) DISALLOWING THE SA ID COMMISSION OF RS. 1,16,99,172/- IS \ WITHOUT ANY PROPER BASIS AND IS BASED ON ERRONEOUS VIEWS AND NON-APPRECIATION OF THE FACTS A ND LAW INVOLVED, WITHOUT PROPERLY CONSIDERING THE MATERIAL ON RECORD AND WITHOUT AFFORDING APPROPRIATE SPECIFIC LAWFUL OPPOR TUNITY. MOREOVER, THEY ARE BASED ON SUSPICION, CONJECTURES AND SURMISES WITHOUT ANY CONTRARY EVIDENCE. AS SUCH THE DISALLOW ANCE OF COMMISSION MADE BY LD. AO AND BY LD CIT (A) IS UNWA RRANTED AND NOT CAPABLE OF BEING SUSTAINED. 3. THAT THE DISALLOWANCE OF THE SAID COMMISSION BY THE LD. AO AND BY LD. CIT (A) IS AGAINST THE CONSISTENCY PRINCIPLE . SIMILARLY DISALLOWANCE ON SIMILAR FACTS MADE IN AY 2010- 11 W AS DELETED BY LD. CIT (A). MOREOVER, THE SAID DISALLOWANCE IS CONTRARY TO BINDING JUDGMENTS OF THE HONBLE DELHI HIGH COURT I N CIT VS. GRUP ISM (P) LTD., [2015] 57 TAXMANN.COM 450 (DELHI) AND DIT (INTERNATIONAL TAXATION-LL) VS. PANALFA AUTOELEKTRI K LTD., [2014] 49 TAXMANN.COM 412 (DELHI). 4. THAT THE DISALLOWANCE OF COMMISSION AS MADE BY L D. CIT (A) FOR IMPUGNED INSUFFICIENT EVIDENCE OF AGREEMENT FOR THE PURPOSE OF ASCERTAINING NATURE OF SERVICES RENDERED BY PAYEE I S COMPLETELY ERRONEOUS AND WITHOUT ANY SPECIFIC OPPORTUNITY IN T HIS MATTER TO THE APPELLANT OR WITHOUT ANY EVIDENCE TO THE CONTRA RY AND FOR NEW REASONS THAN THE REASONS ADOPTED BY THE LD. AO. THE DISALLOWANCE AS MADE IS UNWARRANTED AND AGAINST THE PRINCIPLES OF EQUITY, NATURAL JUSTICE AND PROVISIONS OF THE AC T. THE DISALLOWANCE IS LIABLE TO BE DELETED IN TOTO. 5. THAT THE LD. CIT(A) HAS ERRED IN RELYING ON AND DISCUSSING MUCH INAPPLICABLE CASE LAW REGARDING COMMISSION WHICH HA S BEEN DISALLOWED PARTICULARLY CONSIDERING THAT THE ISSUE IS DIRECTLY COVERED BY GOVERNING HIGH COURT DECISIONS IN ASSESS EES FAVOUR. 6. THAT THE SAID COMMISSION PAID TO NON-RESIDENT, W HO IS A TAX RESIDENT OF FRANCE, IS BUSINESS INCOME AND NOT FEES FOR TECHNICAL SERVICES (FTS). AS SUCH, IT IS NEITHER LIABLE FOR T AX IN INDIA UNDER SECTION 9 OF THE ACT NOR UNDER ARTICLE 7 OF DTAA WI TH FRANCE. THERE BEING NO LIABILITY FOR TDS UNDER SECTION 195, SECTION 40(A)(I) IS NOT APPLICABLE IN THIS CASE AS ALSO HELD BY LD. CIT(A) ON SIMILAR FACTS IN ASSESSEES FAVOUR PRIOR YEAR. 7. THAT THE GROUNDS OF APPEAL AS HEREIN ARE WITHOUT PREJUDICE TO EACH OTHER. 3 ITA NO.2996/DEL/2016 8. THAT THE ASSESSMENT AS MADE AND THE ORDER OF THE LD. CIT(A) ARE AGAINST LAW AND FACTS OF THE CASE INVOLVED. 9. THAT THE APPELLANT RESPECTFULLY CRAVES LEAVE TO ADD, GROUND(S) AT OR BEFORE THE TIME OF HEARING. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSE SSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF LEATHER FOOTWEAR IN THE NAME OF PROPRIETARY CONCERN REGENC Y IMPEX. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE FILED RE TURN OF INCOME ON 27/09/2012, DECLARING TOTAL INCOME OF 50,52,980/-. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND STATUTORY NOTICES UNDER THE INCOME-T AX ACT, 1961 (IN SHORT THE ACT) WERE ISSUED AND COMPLIED WITH. THE ASSESSING OFFICER COMPLETED THE SCRUTINY ASSESSMENT UNDER SEC TION 143(3) OF THE ACT AFTER MAKING CERTAIN ADDITIONS/DISALLOWANCE S TO THE RETURNED INCOME. ON FURTHER APPEAL, THE LEARNED CIT (A) ALLOWED PART RELIEF TO THE ASSESSEE AND SUSTAINED DISALLOWA NCE OF COMMISSION EXPENSES. AGGRIEVED, THE ASSESSEE IS BEF ORE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOVE. 3. BEFORE US, THE PARTIES APPEARED THROUGH VIDEOCONFE RENCING FACILITY. THE ASSESSEE FILED A PAPER-BOOK CONTAININ G PAGES 1 TO 83. ALL THE GROUNDS RAISED IN THE APPEAL ARE RELATED TO SINGLE ISSUE OF DISALLOWANCE OF EXPORT COMMISSION EXPENSES. 3.1 THE BRIEF FACTS QUA THE ISSUE IN DISPUTE ARE THAT THE M/S ACE TRADING COMPANY, FRANCE (IN SHORT ACE) WAS APPOI NTED BY THE ASSESSEE IN EARLIER YEARS FOR ASSISTANCE IN PROCURI NG EXPORT ORDERS FOR THE ASSESSEE IN FRANCE. IN THE YEAR UNDER CONS IDERATION ALSO, THE ASSESSEE APPOINTED M/S ACE AS ITS AGENT FOR P ROCURING EXPORT ORDERS IN FRANCE. THE ASSESSEE DEBITED A SUM OF 1,16,99,172/- 4 ITA NO.2996/DEL/2016 AS COMMISSION PAID ON EXPORT SALES. NO TAX WAS DEDU CTED AT SOURCE BY THE ASSESSEE ON SAID PAYMENT. ACCORDING T O ASSESSING OFFICER, THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE ON THE SAID PAYMENT IN ACCORDANCE WITH PROVISION OF SECTIO N 195 OF THE ACT AND DUE TO FAILURE ON THE PART OF THE ASSESSEE, HE ASKED AS WHY PROVISION OF SECTION 40(A)(I) MIGHT NOT BE INVO KED, AND THE PAYMENT TO ACE MIGHT NOT BE DISALLOWED. IT WAS SU BMITTED BY THE ASSESSEE, THAT COMMISSION WAS PAID TO FOREIGN PAYEE , WHO IS A TAX RESIDENT OF FRANCE AND NO TDS WAS ATTRACTED UNDER S ECTION 195 OF THE ACT, AS COMMISSION PAID TO THE FOREIGN PAYEE IS BUSINESS INCOME AS PER ARTICLE 7 OF THE DTAA WITH FRANCE. SI NCE THE FOREIGN PAYEE HAD NO PERMANENT ESTABLISHMENT IN INDIA, THER EFORE, NO INCOME IS CHARGEABLE TO TAX IN INDIA. ACCORDINGLY, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE UNDER SECT ION 195 OF THE ACT. THE ASSESSEE RELIED ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS TOSHOKU LTD., 125 ITR 525 (SC) WHERE ON IDENTICAL FACTS IT HAS BEEN HELD THAT AMOU NT OF COMMISSION EARNED BY NON-RESIDENT FOREIGN PAYEE FOR RENDERING SERVICES OUTSIDE INDIA COULD NOT BE DEEMED TO BE IN COME ARISING IN INDIA. THE ASSESSING OFFICER REJECTED THE CONTEN TION OF THE ASSESSEE AND HELD THAT AS PER THE PROVISIONS OF EXP LANATION TO SECTION 9 FOR THE PURPOSE OF CLAUSE (VII) (I.E. FEE FOR TECHNICAL SERVICES), THE SCOPE OF THE INCOME INCLUDES SERVICE S RENDERED OUTSIDE INDIA ALSO, IF THE SAME HAVE BEEN UTILIZED IN INDIA INSOFAR AS SOURCE OF PAYMENT TOWARDS EXPENDITURE IS IN INDI A. THE RELEVANT PARA OF THE LEARNED ASSESSING OFFICER IS R EPRODUCED AS UNDER: 5 ITA NO.2996/DEL/2016 4.4 THE PROVISIONS OF SECTION 9(L)(VII) HAVE UNDER GONE CHANGE THROUGH LAST EXPLANATION INSERTED BY THE FINANCE AC T 2010 WITH RETROSPECTIVE EFFECT FROM 01.06.1976. AS PER THE EX PLANATION INSERTED BY THE FINANCE ACT 2010 THE SERVICES RENDERED BY TH E NON- RESIDENT (FEE FOR TECHNICAL NATURE), THOUGH HAVING NO RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA O R RENDERED OUTSIDE INDIA SHALL BE DEEMED TO ACCRUE/ARISE IN IN DIA. RECENT JUDGMENT OF HON'BLE ITAT MUMBAI BENCH IN THE CASE O F LINKLATERS LLP VS. INCOME TAX OFFICER INTERNATIONAL TAXATION W ARD 1(L}{2), MUMBAI, ITA NO. 5085/MUM/03 HAS CLARIFIED THE POSIT ION OF THE PROVISIONS OF SECTION 9(1)(VII) AS ON DATE. THE REL EVANT PARA OF THE JUDGMENT ARE AS UNDER- - TAXABILITY UNDER THE DOMESTIC LAW ONE OF THE ARGUMENTS WHICH IS RAISED BY THE LEARNED COUNSEL FOR THE ASSESSES, IN SUPPORT OF THE CONCLUSIONS ARRIVED AT BY THE CIT(A} TO THE EFFECT THAT INCOME FROM ONLY SUCH SERVICES CAN BE BROUGHT TO TAX IN INDIA AS ARE RENDERED THROUGH THE INDIAN PERMANE NT ESTABLISHMENT IS THAT EVEN UNDER THE DOMESTIC TAW, ONLY INCOME RELATABLE TO THE SERVICES RENDERED IN INDIA CAN BE TAXED IN INDIA. LEARNED COUNSEL DID NOT DISPUTE THAT SO FAR AS INCO ME FROM THE WORK CARRIED OUT BY THE ASSESSEE IN INDIA IS CONCERNED, THE SAME IS TAXABLE IN INDIA UNDER THE DOMESTIC TAW, THOUGH HE HASTENED TO ADD THAT THIS ASPECT OF THE MATTER IS WHOLLY ACADEMIC S INCE UNDER THE APPLICABLE TAX TREATY, THE INCOME FROM EVEN WORK DO NE BY THE ASSESSES IN INDIA CANNOT BE BROUGHT TO TAX IN INDIA . ON THE QUESTION OF TAXABILITY UNDER THE DOMESTIC LA W, LEARNED COUNSEL'S BASIC CONTENTION IS THAT EVEN UNDER THE D OMESTIC LAW, THE INCOME OF THE ASSESSES FIRM IS TAXABLE ONLY TO THE EXTENT THE WORK HAS BEEN CARRIED OUT IN INDIA. IT IS THUS UNAMBIGUOUS THAT THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT RESTS ON THE LEGAL PREMISES THAT, UNDER SECTI ON 9(1)(VII), 'SERVICES, WHICH ARE SOURCE OF INCOME SOUGHT TO BE TAXED IN INDIA, MUST BE (I) UTILIZED IN INDIA; AND (II) RENDERED IN INDIA' AND THE CONCEPTUAL PREMISES THAT 'TERRITORIAL NEXUS FOR THE PURPOSE OF DETERMINING THE TAX LIABILITY IS AN INTERNATIONALLY ACCEPTED PRINCIPLE'. THESE LEGAL PREMISES, HOWEVER, DO NO LONGER HOLD GO OD IN VIEW OF RETROSPECTIVE AMENDMENT W.E.F 1ST JUNE 1976 IN SECT ION 9 BROUGHT OUT BY THE FINANCE ACT, 2010. UNDER THE AMENDED EXP LANATION TO SECTION 9(1), AS IT EXISTS ON THE STATUTE NOW, IT I S SPECIFICALLY STATED THAT THE INCOME THE NON-RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CLAUSE (V) OR CAUSE (VI) OR CLAUSE ( VII) OF SECTION 9(1), AND SHALL BE INCLUDED IN HIS TOTAL INCOME, WHETHER OR NOT (A) THE NON- RESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BU SINESS CONNECTION 6 ITA NO.2996/DEL/2016 IN INDIA; OR (B) THE NON-RESIDENT HAS RENDERED SERV ICES IN INDIA. IT IS THUS NO LONGER NECESSARY THAT IN ORDER TO ATTRACT T AXABILITY IN INDIA, THE SERVICES MUST ALSO BE RENDERED IN INDIA. AS THE LAW STANDS NOW, UTILIZATION OF THESE SERVICES IN INDIA IS ENOUGH TO ATTRACT ITS TAXABILITY IN INDIA. TO CHAT EFFECT, RECENT AMENDMENT IN THE S TATUTE HAS VIRTUALLY NEGATED THE JUDICIAL PRECEDENTS SUPPORTIN G THE PROPOSITION THAT RENDITION OF SERVICES IN INDIA IS A SINE-QUA N ON FOR ITS TAXABILITY IN INDIA. THE PARADIGM SHIFT IN THE LEGAL PROVISIONS, OR PERH APS A MERE CONCEPTUAL CLARITY - AS COULD PERHAPS BE A POSSIBLE POINT OF VIEW, IS TOO GLARING TO BE MISSED. IN THIS VIEW OF THE, MATT ER, IT CANNOT REALLY BE SAID THAT THE CHANGE IN LAW BROUGHT ABOUT BY AME NDMENT IN EXPLANATION TO SECTION 9(1)(I) DOES NOT AFFECT THE AFORESAID DECISION. IN VIEW OF THE ABOVE DISCUSSIONS, WE ARE OF THE CON SIDERED VIEW THAT THE ENTIRE FEES FOR PROFESSIONAL SERVICES EARNED BY THE ASSESSES, IN CONNECTION WITH THE PROJECTS IN INDIA AND WHICH IS THUS SOURCED FROM INDIA, IS TAXABLE IN INDIAN UNDER THE DOMESTIC LAW. WE REJECT THE CONTENTIONS ADVANCED BY THE LEARNED COUNSEL. HAVING HELD SO, HOWEVER, WE MAY ADD THAT UNDER THE SCHEME OF THE INDIAN INCOME TAX ACT, WHERE THE GOVERNMENT OF INDI A HAS ENTERED INTO AN AGREEMENT, WITH THE GOVERNMENT OF ANY COUNT RY OUTSIDE INDIA FOR GRANTING OF RELIEF, OR AS THE CASE MAY BE , FOR AVOIDANCE OF DOUBLE TAXATION, THEN, IN RELATION TO THE ASSESSES ON WHOM SUCH AGREEMENT APPLIES, THE PROVISIONS OF THIS ACT SHALL APPLY ONLY TO THE EXTENT THEY ARE MORE BENEFICIAL TO THAT ASSESSES. T HE PROVISIONS OF TAX TREATIES THUS OVERRIDE THE PROVISIONS OF THE IN COME TAX ACT, EXCEPT TO EXTENT PROVISIONS OF THE INCOME TAX ACT A RE BENEFICIAL TO THE ASSESSES. THE TAXABILITY UNDER DEMESNE LAW IS THUS TO BE EXAMINED IN CONJUNCTION WITH THE PROVISIONS OF THE CABS TAX TREATY. THE NEXT QUESTION THAT WE NEED TO EXAMINE, THEREFORE, IS WHE THER THE STATUS OF TAXABILITY OF THIS INCOME UNDER THE PROVISIONS OF T HE INDIA UK TAX TREATY. 4.5 IN THE CASE OF ASHAPURA MINICHEM LTD., IT HAS B EEN HELD BY THE ITAT, MUMBAI THAT THE SERVICES RENDERED OUTSIDE IND IA AND UTILIZED BY AN INDIAN ASSESSEE WILL CHARGEABLE TO TAX IN IND IA. IN VIEW OF THE FOREGOING DISCUSSION IT IS CLEAR THA T THE CASE OF THE ASSESSEE IS SQUARELY COVERED UNDER THE PROVISION OF SECTION 9 OF THE INCOME-TAX ACT, 1961. 3.2 IN VIEW OF THE ABOVE, THE ASSESSING OFFICER HELD T HE ASSESSEE IN DEFAULT FOR NON-DEDUCTING TAX AT SOURCE ON THE E XPORT 7 ITA NO.2996/DEL/2016 COMMISSION AND CONSEQUENTLY, IN DEFAULT UNDER SECTI ON 40(A)(I) OF THE ACT AND HELD THE ASSESSEE LIABLE FOR DISALLOWAN CE OF SUCH EXPORT COMMISSION OF 1,16,99,172/-PAID BY THE ASSESSEE TO M/S ACE, FRANCE. THE LD. CIT(A) ALSO UPHELD THE FINDING OF THE ASSESSING OFFICER. AGGRIEVED, THE ASSESSEE IS BEFOR E THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOVE. 3.3 BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE REL IED ON THE ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE F OR ASSESSMENT YEAR 2010-11 AND SUBMITTED THAT COMMISSION PAID TO SAME PARTY ON EXPORT SALES HAS BEEN HELD TO BE INCOME NOT CHAR GEABLE TO TAX IN THE HANDS OF SAID AGENT IN INDIA AND, THEREFORE, THERE WAS NO REQUIREMENT OF DEDUCTING TDS AT SOURCE. HENCE, THE DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT DELETED BY THE LE ARNED CIT(A) WAS UPHELD BY THE TRIBUNAL IN AY 2010-11. ACCORDING TO THE ASSESSEE, THERE IS NO CHANGE IN FACTS AND CIRCUMSTANCES AS WE RE IN ASSESSMENT YEAR 2010-11 AND THEREFORE CASE OF THE A SSESSEE IS FULLY COVERED BY THE DECISION OF THE TRIBUNAL (SUPR A). ON THE CONTRARY, THE LEARNED DR SUBMITTED THAT SEPARATE AG REEMENT HAS BEEN MADE FOR THE YEAR UNDER CONSIDERATION AND IN V IEW OF THE EXPLANATION INSERTED BY WAY OF FINANCE ACT, 2010, I F THE SERVICES ARE UTILIZED IN INDIA THEN IRRESPECTIVE OF SERVICES RENDERED OUTSIDE INDIA, THE INCOME IS CHARGEABLE IN INDIA UNDER DOME STIC LAW. 3.4 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON T HE ISSUE IN DISPUTE AND PERUSED THE RELEVANT MATERIAL ON REC ORD. WE FIND THAT THE NON-RESIDENT M/S ACE WAS ENGAGED FOR PRO CURING EXPORT ORDER FOR THE ASSESSEE IN TERRITORY OF FRANCE AND C OMMISSION HAS BEEN PAID ON THE EXPORT SALES, WHICH WERE PROCURED THROUGH SAID AGENT. THE ASSESSEE HAS MADE AGREEMENT WITH SAID AG ENT EVERY 8 ITA NO.2996/DEL/2016 YEAR, THOUGH SCOPE OF THE SERVICES REMAINED SAME. T HE LEARNED DR COULD NOT BRING BEFORE US ANY EVIDENCE AS REGARD TO CHANGE OF SCOPE OF SERVICES RENDERED BY THE SAID AGENT IN THE YEAR UNDER CONSIDERATION AS COMPARED TO EARLIER YEAR. THE ASSE SSEE HAS ENCLOSED AGREEMENT WITH SAID AGENT ON PAGES 82 AND 83 OF THE PAPER-BOOK. ACCORDING TO THOSE AGREEMENTS, THE RATE OF THE COMMISSION WAS 9% FOR THE PERIOD FROM 01/04/2011 TO 30/09/2011 AND 10% FOR THE PERIOD FROM 01/10/2011 T O 31/03/2012. IN THE ASSESSMENT YEAR 2010-11, THE SAI D RATE OF THE COMMISSION WAS 8% AS NOTED BY THE TRIBUNAL IN ITA NO. 4142/DEL/2015. IN THE ASSESSMENT YEAR 2010-11, THE TRIBUNAL (SUPRA) HAS DISMISSED THE APPEAL OF THE REVENUE CH ALLENGING DELETION OF DISALLOWANCE IN TERMS OF SECTION 40(A)( I) OBSERVING AS UNDER: 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE ISSUES INVOLVED IN THIS AP PEAL RELATES TO APPLICABILITY OF TDS U/S 195 ON PAYMENTS ABROAD OF EXPORT COMMISSION TO NON-RESIDENT THE FOREIGN AGENT FOR TH E PROCUREMENT OF EXPORT ORDERS FOR THE ASSESSEE AND CONSEQUENTLY DIS ALLOWANCE U/S 40(A)(I) OF THE INCOME TAX ACT, 1961. AS POINTED OU T BY THE LD. AR THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE IN CASE OF DIT VS. PANALFA AUTOELEKTRIK LTD. 378 ITR 205 WHEREIN IT IS HELD TH AT COMMISSION PAID BY THE ASSESSEE TO ITS FOREIGN AGENT FOR ARRAN GING OF EXPORT SALES AND RECOVERY OF PAYMENTS COULD NOT BE REGARDE D AS FEE FOR TECHNICAL SERVICES U/S 9(1)(VII). IN THE PRESENT CA SE, THE COMMISSION WAS PAID TO ACE TRADING, A NON-RESIDENT AGENT (PAYE E) WHO IS A TAX RESIDENT OF FRANCE. THE PAYEE WAS SIMPLY ASSISTING PROCURING EXPORT ORDERS FOR THE ASSESSEE IN HIS ORDINARY COURSE OF B USINESS IN FRANCE. THE COMMISSION WAS PAID FOR ACTIVITIES OF THE PAYEE OUTSIDE INDIA AND THE AMOUNT IS RECEIVED BY THE PAYEE OUTSIDE IND IA THROUGH NORMAL BANKING CHANNELS. SECTION 5(2) STATES THAT T OTAL INCOME OF A PERSON, WHO IS A NONRESIDENT, INCLUDES INCOME FROM ALL SOURCES WHICH (A) IS RECEIVED OR DEEMED TO BE RECEIVED IN I NDIA; (B) ACCRUES OR ARISES IN INDIA; OR (C) IS DEEMED TO ACCRUE OR ARIS E IN INDIA. IN THE PRESENT CASE, THE COMMISSION INCOME PAID TO THE FOR EIGN AGENT NEITHER ACCRUED IN INDIA NOR DEEMED TO BE ACCRUED I N INDIA AS PER DEEMING PROVISIONS OF SECTION 9 AND NOR THE SAME WA S RECEIVED NOR DEEMED TO BE RECEIVED IN INDIA. THUS, THERE IS NO N EED TO INTERFERE 9 ITA NO.2996/DEL/2016 WITH THE FINDINGS OF THE CIT(A). THE APPEAL OF THE REVENUE IS DISMISSED. 3.5 FURTHER, THE NON-RESIDENT CAN INVOKE DTAA BETWEEN INDIA AND FRANCE, IF PROVISIONS OF THE SAME ARE MORE BENE FICIAL TO THE NON-RESIDENT. WE FIND THAT HONBLE DELHI HIGH COURT IN THE CASE OF STERIA INDIA LTD V. DCIT, 255 TAXMAN 110 (DELHI) (H C) HELD THAT MOST FAVOURED NATION (MFN) CLAUSE OF THE PROTOCOL WILL FORM AN INTEGRAL PART OF INDIA FRANCE DTAA AND IT WILL BE A UTOMATICALLY APPLICABLE WITHOUT ANY FURTHER NOTIFICATION. IN VIE W OF MOST FAVOURED NATION (MFN) CLAUSE, THE BENEFICIAL PROVIS ION OF CONVENTION BETWEEN INDIA AND OTHER OECD COUNTRY, I. E, UK AUTOMATICALLY EXTENDS TO INDIA-FRANCE DTAA. IN INDI A UK DTAA FEE FOR TECHNICAL SERVICES (FTS) EXCLUDE THE TERM MANAGERIAL SERVICES AND PROVIDES FOR MAKE AVAILABLE CLAUSE. WHILE ANALYZING THE FEE FOR TECHNICAL SERVICES (FTS) DEFINITION AS PER INDIA FRANCE DTAA , IN VIEW OF THE MFN CLAUSE, THE ENTIRE DEFINI TION OF THE FTS CAN BE IMPORTED FROM INDIA UK DTAA. 3.6 IF WE APPLY THE RATIO OF THE DECISION OF THE HONB LE DELHI HIGH COURT IN THE CASE OF STERIA (INDIA) LTD (SUPRA) TO THE FACTS OF CASE IN HAND, WE FIND THAT FOR BRINGING THE SERVICES UND ER THE NET OF FEE FOR TECHNICAL SERVICES (FTS) UNDER THE INDIA FR ANCE DTAA, THE MAKE AVAILABLE CLAUSE HAS TO BE SATISFIED. BUT IN THE SERVICES RENDERED BY THE NON-RESIDENT OF PROCURING EXPORT OR DER FOR THE ASSESSEE, NO KNOWLEDGE HAS BEEN PROVIDED TO THE ASS ESSEE WHICH COULD BE EXPLOITED FURTHER BY THE ASSESSEE. IN SUCH CIRCUMSTANCES, THE SERVICES RENDERED BY THE NON-RES IDENT CANNOT BE HELD AS FTS UNDER THE INDIA-FRANCE DTAA. ACCOR DINGLY, SUCH 10 ITA NO.2996/DEL/2016 SERVICES WILL NOT BE CHARGEABLE IN INDIA IN THE HAN DS OF NON- RESIDENT UNDER DTAA AND, THEREFORE, NO LIABILITY TO DEDUCT TAX AT SOURCE WILL ARISE. CONSEQUENTLY, PAYMENT TO SAID NO N-RESIDENT IS NOT LIABLE TO DISALLOWANCE UNDER SECTION 40(A)(I) O F THE ACT. 3.7 IN VIEW OF ABOVE DISCUSSION, AND RESPECTFULLY FOLL OWING THE FINDING OF THE TRIBUNAL (SUPRA), WE SET ASIDE THE O RDER OF THE LEARNED CIT(A) AND ASSESSING OFFICER ON THE ISSUE I N DISPUTE AND DELETE DISALLOWANCE. THE GROUNDS OF THE APPEAL OF T HE ASSESSEE ARE ACCORDINGLY ALLOWED. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH OCTOBER, 2021 SD/- SD/- (KUL BHARAT) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 14 TH OCTOBER, 2021. RK/- (DTDC) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI