ACIT, CHENNAI V. Farida Prime Tannery Private Ltd., CHENNAI

ITA 360/CHNY/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2403 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 27-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Assessee Lawyers: S RIFAUR RAHMAN
• Keywords: Services rendered outside India; Permanent establishment
• Section: 143(3)

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CHENNAI. BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL MEMBER ITA NO. 359/MDS/2013 ASSESSMENT YEAR : 2008-09 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(1), CHENNAI 600 034. VS. M/S. FARIDA SHOES PRIVATE LTD., 151/4, MOUNT POONAMALLEE, RAMAPURAM, CHENNAI - 89. [PAN : AAACF0496Q] (APPELLANT) (RESPONDENT) ITA NO. 360/MDS/ 2013 ASSESSMENT YEAR : 2008-09 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(1), CHENNAI. VS. M/S. FARIDA PRIME TANNERY PRIVATE LTD., 151/4, MOUNT POONAMALLEE, RAMAPURAM, CHENNAI - 89. [PAN : AAACF8819R] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N. MADHAVAN, JCIT RESPONDENT BY : SHRI S. RIFAUR RAHMAN, CA DATE OF HEARING : 11.04.2013 DATE OF PRONOUNCEMENT : 11.04.2013 O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THESE TWO REVENUES APPEALS IN THE CASE OF DIFFEREN T ASSESSEES ARE DIRECTED AGAINST SEPARATE ORDERS OF THE COMMISS IONER OF INCOME TAX (APPEALS) IX CHENNAI BOTH DATED 27.11.2012 IN I TA NOS. 80/11- 12/A.IX AND 89/11-12/A.IX; RESPECTIVELY, FOR ASSESS MENT YEAR 2008-09, I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .359 & 360 359 & 360 359 & 360 359 & 360/M/ /M/ /M/ /M/13 1313 13 2 IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME T AX ACT 1961 [IN SHORT THE ACT]. AS COMMON ISSUES ARE INVOLVED IN THESE TWO APPEALS FILED BY THE REVENUE, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE . ITA NO. 359/MDS/2013 : 2. THE ONLY ISSUE RAISED BY THE REVENUE IS THAT TH E CIT(APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE UNDER SECTIO N 40(A)(I) OF THE ACT TO THE EXTENT OF ` .5.61 CRORES HOLDING THAT THE ASSESSEE IS NOT LIABL E TO DEDUCT AT SOURCE ON THE OVERSEAS COMMISSION PAYMENT S MADE TO THE NON-RESIDENT UNDER SECTION 195(2) OF THE ACT BY REL YING UPON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF M /S. TRANSMISSION CORPORATION OF ANDHRA PRADESH [239 ITR 589]. 3. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORT OF SHOES AND SHOE UPPERS. IT FILED E-RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION BY DECLARING TOTAL INCOME OF ` .2,35,96,080/-. THE CASE WAS INITIALLY PROCESSED UN DER SECTION U/S 143(1) AND ASSESSMENT WAS COMPLETED UND ER SECTION 143(3) OF THE ACT ON 27-12-2010 DETERMINING TOTAL I NCOME AT ` .8,16,34,932/-. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .359 & 360 359 & 360 359 & 360 359 & 360/M/ /M/ /M/ /M/13 1313 13 3 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAD MADE CER TAIN PAYMENTS AS OVERSEAS AGENCIES COMMISSION TO THE EXTENT OF ` .5,62,13,826/- AND THAT THE ASSESSEE HAS NOT DEDUCTED TDS ON THOSE PAY MENTS UNDER SECTION 195. HE FURTHER OBSERVED THAT SINCE THESE P AYMENTS WERE MADE TO NON-RESIDENTS IN FOREIGN COUNTRIES FOR THE SERVICES UTILIZED, PROVISIONS OF SECTION 195 WERE ATTRACTED. WHEN THE ASSESSING OFFICER HAS ASKED TO EXPLAIN, IT WAS SUBMITTED BY THE ASSES SEE BEFORE HIM THAT THE COMMISSION PAYMENT WAS NOT EARNED DIRECTLY OR I NDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA AND HENCE, IT WOULD NOT BE TAXABLE IN INDIA AND NO TDS IS REQUIRED. HOWEVER, T HE ASSESSING OFFICER HAS NOT AGREED WITH THE SUBMISSIONS OF THE ASSESSEE AND OBSERVED THAT THE BUSINESS OF THE ASSESSEE IS SITUA TED IN INDIA AND THE PAYMENTS WERE ALSO MADE FROM INDIA AND THE ASSESSEE S CASE IS NOT COVERED FOR EXCEPTION PROVIDED UNDER SECTION9(1)(VI )(B) / 9(1)((VII)(B). THEREFORE, HE DISALLOWED ` .5,62,13,826/- UNDER SECTION 40(A)(I) OF THE ACT. 5. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(APPEALS). IT WAS SUBMITTED BEFORE THE CIT(APPE ALS) THAT THE COMMISSION PAYMENT WAS MADE BY THE ASSESSEE FOR SER VICES RENDERED I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .359 & 360 359 & 360 359 & 360 359 & 360/M/ /M/ /M/ /M/13 1313 13 4 FOR PROCUREMENT OF EXPORT ORDERS WHICH WERE TOTALLY RENDERED OUTSIDE INDIA BY OVERSEAS AGENTS AND THE PAYMENTS THEREOF W ERE DIRECTLY REMITTED TO OVERSEAS AGENT THROUGH SWIFT TRANSFER/T T AND THE PAYMENT WAS NOT RECEIVED BY THEM OR ITS BEHALF IN INDIA AND HENCE SUCH NON- RESIDENT WAS NOT LIABLE TO TAX IN INDIA ON THESE CO MMISSION PAYMENTS. SINCE SUCH PAYMENTS CANNOT BE SAID TO HAVE BEEN DEE MED TO ACCRUE OR ARISE IN INDIA, THE SAME IS NOT CHARGEABLE TO TA X IN INDIA UNDER THE PROVISIONS OF THE ACT. UNLESS THE INCOME IS CHARGEA BLE IN INDIA, THERE IS NO OBLIGATION TO DEDUCT THE TDS AND SUBMITTED THAT THE ASSESSING OFFICER HAS WRONGLY DECIDED THE ISSUE. THE ASSESSEE HAS RELIED ON THE FOLLOWING CASE LAW BEFORE THE CIT(APPEALS): 1. DCIT V. DIVIS LABORATORIES (12 TAXMAN 103) 2. CIT V. EON TECHNOLOGY PVT. LTD. (15 TAXMAN 391) 3. GE INDIA TECHNOLOGY CENTRE P. LTD. V. CIT [327 ITR 456 (SC)] 4. CIT V. TOSHOKU LTD. [125 ITR 525 (SC)] 6. THE CIT(APPEALS), WHILE DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION, AFTER CONSIDERING THE SUBMISSIONS MAD E BY THE ASSESSEE AND CASE LAW RELIED THEREON, HAS HELD THAT THE COMM ISSION RECEIVED BY THE NON-RESIDENT AGENT CANNOT BE SAID TO HAVE ACCRU ED IN INDIA AND THEREFORE, THE ASSESSEE COMPANY IS NOT UNDER OBLIGA TION TO WITHHOLDING OF TAX UNDER SECTION 195 OF THE ACT BY OBSERVING AS UNDER: I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .359 & 360 359 & 360 359 & 360 359 & 360/M/ /M/ /M/ /M/13 1313 13 5 4.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE APPELLANT AND THE AR. I HAVE ALS O GONE THROUGH THE DECISIONS RELIED ON BY THE AO AND THE AR. DURING TH E COURSE OF APPEAL HEARINGS IT IS STATED BY THE APPELLANT THAT THE APP ELLANT COMPANY HAD MADE THE SALES COMMISSION TO OVERSEAS AGENTS FOR EF FECTING THE SALES WITHOUT DEDUCTION OF TAX AT SOURCE. IT IS ALSO STAT ED THAT ALL THE OVERSEAS AGENTS ARE OPERATING IN THEIR OWN COUNTRIES AND THE Y HAVE NO PRESENCE WHATSOEVER CALLED IN INDIA OR THEY DO NOT HAVE ANY PERMANENT ESTABLISHMENTS / CONNECTIONS IN INDIA. THEIR ACTIVI TY WAS TO PROCURE THE ORDERS FROM THE CUSTOMERS ABROAD AND ENSURING PROMP T REALIZATION OF EXPORT PROCEEDS. IT IS ALSO SEEN THAT THE SAID COMM ISSIONS ARE REMITTED DIRECTLY TO THE OVERSEAS AGENT THROUGH SWIFT TRANSF ER / IT AND THE PAYMENT IS NOT RECEIVED BY THEM OR ON THEIR BEHALF IN INDIA . IN VIEW OF THE ABOVE, THE APPELLANT CONTENDED THAT THE NON RESIDENT AGENT S ARE NOT LIABLE TO TAX IN INDIA ON THESE COMMISSION PAYMENTS. 4.4 THE APPELLANT CONTENDED THAT THE OBSERVATIONS MADE BY THE AO WITH REGARD TO SEC. 195 ARE NOT ACCEPTABLE FOR THE FOLLOWING REASONS : I) THE WITHHOLDING PROVISIONS FOR FOREIGN PAYMENTS ARE COVERED BY SEC. 195 OF THE ACT, WHICH CLEARLY SAYS THAT ANY PE RSON WHO MAKES PAYMENT TO A NON RESIDENT HAS TO DEDUCT TAX AT SPEC IFIED RATES, IF THE SAID PAYMENT IS CHARGEABLE TO INCOME TAX IN INDIA. II) IN ORDER TO ATTRACT SEC. 195 THE SERVICES BY T HE OVERSEAS AGENT SHOULD HAVE BEEN RENDERED IN INDIA AND ALSO SHOULD HAVE BEEN USED IN INDIA. III) SEC. 195 OF THE ACT HAS TO BE READ ALONG WITH THE CHARGING SECTIONS OF 4, 5 AND 9 OF THE ACT AND THE PROVISION S OF THE DOUBLE TAXATION AVOIDANCE ACT (DTAA). THE COMBINED READING OF THE AFORESAID SECTIONS CLEARLY PROVIDES THAT UNLESS THE INCOME IS CHARGEABLE TO TAX IN INDIA, THERE IS NO OBLIGATION TO WITHHOLD TAX. IV) THE ISSUE WHETHER THE TAX IS TO BE DEDUCTED OR NOT, WAS ALREADY WELL SETTLED BY THE JUDGEMENTS OF THE APEX COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE VS. CIT REPORTED IN 327 ITR 456 C IT VS. TOSHOKU LTD. REPORTED IN 125 ITR 525. WHEN THE ACT IS CLEAR AND UNAMBIGUOUS, THE WITHDRAWAL OF EARLIER CIRCULARS ISSUED BY THE CBDT (CIRCULAR NOS. 23 DATED 23.07.1969 AND 786 DATED'7.2.2000) ON 22.10.2 009 IS NOT CHANGED THE POSITION. THEREFORE, THE LAW RELATED TO WITHHOL DING OF TAX UNDER SECTION 195 OF THE ACT HAS NOT BEEN CHANGED CONSEQU ENT TO WITHDRAWAL OF EARLIER CIRCULARS BY THE CBDT. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .359 & 360 359 & 360 359 & 360 359 & 360/M/ /M/ /M/ /M/13 1313 13 6 4.5 THE APPELLANT FURTHER SUBMITTED THAT THERE IS NO OBLIGATION ON THE PART OF THE APPELLANT COMPANY TO DEDUCT THE TAXES O N THE SALES COMMISSION PAYMENTS ON THE OVERSEAS AGENTS, DUE TO THE FACT THAT SUCH SERVICES RENDERED OUTSIDE INDIA; HENCE, THE APPELLA NT COMPANY DID NOT DEDUCT THE TAX AT SOURCE ON THE OVERSEAS SALES COMM ISSION. THEREFORE, THE ACTION OF THE AO IN DISALLOWING THE SUCH PAYMEN TS U/S 40(A)(IA) OF THE ACT, ON THE GROUND THAT THE APPELLANT COMPANY DID N OT DEDUCT TAXES ON THESE OVERSEAS SALES COMMISSION, IS NOT WARRANTED. AND ALSO THE APPELLANT SUBMITTED THAT THE DECISION OF THE HON'BL E ITAT, HYDERABAD IN THE CASE OF DCIT VS. DIVI'S LABORATORIES (12 TAXMAN 103) AND DECISION RENDERED BY THE HON'BLE DELHI HIGH COURT IN THE CAS E OF CIT VS. EON TECHNOLOGY PVT. LTD. (15 TAXMAN 391) ARE IN FAVOUR OF THE APPELLANT AS THESE DECISIONS WERE RENDERED AFTER CONSIDERING ALL THE CASE LAWS / CIRCULARS, DIRECTLY ON THIS ISSUE, WHICH ARE CITED BY THE AO WHILE DISALLOWING THE EXPENDITURE U/S 40(A)(IA) OF THE AC T. 4.6 AFTER HAVING GONE THROUGH THE SUBMISSIONS OF T HE APPELLANT I AM OF THE CONSIDERED OPINION THAT AO WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS U/S 40(A)(IA), ON THE OVERSEAS SALES COM MISSION MADE TO THE NON RESIDENT AGENTS, FOR THE FOLLOWING REASONS: A) THE AO HAS APPLIED SEC 9 OF THE ACT AND HELD TH AT THE SITUS OF THE PAYER AND THE SITUS OF THE UTILIZATION OF THE SERVI CES WHICH DETERMINE THE TAXABILITY OF THE SUCH SERVICES IN INDIA IS NOT REL EVANT AS LONG AS THE SERVICES ARE UTILIZED IN INDIA AND THEREBY INVOKED THE PROVISIONS U/S 4O(A)(IA) OF THE I.T.ACT. THE APPELLANT COMPANY HAS ENTERED INTO AN AGREEMENT FOR MARKETING OF ITS LEATHER FOOTWEAR AND OTHER PRODUCTS WITH NON RESIDENT AGENTS. THE NON RESIDENT AGENTS WOULD GET COMMISSION FOR PROMOTING THE APPELLANT COMPANIES' PRODUCTS. THE TE RMS OF THE AGREEMENT INDICATE THAT THE NON RESIDENT AGENTS ACT ING ON COMMISSION BASIS, OUTSIDE INDIA AND NOT RENDERED ANY SERVICES IN INDIA. AS THE SERVICES ARE RENDERED OUTSIDE INDIA THE PROVISIONS OF SECTION 5 CANNOT BE APPLIED TO THE COMMISSION PAID SO AS TO MAKE IT TAX ABLE IN INDIA. IT IS ALSO SEEN THAT THE NON RESIDENT AGENTS DO NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. THE SALES COMMISSIONS ARE R EMITTED DIRECTLY TO THESE AGENTS THROUGH BANKING CHANNELS AND THE PAYME NT IS NOT RECEIVED BY THEM ARE ON THEIR BEHALF IN INDIA. FURTHER, IN O RDER TO ATTRACT SECTION 195, THE SERVICES BY THE NON RESIDENT AGENTS SHOULD HAVE BEEN RENDERED IN INDIA AND ALSO SHOULD HAVE BEEN USED IN INDIA. A S THE AR POINTED OUT THAT SECTION 195 OF THE ACT HAS TO BE READ ALONG, W ITH THE CHARGING SECTIONS 4, 5 AND 9 OF THE ACT AND THE PROVISIONS O F THE TAX TREATIES AND THE COMBINED READING OF THE AFORESAID SECTIONS CLEA RLY INDICATE THAT I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .359 & 360 359 & 360 359 & 360 359 & 360/M/ /M/ /M/ /M/13 1313 13 7 UNLESS THE INCOME IS CHARGEABLE TO TAX IN INDIA, TH ERE IS NO OBLIGATION TO WITHHOLD THE TAX. B) THE AO HAS VIEWED THAT BOARD'S CIRCULAR 786 DAT ED 7.2.2000 HAS BEEN WITHDRAWN AND THEREFORE IT CANNOT BE RELIED UP ON FURTHER. SINCE THE LAW RELATED TO WITHHOLDING OF TAX U/S 195 OF THE AC T HAS NOT BEEN CHANGED EVEN AFTER WITHDRAWAL OF THE ABOVE CIRCULAR ISSUED BY THE CBDT THE AO'S VIEW IS NOT ACCEPTABLE. C) ON SIMILAR AND IDENTICAL ISSUE, HON'BLE ITAT, H YDERABAD IN THE CASE OF DCIT VS. DIVI'S LABORATORIES (12 TAXMAN 103 ) AND THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. EON TECHNOL OGY PVT. LTD. (15 TAXMAN 391) HAVE HELD THAT THE COMMISSION INCOME CO ULD NOT BE SAID TO HAVE ACCRUED TO THE NON RESIDENTS IN INDIA AND HENC E THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE FROM PAYMENT OF COMM ISSION TO NON RESIDENTS. 4.7 SINCE THE FACTS OF THE APPELLANT CASE ARE SIMIL AR TO THAT OF THE CASES MENTIONED SUPRA, RESPECTFULLY FOLLOWING THE DECISIO NS IN THE ABOVE CASES, I AM OF THE OPINION THAT THE COMMISSIONS RECEIVED B Y THE NON RESIDENT AGENTS CANNOT BE SAID TO HAVE ACCRUED IN INDIA AND THEREFORE THE APPELLANT COMPANY IS NOT UNDER OBLIGATION FOR WITHH OLDING OF TAX U/S 195. THEREFORE THE AO IS NOT JUSTIFIED IN MAKING THE DIS ALLOWANCE OF ` .5,62,13,826/- U/S 40(A)(IA) OF THE ACT AND HENCE T HE AO IS DIRECTED TO DELETE THE ADDITION OF ` .5,62,13,826/- MADE TO THE RETURNED INCOME. THIS GROUND OF APPEAL IS ALLOWED. 7. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BE FORE THE TRIBUNAL. 8. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF ITAT CHENNA I IN THE CASE OF M/S. PRAKASH IMPEX V. ACIT IN I.T.A. NO. 08/MDS/201 2 DATED 30.03.2012. HE ALSO RELIED ON THE DECISION OF THE H ONBLE DELHI HIGH I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .359 & 360 359 & 360 359 & 360 359 & 360/M/ /M/ /M/ /M/13 1313 13 8 COURT IN THE CASE OF CIT V. EON TECHNOLOGY (P.) LTD .(SUPRA). FURTHER, HE HAS RELIED ON THE DECISION OF ITAT MUMBAI IN THE CASE OF ARMAYESH GLOBAL V. ACIT [2012] 21 TAXMANN.COM 130 (MUM.) [IN WHICH THE JM WAS ONE OF THE AUTHOR]. 9. THE LD. DR HAS RELIED UPON THE ORDER OF THE ASS ESSING OFFICER. 10. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIAL S AVAILABLE ON RECORD AND CASE LAW CITED. IN THIS CASE, THE ASSESS EE HAS MADE CERTAIN PAYMENTS TO OVERSEAS AGENTS AS COMMISSION AND NO TD S WAS DEDUCTED. ACCORDING TO THE ASSESSING OFFICER, THE A SSESSEES BUSINESS IS SITUATED IN INDIA AND THE PAYMENTS WERE ALSO MAD E FROM INDIA AND ACCORDING TO SECTION 195, THE ASSESSEE IS UNDER OBL IGATION TO DEDUCT TDS. THEREFORE, BY INVOKING SECTION 40(A)(I), HE HA S DISALLOWED AN AMOUNT OF ` .5,62,13,826/-. ON APPEAL, THE CIT(APPEALS) DELETED THE DISALLOWANCE ON THE GROUND THAT THE COMMISSION WAS PAID TO NON- RESIDENT AGENT AND IT CANNOT BE SAID TO HAVE BEEN A CCRUED IN INDIA AND SECTION 195 HAVE NO APPLICATION. THE ONLY ISSUE FOR OUR CONSIDERATION IS AS TO WHETHER THE ASSESSEE IS UNDER OBLIGATION TO D EDUCT THE TDS UNDER SECTION 195 OR NOT. THE CIT(APPEALS), BY CONS IDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE PASSED A DETAIL ED ORDER BY I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .359 & 360 359 & 360 359 & 360 359 & 360/M/ /M/ /M/ /M/13 1313 13 9 OBSERVING THAT SECTION 195 HAVE NO APPLICATION TO A SSESSEES CASE. IN THE CASE OF M/S. PRAKASH IMPEX V. ACIT (SUPRA), THE COORDINATE BENCH OF ITAT CHENNAI HAS CONSIDERED THE VERY SAME ISSUE AND OBSERVED THAT THE COMMISSION PAID TO NON-RESIDENT AGENT FOR THE SERVICES RENDERED OUTSIDE INDIA AND SUCH PAYMENTS ARE NOT CH ARGEABLE TO TAX IN INDIA AND THEREFORE, THE PROVISIONS OF SECTION 195 ARE NOT APPLICABLE IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT I N THE CASE OF G.E. INDIA TECHNOLOGY CENTRE P. LTD. V. CIT (SUPRA). 11. IN THE CASE OF CIT V. EON TECHNOLOGY (P) LTD., THE HONBLE DELHI HIGH COURT HAS ALSO HELD THAT THE COMMISSION PAYMEN T TO ITS BRITISH PARENT/HOLDING COMPANY ETUK COULD NOT SAID TO HAVE BEEN ACCRUED TO ETUK IN INDIA AND THEREFORE, THE ASSESSEE WAS NOT L IABLE TO DEDUCT TAX AT SOURCE FROM PAYMENT OF COMMISSION TO ETUK. THE H EAD NOTE OF ORDER IS REPRODUCED HEREUNDER: SECTION 9 OF THE INCOME-TAX ACT, 1961 - INCOME - D EEMED TO ACCRUE OR ARISE IN INDIA ASSESSMENT YEAR 2007 -08 - ASSESSEE- COMPANY WAS ENGAGED IN BUSINESS OF DEVELOPMENT AND EXPORT OF SO FTWARE - DURING RELEVANT ASSESSMENT YEAR, IT HAD PAID COMMISSION TO ITS BRITISH PARENT/HOLDING COMPANY ETUK ON SALES AND AMOUNTS RE ALIZED ON EXPORT CONTRACTS PROCURED BY ETUK FOR ASSESSEE - ASSESSING OFFICER HELD THAT COMMISSION INCOME EARNED BY ETUK HAD ACCRUED IN IND IA OR WAS DEEMED TO ACCRUE IN INDIA AND, THEREFORE, ASSESSEE WAS LIABLE TO DEDUCT I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .359 & 360 359 & 360 359 & 360 359 & 360/M/ /M/ /M/ /M/13 1313 13 10 TAX AT SOURCE THEREFROM AND AS THERE WAS FAILURE, S AID EXPENDITURE SHOULD BE DISALLOWED UNDER SECTION 40(A)(IA) - WHETHER WHE N ETUK WAS NOT RENDERING ANY SERVICE OR PERFORMING ANY ACTIVITY IN INDIA ITSELF, COMMISSION INCOME COULD BE SAID TO HAVE ACCRUED, AR ISEN TO OR RECEIVED BY ETUK IN INDIA MERELY BECAUSE IT WAS RECORDED IN BOOKS OF ASSESSEE IN INDIA OR WAS PAID BY ASSESSEE SITUATED IN INDIA - H ELD, NO - WHETHER FOR APPLYING SECTION 9 ASSESSING OFFICER WAS REQUIRED T O EXAMINE WHETHER SAID COMMISSION INCOME WAS ACCRUING OR ARISING DIRE CTLY OR INDIRECTLY FROM ANY BUSINESS CONNECTION IN INDIA - HELD, YES - WHETHER SINCE FACTS FOUND BY ASSESSING OFFICER DID NOT MAKE OUT A CASE OF BUSINESS CONNECTION AS STIPULATED IN SECTION 9(1)(I), COMMIS SION INCOME COULD NOT BE SAID TO HAVE ACCRUED TO ETUK IN INDIA AND, THERE FORE, ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE FROM PAYMENT OF COMMISSION TO ETUK - HELD, YES [IN FAVOUR OF ASSESSEE]. 12. THE HONBLE DELHI HIGH COURT HAS CONSIDERED TH E DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF M/S. TRANSMISS ION CORPORATION OF ANDHRA PRADESH REPORTED IN 239 ITR 587 AND DECID ED THE ISSUE IN FAVOUR OF THE ASSESSEE. 13. IN THE CASE OF ARMAYESH GLOBAL V. ACIT (SUPRA) , THE MUMBAI BENCH OF ITAT HAS OBSERVED THAT THE COMMISSION PAYM ENT WAS MADE TO THE OVERSEAS AGENT FOR PROCURING EXPORT ORDERS. THE AGENTS HAVE NOT BEEN PROVIDED ANY MANAGERIAL/TECHNICAL SERVICES. TH E RELATIONSHIP BETWEEN THE ASSESSEE AND THE NON-RESIDENT (AGENT) W AS ONLY FOR RENDERING NON-TECHNICAL SERVICES. MOREOVER, THERE W AS NO PERMANENT ESTABLISHMENT OF THE SAID NON-RESIDENT IN INDIA. TH EREFORE, THE COMMISSION PAID TO THE NON-RESIDENT AGENT DID NOT A CCRUE OR ARISE IN I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .359 & 360 359 & 360 359 & 360 359 & 360/M/ /M/ /M/ /M/13 1313 13 11 INDIA AND THUS, THERE WAS NO NEED FOR DEDUCTING TDS UNDER SECTION 195 OF THE ACT. 14. IN THE PRESENT CASE, THE ASSESSEE PAID CERTAIN AMOUNTS TO OVERSEAS AGENTS FOR PROCUREMENT OF EXPORT ORDERS. T HE AGENTS HAVE NOT PROVIDED ANY MANAGERIAL/TECHNICAL SERVICES. THE PAYMENTS RECEIVED BY THE NON-RESIDENT INDIAN ARE NOT TAXABLE IN INDIA. TAKING INTO CONSIDERATION OF ENTIRE FACTS AND CIRCUMSTANCES AND BY FOLLOWING AFORESAID DECISIONS, WE ARE OF THE OPINION THAT THE ISSUE INVOLVED IN THIS APPEAL IS COVERED IN FAVOUR OF THE ASSESSEE AND SEC TION 195 HAVE NO APPLICATION TO ASSESSEES CASE. ACCORDINGLY, THE AP PEAL OF THE REVENUE IS DISMISSED. I.T.A. NO. 360/MDS/2013 15. BOTH LD. REPRESENTATIVES BEFORE US CONCEDE THA T THE ISSUE IN THIS APPEAL IS COVERED BY OUR FINDING IN I.T.A. NO. 359/ MDS/2013. AFTER PERUSING THE CASE FILE, WE FIND THAT THE STAND ADOP TED BY BOTH REPRESENTATIVES TO BE CORRECT EXCEPT CHANGE OF FIGU RE. ACCORDINGLY, IN THE LIGHT OF OUR ABOVE DISCUSSIONS ON THE VERY SAME ISSUE IN I.T.A. NO. 359/MDS/2013 DECIDED HEREINABOVE, WE DISMISS THE AP PEAL FILED BY THE REVENUE. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .359 & 360 359 & 360 359 & 360 359 & 360/M/ /M/ /M/ /M/13 1313 13 12 16. IN THE RESULT, BOTH APPEALS FILED BY THE REVEN UE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON THURSDAY, THE 11 TH OF APRIL, 2013 AT CHENNAI. SD/- SD/- (N.S. SAINI) ACCOUNTANT MEMBER (V. DURGA RAO) JUDICIAL MEMBER CHENNAI, DATED, THE 11.04.2013 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.