ACIT, CIRCLE- 10(2), NEW DELHI V. GROZ ENGINEERING TOOLS PVT. LTD., NEW DELHI

ITA 3894/DEL/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 6221 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 15-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIMA
• Assessee Lawyers: ASHISH GOEL
• Keywords: Permanent establishment; Question of law; Capital expenditure; TDS; FORM 26AS
• Section: 143(3); 40(a)(ia); 195; 40a(ia); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C: NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE, SHRI R.K.PANDA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER I.T.A NO.3894/DEL/2017 (ASSESSMENT YEAR 2011-1 2) I.T.A NO.3895/DEL/2017 (ASSESSMENT YEAR 2013-1 4) ACIT, CIRCLE - 10(2), NEW DELHI. VS. M/S GROZ ENGINEERING TOOLS PVT. LTD., C-7 17, NEW FRIENDS COLONY, NEW DELHI- 110 065. PAN-AABCG 4017H (APPELLANT) (RESPONDENT) APPELLANT BY MS. ANIMA, SR. DR RESPONDENT BY SH. VED JAIN, CA & SH. ASHISH GOEL, CA DATE OF HEARING 17.06.2021 DATE OF PRONOUNCEMENT 13.09.2021 ORDER PER SUDHANSHU SRIVASTAVA, JM: ITA NO.3894/DEL/2017 IS THE APPEAL OF THE DEPARTM ENT PREFERRED AGAINST ORDER DATED 10.02.2017 PASSED BY THE LD. 2 ITA NO.389 4 & 3895/DEL/2017 ACIT VS. M/S GROZ ENGINEERING TOOL S PVT. LTD. COMMISSIONER OF INCOME TAX (APPEALS)-39, NEW DELHI {CIT(A)} FOR ASSESSMENT YEAR 2011-12 WHEREAS ITA NO.3895/DEL/2017 IS THE DEPARTMENTS APPEAL AGAINST ORDER DATED 10.02.2017 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-39, NEW DEL HI {CIT(A)} FOR ASSESSMENT YEAR 2013-14. SINCE, BOTH THE APPEAL S INVOLVED IDENTICAL ISSUES, THE SAME WERE HEARD TOGETHER AND ARE BEING DISPOSED BY THIS COMMON ORDER FOR THE SAKE OF CONVE NIENCE. 2.0 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SAL E OF ENGINEERING TOOLS. THE RETURN ON INCOME WAS FILED FOR ASSESSMENT YEAR 2011-12 DECLARING INCOME AT RS.3,28,57,870/-. THE ASSESSMEN T WAS COMPLETED AT AN INCOME OF RS.5,26,65,065/- AFTER MA KING A DISALLOWANCE OF RS.40,58,425/- OUT OF PAYMENT OF RO YALTY, DISALLOWANCE OF RS.1,56,68,770/- OUT OF COMMISSION P AYMENTS AND RS.80,000/- OUT OF POLLUTION EXPENSES. 2.1 IN ASSESSMENT YEAR 2013-14, THE RETURN OF I NCOME WAS FILED DECLARING AN INCOME OF RS.67,97,84,740/- AND ASSESS MENT WAS COMPLETED AT AN INCOME OF RS.71,03,94,530/- AFTER M AKING 3 ITA NO.389 4 & 3895/DEL/2017 ACIT VS. M/S GROZ ENGINEERING TOOL S PVT. LTD. DISALLOWANCE OUT OF ROYALTY PAYMENT AMOUNTING TO RS. 34,54,190/-, DISALLOWANCE U/S 40A(IA) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) ON ACCOUNT OF NON-DEDUCTION OF TD S FROM COMMISSION PAYMENT AMOUNTING TO RS.2,71,47,499/-, A DDITION ON ACCOUNT OF DIFFERENCE BETWEEN INCOME RETURNED AND I NCOME AS PER FORM 26AS AMOUNTING TO RS.6,882/- AND DISALLOWANCE O F EXPENSES RELATING TO PREVIOUS YEARS AMOUNTING TO RS.1,220/-. 2.2 THE ASSESSEES APPEALS BEFORE THE LD. CIT(A) W ERE ALLOWED IN BOTH ASSESSMENT YEARS. 2.3 AGGRIEVED, THE DEPARTMENT NOW IS IN APPEAL BE FORE THE TRIBUNAL AND HAS RAISED THE FOLLOWING GROUNDS OF APP EAL: ITA NO.3894/DEL/2017 FOR ASSESSMENT YEAR 2 011-12:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF T HE CASE & IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITI ON OF RS.40,58,425/- MADE ON ACCOUNT OF DISALLOWANCE ON ACCOUNT OF PAYMENT OF ROYALTY VIDE ORDER U/S 143(3 ) OF THE I.T. ACT 1961 PASSED BY THE DCIT, CIRCLE 12(1), IGN ORING THE FACT THAT THE ASSESSEE COMPANY HAS FAILED TO PROVE ANY LEGAL BACKING TO THE AGREEMENT AND THERE IS NOTHING MENTIONED IN THE AGREEMENT REGARDING THE JUSTIFICAT ION FOR THESE PAYMENTS. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDI TION OF 4 ITA NO.389 4 & 3895/DEL/2017 ACIT VS. M/S GROZ ENGINEERING TOOL S PVT. LTD. RS.1,56,68,770/- MADE ON ACCOUNT OF NON-DEDUCTION OF TDS ON COMMISSION PAYMENT MADE TO FOREIGN COMPANIES U/S 40(A)(IA) VIDE ORDER U/S 143(3) OF THE I.T. ACT 19 61 PASSED BY THE DCIT, CIRCLE 12(1), IGNORING THE FACT THAT T HOUGH THE PAYMENT HAS BEEN MADE FOR WORK DONE OUTSIDE INDIA B UT THE PROFIT IS ACTUALLY EARNED IN INDIA. 3. THE APPELLANT CRAVES LEAVE, TO ADD, ALTER OR AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF THE HE ARING. ITA NO.3895/DEL/2017 FOR ASSESSMENT YEAR 2013-14 : - 1. WHETHER ON THE FACTS AND CIRCUMST ANCES OF THE CASE & IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.34,54,190/- MADE ON ACCOUNT OF 'DISALLOWANCE ON ACCOUNT OF PAYMENT OF ROYALTY VIDE ORDER U/S 143(3 ) OF THE I.T. ACT 1961 PASSED BY THE DCIT, CIRCLE 12(1), IGN ORING THE FACT THAT THE ASSESSEE COMPANY HAS FAILED TO PROVE ANY LEGAL BACKING TO THE AGREEMENT AND THERE IS NOTHING MENTIONED IN THE AGREEMENT REGARDING THE JUSTIFICAT ION FOR THESE PAYMENTS. 2. WHETHER ON THE FACTS AND CIRCUMS TANCES OF THE CASE & IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 2,71,47,499/- MADE ON ACCOUNT OF NON-DEDUCT ION OF TDS ON COMMISSION PAYMENT MADE TO FOREIGN COMPANIES U/S 40(A)(IA) VIDE ORDER U/S 143(3) OF THE I.T. AC T 1961 PASSED BY THE DCIT, CIRCLE 12(1) IGNORING THE FACT THAT THOUGH THE PAYMENT HAS BEEN MADE FOR WORK DONE OUTS IDE INDIA BUT THE PROFIT IS ACTUALLY EARNED IN INDIA. 3. THE APPELLANT CRAVES LEAVE, TO ADD, AL TER OR AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF TH E HEARING. 5 ITA NO.389 4 & 3895/DEL/2017 ACIT VS. M/S GROZ ENGINEERING TOOL S PVT. LTD. 3.0 AT THE OUTSET, THE LD. AUTHORIZED REPRESENTA TIVE (AR) SUBMITTED THAT BOTH THE ISSUES BEING AGITATED BY TH E DEPARTMENT ARE COVERED IN FAVOUR OF THE ASSESSEE. IT WAS SUBMIT TED THAT THE ISSUE OF DISALLOWANCE OF ROYALTY PAYMENTS TREATING THE SAME AS CAPITAL EXPENDITURE IS COVERED BY THE ORDERS OF THI S TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06, 200 6-07 AND 2007-08, ASSESSMENT YEAR 2008-09, ASSESSMENT YEAR 2 010-11 AND 2012-13 WHEREIN SIMILAR ISSUE HAS BEEN DECIDED IN FA VOUR OF THE ASSESSEE AND THE TRIBUNAL HAD DELETED THE ADDITION. IT WAS SUBMITTED THAT THE ORDER PASSED BY THE TRIBUNAL IN ASSESSMENT YEAR 2008-09 WAS AFFIRMED BY THE HONBLE DELHI HIGH COURT VIDE ORDER DATED 04.09.2015 AND THE APPEAL FILED BY THE REVENUE WAS DISMISSED. IT WAS SUBMITTED THAT THE LD. CIT(A) HAS DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER BY RELYIN G UPON THE JUDGMENT OF THE ITAT DELHI BENCH IN ASSESSEES OWN C ASE IN ITA NOS.637, 638/DEL/2013, AND ITA NO.4373/DEL/2013 DAT ED 14.10.2013 FOR ASSESSMENT YEARS 2005-06, 2006-07 AN D 2007-08 AND FURTHER IN ITA NO.4776/DEL/2013 DATED 14.11.201 4 FOR ASSESSMENT YEAR 2008-09. THE LD. AR DREW OUR ATTENTI ON TO THE 6 ITA NO.389 4 & 3895/DEL/2017 ACIT VS. M/S GROZ ENGINEERING TOOL S PVT. LTD. ORDER OF THE HONBLE DELHI HIGH COURT PASSED FOR AS SESSMENT YEAR 2008-09 UPHOLDING THE ORDER OF THE TRIBUNAL AND SUB MITTED THAT, THUS, FOR ALL THESE YEARS THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE AND, THEREFORE, THE LD. CIT(A) HAD RIGHTLY DELETED THE ADDITION. 3.1 COMING TO THE SECOND ISSUE OF NON-DEDUCTION OF TDS ON COMMISSION PAYMENTS MADE TO FOREIGN COMPANIES, THE LD. AR AGAIN SUBMITTED THAT THE ISSUE WAS SQUARELY COVERED BY TH E ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2012-13 VIDE ORDER DATED 17.02.2021 IN ITA NO.5488/DEL/2017. THE LD. AR, APART FROM THIS, ALSO PLACED RELIANCE ON THE JUDGME NT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MARUTI SUZU KI INDIA LTD. [2017] 12 TMI 474-DELHI HIGH COURT AND THE CIT DELH I-IV, NEW DELHI VS. EON TECHNOLOGY PVT. LTD. REPORTED IN [201 2] 343 ITR 363 APART FROM NUMEROUS OTHER JUDICIAL PRECEDENTS IN TH IS REGARD BY THE TRIBUNAL. 4.0 THE LD. SR. DR PLACED HER RELIANCE ON THE ASSESSMENT ORDER IN THIS REGARD. HOWEVER, SHE FAIRLY ACCEPTED THAT THE ISSUES 7 ITA NO.389 4 & 3895/DEL/2017 ACIT VS. M/S GROZ ENGINEERING TOOL S PVT. LTD. ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF TRIBUNAL AS WELL AS THE DECISION OF THE HONBLE DELHI HIGH COURT . 5.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE A LSO PERUSED THE MATERIAL ON RECORD. WE AGREE WITH THE CO NTENTION OF THE LD. AR THAT BOTH THE ISSUES AGITATED BY THE DEPARTM ENT ARE COVERED AGAINST THE DEPARTMENT AND IN FAVOUR OF THE ASSESSE E BY THE ORDER OF THE TRIBUNAL. 5.1 AS FAR AS THE ISSUE OF DISALLOWANCE ON ACCOUNT OF ROYALTY PAYMENT BY TREATING THE SAME AS CAPITAL EXPENDITURE IS CONCERNED, IT IS SEEN THAT ON IDENTICAL ISSUE, THE HONBLE DEL HI HIGH COURT HAD UPHELD THE ORDER OF THE ITAT FOR ASSESSMENT YEAR 20 08-09 BY OBSERVING AS UNDER: 6. IN THE IMPUGNED ORDER, THE ITAT HAS OBSERVED, ON PERUSAL OF THE VERY SAME AGREEMENT, THAT THE ROYALTY IS ESS ENTIALLY BEING PAID FOR USE OF THE TRADEMARK 'MACNAUGHT' ON THE PR ODUCTS OF THE ASSESSEE AND FOR USING THE DRAWINGS ETC. THE EXPEND ITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE. FROM THE PAYMENTS MADE TO MPL, THE ASSESSEE HAD DEDUCTED TAX AT SOURC E AND DEPOSITED IT WITH THE GOVERNMENT. THE GENUINENESS O F THE PAYMENT WAS ALSO NOT IN DOUBT. IN THE CIRCUMSTANCES , THE ITAT WAS OF THE VIEW THAT THE CIT(A) WAS NOT JUSTIFIED I N ENHANCING 8 ITA NO.389 4 & 3895/DEL/2017 ACIT VS. M/S GROZ ENGINEERING TOOL S PVT. LTD. THE ADDITION MADE BY THE AO BY CAPITALISING THE ROY ALTY. THE APPEALS OF THE ASSESSEE WERE, ACCORDINGLY, ALLOWED. 7. IT IS URGED BEFORE US BY MR. RAGHVENDRA SINGH, THE LEARNED JUNIOR STANDING COUNSEL FOR THE REVENUE, THAT THE R OYALTY AGREEMENT BETWEEN THE ASSESSEE AND MPL WAS VAGUE. THERE WAS NOTHING TO IN DICATE THAT THE USE OF THE TRADEMARK WAS PERMITTED ONLY FO R A LIMITED PERIOD AFTER WHICH IT WOULD REVERT TO MPL. IT WAS A LSO NOT CLEAR WHETHER THERE WAS ANYTHING TO INDICATE THAT THE BEN EFIT THEREUNDER COULD NOT CONTINUE INDEFINITELY. HE URGE D THAT DOCUMENT WAS DRAWN UP IN A VERY CASUAL MANNER WITHO UT COMPLETELY SPELLING OUT THE RIGHTS AND OBLIGATIONS OF THE PARTIES. ACCORDING TO HIM, THE ROYALTY AGREEMENT WAS A SHAM DOCUMENT WITHOUT ANY LEGAL SANCTITY. 8. THERE WAS SUFFICIENT OPPORTUNITY FOR THE AO, IF HE DOUBTED THE GENUINENESS OF THE PAYMENT OF ROYALTY BY THE ASSESS EE TO MPL, TO HAVE CONDUCTED A DETAILED INQUIRY. THE ASSESSEE ON ITS PART FURNISHED THE AGREEMENT BETWEEN ITSELF AND MPL UNDE R WHICH IT WAS INTER ALIA PERMITTED TO USE THE TRADEMARK 'MACN AUGHT' ON ITS PRODUCTS. THE ROYALTY WAS PAYABLE PER UNIT OF THE P RODUCT AND, THEREFORE, WAS CLEARLY LINKED TO SALES. THERE WAS A LSO NO DOUBT THAT SUCH PAYMENT WAS IN FACT MADE BY THE ASSESSEE TO MPL. IT IS ALSO NOT IN DOUBT THAT MPL WAS NOT RELATED TO TH E ASSESSEE IN ANY MANNER. IN THE CIRCUMSTANCES, THERE SHOULD HAVE BEEN SOME REASONABLE BASIS FOR THE CIT(A) TO SIMPLY CONC LUDE THAT THIS WAS A SHAM TRANSACTION AND PROCEED TO ENHANCE THE DISALLOWANCE. THE INTERPRETATION OF THE AGREEMENT B Y THE ITAT APPEARS TO BE PLAUSIBLE. THE COURT IS NOT PERSUADED TO HOLD THAT THE IMPUGNED ORDER OF THE ITAT IS PERVERSE. 9 ITA NO.389 4 & 3895/DEL/2017 ACIT VS. M/S GROZ ENGINEERING TOOL S PVT. LTD. 9. NO SUBSTANTIAL QUESTION OF LAW ARISES. THE AP PEALS ARE DISMISSED. 5.2 ACCORDINGLY, ON IDENTICAL FACTS, FOR BOTH THE YEARS UNDER CONSIDERATION, WE UPHOLD THE ORDERS PASSED BY THE L D. CIT(A) AND DISMISS THE GROUNDS RAISED BY THE DEPARTMENT. 5.3 ON THE ISSUE OF NON-DEDUCTION OF TDS ON CO MMISSION PAYMENT, IN THE PRESENT CASE, IT IS UNDISPUTED FACT THAT:- (I) THE ASSESSEE HAS MADE THE PAYMENT OF FOREIGN COMMISSION TO THE NON-RESIDENT AGENTS. (II) PAYMENTS ARE MADE IN FOREIGN CURRENCY. (III) THERE IS NO PERMANENT ESTABLISHMENT OR BUSINE SS CONNECTION OF THESE NONRESIDENTS IN INDIA. (IV) THERE IS NO IOTA OF EVIDENCE WITH THE AO THAT THESE NON- RESIDENT HAVE ANY SORT OF INCOME WHICH IS CHARGEABL E TO TAX IN INDIA. (V) THE AO HAS INTENDED TO COVER THE TAXABILITY OF THE EXPORT COMMISSION INVOKING THE PROVISIONS OF SECTION 9(1)( I) AND SECTION 9(1)(VII)(B) OF THE INCOME TAX ACT. 10 ITA NO.389 4 & 3895/DEL/2017 ACIT VS. M/S GROZ ENGINEERING TOOL S PVT. LTD. 5.4 AS REGARDS THE TAXABILITY UNDER SECTION 9 (1)(I) OF THE INCOME TAX ACT, IT IS TO BE NOTED THAT THESE NON-RESIDENTS HAVE RENDERED THE SERVICES OUTSIDE INDIA AND HAVE BEEN PAID IN FOREIG N CURRENCY. THEREFORE, NO INCOME ACCRUES OR ARISES IN INDIA. TH ESE NON- RESIDENTS DO NOT HAVE ANY PE OR BUSINESS CONNECTION IN INDIA WHICH IS NOT DOUBTED BY THE AO. FURTHER, THE ASSESSING OF FICER HAS NOT MADE ANY EFFORTS TO ESTABLISH ANY 'BUSINESS CONNECT ION' FOR INVOKING SECTION 9(1)(I) OF THE ACT. THUS, IN THE ABSENCE OF SAME, THE AO IS WRONG IN INVOKING THE PROVISIONS OF SECTION 9(1)(I) AND ACCORDINGLY EXPORT COMMISSION PAID BY THE ASSESSE IS NOT CHARGE ABLE TO TAX IN INDIA. 5.5 REGARDING TAXABILITY UNDER SECTION 9(1)(VII )(B) READ WITH EXPLANATION-2 THE AO IN PG. 7 PARA 4.7 HAS ALLEGED THAT THE PAYMENTS MADE BY THE ASSESSEE ARE IN THE NATURE OF FEES FOR TECHNICAL SERVICES FOR CONSULTANCY, TECHNICAL AND MANAGERIAL SERVICES PROVIDED BY THESE AGENTS AND HENCE CHARGEABLE TO TAX IN INDIA IN TERMS OF SECTION 9(1)(VII)(B) READ WITH EXPLANATION 2 OF THE INCOME TAX ACT. IN THIS REGARD IT IS PERTINENT TO N OTE THAT THESE NON- 11 ITA NO.389 4 & 3895/DEL/2017 ACIT VS. M/S GROZ ENGINEERING TOOL S PVT. LTD. RESIDENT AGENTS HAVE PROVIDED SERVICES OF SECURING THE ORDERS IN OVERSEAS MARKET FOR THE ASSESSEE COMPANY AND ARE EN TITLED TO COMMISSION ON THE BUSINESS PROCURED BY THEM AS IS E VIDENT FROM AGREEMENTS PLACED IN THE PAPER BOOK. FURTHER, NO MA NAGERIAL, TECHNICAL & CONSULTANCY SERVICES UNDISPUTEDLY HAVE BEEN RENDERED BY THESE NON-RESIDENTS AGENTS TO THE ASSESSEE AND A CCORDINGLY, THE AO CANNOT INVOKE SECTION 9(1)(VII)(B) OF THE ACT TH ERE IS NO IOTA OF EVIDENCE WITH THE AO THAT THESE NON-RESIDENTS HAVE RENDERED ANY TECHNICAL SERVICES. THEREFORE, IN VIEW OF THE ABOVE, THE COMMISSION PAYMENT MADE TO THEM DOES NOT FALL INTO THE CATEGOR Y OF 'FEES OF TECHNICAL SERVICES' AND THEREFORE, EXPLANATION (2) TO SECTION 9(1)(VII) OF THE ACT, AS INVOKED BY THE ASSESSING OFFICER, HA S NO APPLICATION TO THE FACTS OF THE ASSESSEE'S CASE. 5.6 ON THE ISSUE OF NON-DEDUCTION OF TDS ON C OMMISSION PAYMENTS MADE TO FOREIGN COMPANY, WE ALSO NOTE THAT ITAT, DELHI BENCH, IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 20 12-13 IN ITA NO.5488/DEL/2017 VIDE ORDER DATED 17.02.2021 HAS DE CIDED IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER: 12 ITA NO.389 4 & 3895/DEL/2017 ACIT VS. M/S GROZ ENGINEERING TOOL S PVT. LTD. 5. APROPOS GROUND NO. 2 DEALING WITH NON-DEDUC TION OF TDS ON COMMISSION PAID TO FOREIGN COMPANIES HAS ALSO BE EN DEALT BY THE CO-ORDINATE BENCH OF THE TRIBUNAL FOR THE A.Y. 2011-11 AS WELL AS FOR A.Y. 2013-14 WHEREIN IT WAS HELD THAT T HE COMMISSION HAS BEEN PAID TO FOREIGN AGENTS DECIDING OUTSIDE INDIA AND THEY HAVE NOT RENDERED ANY TECHNICAL SERV ICES AND HENCE DO NOT COME UNDER THE PROVISIONS OF SECTION 9 (1)(VII)(B) OF THE INCOME TAX ACT, 1961. IN THE ABSENCE OF ANY CHA NGE IN THE POSITION OF THE FACTS AND PROPOSITION OF THE LAW, W E HOLD THAT THE DISALLOWANCE MADE BY THE AO U/S 40(A)(IA) IS NOT LE GALLY TENABLE. WE AFFIRM THE ORDER OF THE LD. CIT (A) ON THIS GROUND. 5.7 THE ISSUE IS ALSO SQUARELY COVERED BY THE JUDG MENT OF HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONE R OF INCOME TAX, DELHI VS. MARUTI SUZUKI INDIA LTD. 2017 912) T MI 474-DELHI HIGH COURT AND THE COMMISSIONER OF INCOME TAX, DELH I-IV, NEW DELHI VS. EON TECHNOLOGY P. LTD. [2012] 343 ITR 366 WHEREIN IT HAS BEEN HELD THAT NO TDS IS REQUIRED TO BE DEDUCTED ON THE COMMISSION PAID TO OVERSEAS AGENT. 5.8 THE OBSERVATIONS OF THE HONBLE DELH I HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX, DELHI VS. MARUT I SUZUKI INDIA LTD.- 2017 (12) TMI 474 - DELHI HIGH COURT AR E AS UNDER: 11. THE CONTENTION OF THE REVENUE, INVOKING SE CTION 195 (1) OF THE ACT, PROCEEDS ON THE PREMISE THAT THE AMOUNT PAID TO THE 13 ITA NO.389 4 & 3895/DEL/2017 ACIT VS. M/S GROZ ENGINEERING TOOL S PVT. LTD. AGENTS ABROAD WERE IN FACT CHARGEABLE TO TAX IN INDIA. FACTUALLY IT WOULD HAVE TO BE SHOWN THAT THE SAID S UM WAS RECEIVED IN INDIA. HERE THERE IS ALSO NO FACTUAL DE TERMINATION THAT THE NON-RESIDENT AGENT WHO OPERATES OUTSIDE IN DIA HAS ANY INCOME WHICH ARISES IN INDIA. WITHOUT THESE FOUNDAT IONAL FACTS, THE QUESTION OF APPLYING SECTION 195 (1) OF THE ACT DOES NOT ARISE. 12. IN CIT V. MODEL EXIMS KANPUR (SUPRA), IT WAS HELD THAT THERE WAS NO OBLIGATION TO DEDUCT TDS UNDER SECTION 195 OF TH E ACT FROM THE COMMISSION PAID TO A NON-RESIDENT RECI PIENT WHO WAS NOT LIABLE TO TAX IN INDIA. IN CIT V. GUJARAT R ECLAIM & RUBBER PRODUCTS LTD. (SUPRA), THE COMMISSION EARNED BY A NON- RESIDENT AGENT WHO WAS IN THE BUSINESS OF SELLING INDIAN GOODS ABROAD, WAS HELD NOT TO BE INCOME THAT HAD ACCRUED AND/OR ARISEN IN INDIA. THEREFORE, SECTION 40 (A) (I) OF T HE ACT COULD NOT BE INVOKED TO DISALLOW SUCH PAYMENT AS DEDUCTION ON THE GROUND THAT NO TDS UNDER SECTION 195 (1) WAS DEDUCT ED FROM SUCH PAYMENT. FURTHER THE CBDT CIRCULAR NO. 23 DATE D 23RD JULY 1969 STATED THAT A FOREIGN AGENT OF AN INDIAN EXPORTER OPERATES IN HIS OWN COUNTRY AND NO PART OF HIS INCO ME ARISES IN INDIA.' IT ACKNOWLEDGES THAT SUCH COMMISSION IS REM ITTED TO THE AGENT ABROAD AND NOT RECEIVED BY HIM OR ON HIS BEH ALF IN INDIA. SUCH AGENT IS NOT LIABLE TO INCOME-TAX IN INDIA ON THE COMMISSION. THIS WAS REITERATED BY THE SUBSEQUENT CIRCULAR 14 ITA NO.389 4 & 3895/DEL/2017 ACIT VS. M/S GROZ ENGINEERING TOOL S PVT. LTD. NO 786 DATED 7TH FEBRUARY 2000. BOTH THE CIRCULARS ARE BINDING ON THE REVENUE. 13. THE CONTENTION OF THE REVENUE THAT THE ABOV E CIRCULARS CANNOT OVERRIDE THE ACT, WAS NEGATIVED BY THIS COURT IN CIT V. EON TECHNOLOGY (P.) LTD. (SUPRA), BY HOLDING THAT W HEN A NON- RESIDENT OPERATES OUTSIDE THE COUNTRY, NO PART OF H IS INCOME ARISES IN INDIA. FURTHER IT WAS HELD THAT MERELY BECAUSE AN ENTRY IS MADE IN THE BOOKS OF ACCOUNTS DOES NOT MEA N THAT THE NONRESIDENT RECEIVED ANY PAYMENT IN INDIA. SINCE NO PART OF THE INCOME COULD BE DEEMED TO HAVE ACCRUED TO THE NON-R ESIDENT IN INDIA, THERE WAS NO OBLIGATION TO DEDUCT TDS FROM THE PAYMENT MADE TO SUCH NON-RESIDENT. CONSEQUENTLY, THE QUESTI ON OF DISALLOWING THE PAYMENT UNDER SECTION 40 (A) (I) OF THE ACT FOR FAILURE TO DEDUCT TDS DID NOT ARISE. 5.9 SIMILARLY IN THE CASE OF COMMISSIONER OF INCOME TAX-1, VS. ANGELIQUE INTERNATIONAL LTD. 2013 (10) TMI 17 DELHI HIGH COURT [2012] 359 ITR 9, IT WAS HELD AS UNDER: 10. SO LONG AS THE CIRCULARS WERE IN FORCE, IT AID ED IN UNIFORM AND PROPER ADMINISTRATION AND APPLICATION OF THE PR OVISIONS OF THE ACT. READ IN THIS MANNER, WE DO NOT THINK THE R ESPONDENT- ASSESSEE WAS IN DEFAULT AND HAD FAILED TO DEDUCT AT SOURCE, THOUGH IT WAS MANDATED AND REQUIRED. THE RESPONDENT WAS ENTITLED TO RELY UPON THE CIRCULARS. IN LIGHT OF TH E JUDGMENTS OF THE SUPREME COURT IN CIT VERSUS ELI LILLY COMPANY (INDIA) 15 ITA NO.389 4 & 3895/DEL/2017 ACIT VS. M/S GROZ ENGINEERING TOOL S PVT. LTD. PRIVATE LIMITED, (2009) 312 ITR 225 (SC) AND G.E INDIA TECHNOLOGIES CENTRE PRIVATE LIMITED VERSUS CIT, (20 10) 327 ITR 456 (SC), ONCE THE INCOME WAS NOT EXIGIBLE OR CHARGEABLE TO TAX, TDS WAS NOT REQUIRED TO BE DEDUCTED. MONEY PAID TO THE THIR D PARTIES, WHO DID NOT HAVE ANY OFFICE OR PERMANENT ESTABLISHMENT IN INDIA, WAS EXEMPT AND NOT CHARGEABLE TO TAX. THUS ON THE SAID PAYMENTS OR INCOME, TDS WAS NOT REQUIRED TO BE DEDUCTED. WE ALSO NOTE THAT THE PAYMENTS IN QUES TION WERE MADE PRIOR TO CIRCULAR NO. 7/2009. ON THIS ASPECT, THERE IS NO DISPUTE. WE, THEREFORE, DO NOT FIND ANY REASON TO I NTERFERE WITH THE ORDER PASSED BY THE TRIBUNAL DELETING THE ADDIT ION MADE BY THE ASSESSING OFFICER UNDER SECTION 40(A) (I) OF TH E ACT. THE APPEAL, BEING DEVOID OF MERIT, IS DISMISSED. 5.10 THEREFORE, RESPECTFULLY FOLLOWING THE RAT IO LAID BY THE HONBLE DELHI HIGH COURT AS AFORESAID, WE UPHOLD TH E ACTION OF THE LD. CIT(A) IN DELETING THE IMPUGNED DISALLOWANCE FOR NON DEDUCTION OF TAX ON COMMISSION PAYMENT MADE TO FOREIGN COMPAN Y IN BOTH THE YEARS. 6.0 IN THE FINAL RESULT, BOTH APPEALS OF TH E DEPARTMENT STAND DISMISSED. ORDER WAS ANNOUNCED ON 13 TH SEPTEMBER, 2021 [ SD/- SD/- (R.K.PANDA) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:13/09/2021 PK/PS 16 ITA NO.389 4 & 3895/DEL/2017 ACIT VS. M/S GROZ ENGINEERING TOOL S PVT. LTD. COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI