IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI AMARJIT SINGH, ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. NO.442/AHD/2016 (ASSESSMENT YEAR : 2012-13) ACIT. CIR-2(1)(2), AHMEDABAD-380 014. VS. M/S. M&B ENGINEERING LTD., M&B HOUSE, 51, CHANDRODAYA SOCIETY, OPP: GOLDEN TIRANGLE, STADIUM ROAD, AHMEDABAD -380 014. [PAN NO. AACM 7930 Q] ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI LALIT P. JAIN, SR. D.R. RESPONDENT BY : SHRI SUNIL TALATI, A.R. DATE OF HEARING 13/08/2018 DATE OF PRONOUNCEMENT 02/11/2018 O R D E R PER MS. MADHUMITA ROY - JM: THE INSTANT APPEAL HAS BEEN PREFERRED BEFORE US BY THE REVENUE AGAINST THE ORDER DATED 22.12.2015 PASSED BY THE COMMISSIONER OF INCO ME TAX(APPEALS)-2, AHMEDABAD UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 AR ISING OUT OF THE ORDER DATED 09.03.2015 PASSED BY THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(2), AHMEDABAD FOR THE ASSESSMENT YEAR 2012-13 WITH THE FOLLOWING GROUNDS : 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE MADE BY THE AO OF RS.79,32,450/- U/S.40(A)(I) OF TH E ACT, WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED TO TH E ABOVE EXTENT. - 2 - ITA NO.442/AHD/2016 ACIT VS. M &B ENGINEERINGLTD.. ASST.YEAR 2012-13 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER AN Y GROUND OR ADD A NEW GROUND, WHICH MAY BE NECESSARY. 3. THE MOOT POINT INVOLVED IN THIS PARTICULAR CASE AS TO WHETHER THE LEARNED CIT(A) IS JUSTIFIED IN DELETING THE ADDITION MADE BY THE L EARNED ASSESSING OFFICER ON ACCOUNT OF NON-DEDUCTION OF TDS UNDER SECTION 195 R.W.S. 40(A) (I) OF THE ACT. 4. THE ASSESSEE, AN INDIAN COMPANY ENGAGED IN THE B USINESS OF SUPPLYING AND THE ERECTION OF BUILDING OR PART THEREOF. DURING THE YE AR UNDER CONSIDERATION THE ASSESSEE HAS RECEIVED ORDERS FROM PARTIES LOCATED ABROAD THROUGH FOREIGN AGENTS AND UPON RECEIPT OF THE ORDERS THE MATERIALS WERE SHIPPED AND COMMISSIO NED BECOME PAYABLE TO THE SAID AGENTS UNDER SECTION 5(2)(B) OF THE ACT. THE ASSESS EE DEBITED AN EXPENDITURE OF RS.1,03,68,036/-AGAINST COMMISSIONED EXPENSES UNDER THE HEAD SELLING AND DISTRIBUTION EXPENSE. DURING THE COURSE OF ASSESSMENT PROCEEDING S THE ASSESSEE WAS REQUESTED TO FURNISH THE DETAILS OF WITH DOCUMENTARY EVIDENCES R EGARDING PAYMENT OF THE SAID COMMISSION EXPENSES. IT APPEARS FROM THE RECORDS TH AT THE ASSESSEE PAID COMMISSION AMOUNTING TO RS.79,32,450 TO NON-RESIDENT OF FOREIG N AGENTS WITHOUT DEDUCTING TAX AT SOURCE. THE COPY OF THE AGREEMENT WITH THE COMMISSI ON AGENTS, THE NATURE OF SERVICES RENDERED, THE BASIS OF COMMISSION WAS DIRECTED TO B E SUBMITTED BY THE ASSESSEE. IN REPLY THEREOF THE ASSESSEE CATEGORICALLY MENTIONED THAT T HE ASSESSEE PAID COMMISSION TOWARDS PROCUREMENT OF ORDERS IN THE EARLIER YEARS WHICH WE RE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE SAME WAS ACCEPTED BY TH E DEPARTMENT. HOWEVER, THE ASSESSEE HAS NOT SPECIFICALLY SUBMITTED ANY BILL FROM WHICH IT COULD BE ASCERTAINED THAT THE ASSESSEE HAS MADE THE COMMISSION PAYMENTS TOWARDS T HAT BILL. THE INVOICES RAISED BY STONE HILL ELECTROMECHANICAL CONTRACTING IN UAE HAS ALSO BEEN SUBMITTED BY THE ASSESSEE BUT NOT THE DETAILS OF THE ORDERS THEREOF. HOWEVER, THE LEARNED ASSESSING OFFICER WAS NOT SATISFIED WITH THE CONTENTION MADE BY THE ASSESSEE AND ULTIMATELY THE COMMISSION EXPENSES TO FOREIGN AGENTS HAS BEEN DISALLOWED UNDE R SECTION 37(1) OF THE ACT. FURTHER THAT THE EXPENDITURE CLAIMED UNDER THE HEAD COMMISS ION EXPENSES PAID TO NON RESIDENTS - 3 - ITA NO.442/AHD/2016 ACIT VS. M &B ENGINEERINGLTD.. ASST.YEAR 2012-13 HAS BEEN DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE UNDER SECTION 40(A)(I) OF THE ACT FOR NON-REDUCTION OF TDS UNDER SECTION 1 95 OF THE ACT BY THE ASSESSEE. IN APPEAL THE LEARNED CIT(A) DELETED THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER. HENCE THE INSTANT APPEAL FILED BY THE REVENUE BEFOR E US. AT THE TIME OF THE HEARING OF THE INSTANT APPLICATI ON THE LEARNED REPRESENTATIVE OF THE DEPARTMENT RELIED UPON THE ORDER PASSED BY THE LEARNED ASSESSING OFFICER. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE SUB MITTED BEFORE US THAT THE AGENTS WAS NON-RESIDENT, WAS ACTING OUTSIDE INDIA WERE PROVIDI NG THE SERVICES IN LIEU OF COMMISSION FROM ABROAD. THE SAID AGENT DOES NOT HAVE ANY PERMA NENT ESTABLISHMENT IN INDIA. IN THE ABSENCE OF ANY ACTIVITY BEING CARRIED OUT IN INDIA BY A NON RESIDENT COMMISSION AGENT THE COMMISSION DOES NOT ACCRUE OR ARISE IN INDIA AND TH EREFORE IS NOT TAXABLE IN INDIA. THE REPRESENTATIVE OF THE ASSESSEE RELIED UPON THE JUDG MENT PASSED BY THE COORDINATE BENCH IN ITA NO. 2503/AHD/2016 FOR ASSESSMENT YEAR 2013-1 4 WHICH WAS DELIVERED ON THE ISSUE IDENTICAL TO THE INSTANT CASE. 5. WE HAVE HEARD THE LEARNED COUNSEL APPEARING FOR THE PARTIES, WE HAVE PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. WE FIND WHI LE COMING TO THE CONCLUSION IN RESPECT OF LIABILITY TO DEDUCT TAX AT SOURCE BY THE ASSESSE E THE LEARNED ASSESSING OFFICER CAME TO A FINDING THAT THE IDENTITY OF COMMISSION AGENTS HA S NOT BEEN PROVED BY THE ASSESSEE, NEITHER THE AGREEMENTS BEEN SUBMITTED BY THE ASSESS EE. IT WAS FURTHER OBSERVED BY THE LEARNED ASSESSING OFFICER THAT IT COULD BE ASCERTAI NED FROM THE AGREEMENT SINCE NOT SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE MADE TH E COMMISSION PAYMENT TO STONE HILL ELECTROMECHANICAL CONTRACTING OF UAE WHEREAS THE AS SESSEE HAS MADE SALES TO OTHER COUNTRIES LIKE TANZANIA AND MOZAMBIQUE. THEREFORE T HE ASSESSEE FAILED TO SPECIFY AS TO WHO THIS COMMISSION AGENTS BASED IN UAE MADE SALES TO COUNTRIES LIKE TANZANIA AND MOZAMBIQUE. THE TERMS AND CONDITION FOR SUCH PAYMEN T OF COMMISSION AND THE ROLE OF COMMISSION AGENT HAS NOT BEEN CLARIFIED BY THE ASSE SSEE AS ALSO OBSERVED BY THE LEARNED - 4 - ITA NO.442/AHD/2016 ACIT VS. M &B ENGINEERINGLTD.. ASST.YEAR 2012-13 ASSESSING OFFICER. THE ASSESSEE HAS PAID COMMISSION AS HIGH AS 20% TO THE COMMISSION AGENT. FURTHER THAT AN ADVANCE PAYMENT OF COMMISSIO N OF RS.6,91,950/- WAS MADE ON 07.09.2011 AGAINST THE BILL RAISED ON 01.10.2011. T HE PROOF OF SERVICES RENDERED BY THE COMMISSION AGENTS HAS NOT BEEN SUBMITTED BY THE ASS ESSEE AS ALSO ONE OF THE FINDINGS OF THE LEARNED ASSESSING OFFICER. IN THE ABSENCE OF AN Y PROOF TOWARDS THE IDENTITY OF THE COMMISSION AGENTS OR THAT THE SERVICES RENDERED BY THE AGENTS THE COMMISSION EXPENSES TO FOREIGN AGENTS HAS BEEN DISALLOWED UNDER SECTION 37(1) OF THE ACT. APART FROM THAT THE ASSESSEE WAS ISSUED WITH A SH OW CAUSE NOTICE AS TO WHY THE COMMISSION OF RS.79,32,450/-PAID TO THE NON-RESIDEN T FOREIGN AGENTS SHOULD NOT BE DISALLOWED INVOKING THE PROVISION OF SECTION 195 OF THE ACT SINCE THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE ON THE SAID COMMISSION. IN REP LY TO THE SAID SHOW CAUSE IT WAS SUBMITTED THAT THE LIABILITY TOWARDS THE TDS ON SUC H PAYMENTS DID NOT ARISE BECAUSE THE PARTIES TO WHOM COMMISSION HAS BEEN PAID HAS RENDER ED THE SERVICES OUTSIDE INDIA AND ALSO NOT HAVING PERMANENT ESTABLISHMENT IN INDIA. T HE COMMISSION TO NON-RESIDENT DOES NOT INVOLVE INCOME CHARGEABLE TWO TAXES IN INDIA AN D THEREFORE DOES NOT ATTRACT DEDUCTION OF TDS AS ALSO CONTENDED BY THE ASSESSEE IN THE SAI D REPLY. HOWEVER, SUCH EXPLANATION GIVEN BY THE ASSESSEE WAS NOT ACCEPTED BY THE ASSES SING OFFICER IN THE ABSENCE OF ANY CONTRACT AGREEMENT WITH THE FOREIGN AGENTS AND THE NATURE OF SERVICES RENDERED ON THE BASIS OF WHICH THE COMMISSION HAS BEEN PAID BEEN FU RNISHED BY THE ASSESSEE. ACCORDING TO THE ASSESSING OFFICER THOUGH THE AGENTS HAVE REN DERED SERVICES ABROAD AND HAVE SOLICITED ORDERS THEREFROM THE RIGHT TO RECEIVE THE COMMISSION ARISES IN INDIA WITH THE ORDER EXECUTED BY THE ASSESSEE IN INDIA AND THUS AC CORDING TO HIM THE INCOME ACCRUED IS SOURCED IN INDIA AND THE SAID COMMISSION IS TAXABLE UNDER THE ACT IN VIEW OF THE SPECIFIC PROVISION OF SECTION 5(2)(B) READ WITH SECTION 9(1) (I) OF THE ACT. THUS THE PROVISION OF SECTION 195 IS SQUARELY APPLICABLE TO THE CASE OF T HE ASSESSEE AND THE OBLIGATION TO DEDUCT TAX AT SOURCE UNDER THE SAID PROVISION HAS BEEN FAI LED TO BE COMPLIED WITH BY THE ASSESSEE AS HELD BY THE LEARNED ASSESSING OFFICER AND THE EX PENDITURE CLAIMED UNDER THE HEAD - 5 - ITA NO.442/AHD/2016 ACIT VS. M &B ENGINEERINGLTD.. ASST.YEAR 2012-13 COMMISSION EXPENSES PAID TO NON RESIDENTS HAS BEEN DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE UNDER SECTION 40(A)(I) OF TH E ACT. BEING AGGRIEVED BY AND/OR DISSATISFIED WITH THE ORD ER PASSED BY THE LEARNED ASSESSING OFFICER WHO IN TURN ALLOWED THE SAID APPE AL. IT APPEARS THAT BEFORE THE LEARNED CIT(A) THE ASSESSEE MADE AN APPLICATION DATED 12.08 .2015 FOR ADMISSION OF THE ADDITIONAL EVIDENCES WITH THE SPECIFIC STATEMENT TH AT UPON RECEIPT OF COPIES OF AGREEMENT ENTERED INTO WITH THE FOREIGN AGENT THE ASSESSEE AP PEARED BEFORE THE ASSESSING OFFICER ON 13.03.2015 TO FILE THE SAME ALONG WITH DETAILED SUB MISSIONS WHICH THOUGH ACCEPTED BY THE ASSESSING OFFICER BUT SURPRISINGLY THE ASSESSME NT ORDER HAS BEEN HANDED OVER TO THE ASSESSEE 13.03.2015 PASSED BY HIM ON 09.03.2015. TH E ASSESSEE, THEREFORE, WAS PREVENTED BY REASONABLE AND SUFFICIENT CAUSE FROM P RODUCING THE EVIDENCES WHICH THE LEARNED ASSESSING OFFICER HAD CALLED FOR AS CONTEND ED BY THE ASSESSEE IN THE SAID APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCES. THE SAID APPLICATION OF THE ASSESSEE ALLOWED WITH THE ADDITIONAL EVIDENCES WERE SENT TO THE LEARNED ASSESSING OFFICER BY THE FIRST APPELLATE AUTHORITY AND THE REMAND REPORT DUL Y SUBMITTED THEREOF BY THE ASSESSING OFFICER WAS MADE AVAILABLE TO THE APPELLANT WHO IN TURN FILED A REJOINDER TO THE SAME. UPON CONSIDERING THE REMAND REPORT SUBMITTED BY THE LEARNED ASSESSING OFFICER AND THE REPLY FORWARDED BY THE ASSESSEE THE LEARNED CIT(A) ADMITTED THE SAID ADDITIONAL EVIDENCES AND DULY CONSIDERED THE SAME ADJUDICATING THE MATTER AND ULTIMATELY ALLOWED THE APPEAL PREFERRED BY THE ASSESSEE WITH THE FINDI NG THAT THE APPELLANT WAS NOT LIABLE TO DEDUCT TAX ON THE COMMISSION PAID TO THE FOREIGN AG ENTS. THESE FOREIGN AGENTS WERE NON- RESIDENT AND IT WAS ACTING OUTSIDE INDIA HAVING NO PERMANENT ESTABLISHMENT FOR BUSINESS CONNECTION OR BUSINESS PLACE IN INDIA. WHILE DOING SO LEARNED FIRST APPELLATE AUTHORITY MADE THE FOLLOWING OBSERVATIONS: 2.10 HAVING, CONSIDERED THE REQUEST FOR ADMISSION OF THE ADDITIONAL EVIDENCES, NATURE THEREAT, REMAND REPORT OF AO AND REJOINDER T O THE REMAND REPORT, IT IS NOTICED THAT THE APPELLANT VIDE ORDER SHEET ENTRY D ATED 03/03/2015 IN THE ASSESSMENT PROCEEDINGS HAS ASKED FOR TO SUBMIT THE COPIES OF THE AGREEMENT WITH - 6 - ITA NO.442/AHD/2016 ACIT VS. M &B ENGINEERINGLTD.. ASST.YEAR 2012-13 COMMISSION AGENT AND IN COMPLIANCE THERETO THE., AP PELLANT MADE THE SUBMISSION VIDE ITS LETTER DATED 09/03/2015. IN THE ASSESSMENT ORDER AT PARA NO. 3.1, THE AO HAS OBSERVED THAT APPELLANT VIDE ITS LETTER DATED 0 9/03/2015, THAT THERE WAS NO AGREEMENT WITH THE FOREIGN AGENT WHICH WAS OBJECTED BY THE APPELLANT BY SUBMITTING A COPY OF ITS REPLY OF EVEN DATE THAT NO SUCH STATEMENT HAS BEEN GIVEN IN THE SAID SUBMISSION DATED 09/03/2015 AND IT WAS FAC TUALLY PASSED THE ASSESSMENT ORDER ON THE SOMEDAY WITHOUT GRANTING ANY FURTHER O PPORTUNITY. NOW IN THE APPELLATE PROCEEDINGS, THE APPELLANT HAS SUBMITTED COPIES OF THE AGREEMENTS IN SUPPORT OF THE AGENCY WHICH HAVE ALSO BEEN PROVIDED TO THE AO FOR HIS COMMENTS IN THE PRESENT APPELLATE PROCEEDINGS. BUT EVEN ON M ERITS, THE AO HAS NOT GIVEN ANY ADVERSE COMMENTS ABOUT THE AUTHENTICITY OR THE GENU INENESS OF SUCH AGREEMENTS. IT HAS BEEN NOTICED THAT ASKING BY THE AO FOR SUBMISSION OF THE AGREEMENTS ON 03/03/2015 THROUGH ORDER SHEET ENTRY AND NOT : SUBMITTING THE SAME BY THE APPELLANT ON 09/03/2015 IS CERTAINLY THE LAC K OF TIME GRANTED TO THE APPELLANT FOR COMPLIANCE OF THE SAME. THE AO HAS NO T FOLLOWED THE PRINCIPLE OF NATURAL JUSTICE. NOW, IN THE PRESENT APPELLATE PROC EEDINGS, THE APPELLANT HAS SUBMITTED THE COPIES OF, THESE AGREEMENTS WHICH WER E MADE AVAILABLE TO THE AO FOR HIS COMMENT, AND HENCE, IT IS A CASE OF LACK OF OPPORTUNITIES GRANTED TO THE APPELLANT IN THE ASSESSMENT PROCEEDINGS WHICH FALLS UNDER CLAUSE (D) OF RULE 46A, AND THUS, THESE ADDITIONAL EVIDENCES ARE ADMITTED A ND CONSIDERED WHILE DECIDING THE ISSUE UNDER CONSIDERATION IN THE SUBSEQUENT PAR AS OF THIS ORDER. IT IS NEEDLESS TO MENTION THAT THE CASE LAWS CITED BY THE AO FOR N ON ADMISSION OF ADDITIONAL EVIDENCES IS NOT APPLICABLE OVER THE FACTS OF THE C ASE FOR THE REASON THAT ON THE FACTS, THE APPELLANT COULD NOT BE HELD TO BE NEGLIG ENT, NON - COOPERATIVE AND RECALCITRANT, MERELY FOR THE REASON THAT THE COPIES OF AGREEMENTS COULD NOT BE SUBMITTED WITHIN 6 DAYS FROM THE DATE OF QUERY RAIS ED BY THE AO. THE APPELLANT ALSO SUBMITTED THAT THIS TYPE OF COMM ISSION TO OVERSEAS AGENTS ON EXPORT INCLUDING STONE HILL ELECTROMECHAN ICAL CONTRACTING HAVE ALSO BEEN PAID IN THE PRECEDING YEARS AND THE AO HAS ALL OWED SUCH COMMISSION PAYMENTS AND NO DISALLOWANCE IN THIS REGARD HAS BEE N MADE IN THE SCRUTINY ASSESSMENT COMPLETED FOR A. Y. 2011-12. IT WAS ALSO PLEADED THAT THEY HAVE COMPLIED THE PROVISIONS OF I.T. ACT, DTAA AND ACCOR DINGLY WAS NOT UNDER AN OBLIGATION TO MAKE WITHHOLDING TAX IN TERMS OF BENE FICIAL PROVISIONS OF SECTION 90(2) OF THE I. T. ACT. THE APPELLANT ALSO PROVIDED TO THE AO, THE EVIDENCES ALONG WITH BANK PAYMENT DETAILS REALIZING THE EXPORT PROC EEDS, COMPANY PAYMENT ADVICE, FORM NO.15CA AND 15CB, CREDIT NOTE OF OVERS EAS AGENT, INVOICE FOR EXPORT BY COMPANY WITH COMMISSION AMOUNT ETC. WAS F URNISHED AS EVIDENCES FOR JUSTIFICATION OF COMMISSION TP. OVERSEAS AGENT AND THE SAME HAVE NOT BEEN CONTROVERTER IN THE ASSESSMENT PROCEEDINGS. THUS, I T WAS SUBMITTED THAT THE PAYMENT OF COMMISSION TO OVERSEAS AGENT WAS PART OF EXPORT OF PRODUCTS AND AN IMPORTANT MEDIATORY CHANNEL TO BOOK THE EXPORT ORDE RS AS WELL AS TO TAKE CARE OF - 7 - ITA NO.442/AHD/2016 ACIT VS. M &B ENGINEERINGLTD.. ASST.YEAR 2012-13 REALIZATION OF EXPORT PROCEEDS. THUS, THE COMMISSIO N PAYMENT WAS GENUINE AND PAID THROUGH BANKING CHANNELS ON EXPORT ORDERS PROC URED. THE SAME WERE MADE FOR THE PURPOSE OF BUSINESS IN PRUDENT WAY TO INCRE ASE EXPORT AND INCREASE CUSTOMER BASE IN FOREIGN COUNTRIES. 2.1 1 WITH REGARD TO THE PROVISIONS OF SECTION 9(1) (I), IT WAS SUBMITTED THAT THE OVERSEAS AGENT WAS NOT DOING ANY BUSINESS IN INDIA, IT WAS MERELY PROVIDING EXPORT ORDERS TO FACILITATE APPELLANT. FURTHER, THE OVERSEAS AGENT DID NOT HAD ANY BUSINESS CONNECTION IN INDIA. IT WAS FURTHER CLAIME D THAT THERE, IS NO INCOME DEEMED TO ACCRUE OR ARISE IN INDIA IN VIEW OF THE E XPLANATIONS TO THE PROVISIONS OF SECTION 9(1)(I) OF THE I.T. ACT AS THE OVERSEAS AGE NT HAD RENDERED SERVICES OUTSIDE INDIA AND THE COMMISSION WAS ALSO PAID TO THEM OUTS IDE INDIA. HENCE, THERE WAS NO OBLIGATION TO DEDUCT THE TAX FROM SUCH COMMISSIO N PAYMENTS AS PER THE PROVISIONS OF SECTION 195 OF THE I.T. ACT. 2.12. THUS, IT HAS BEEN SUBMITTED THAT THE IDENTI TY AND GENUINENESS OF THE OVERSEAS COMMISSION AGENT IS PROVED WITH THE EVIDEN CES SUCH AS, CREDIT NOTES TO OVERSEAS AGENTS, EXPORT INVOICES, SHIPPING BILLS, B ANK CERTIFICATE FOR EXPORT REALIZATION, COPY OF FORM NO. 15CA & 15GB AND COMMI SSION PAYMENT ETC. AS DISCUSSED ABOVE. 2.13. HAVING CONSIDERED THE FACTS AND SUBMISSIONS , THE ISSUES WHICH ARE TO BE EXAMINED AND DECIDED ARE AS UNDER:- 1. WHETHER THE COMMISSION PAID TO FOREIGN AGENTS I S TAXABLE IN INDIA BY VIRTUE OF THE PROVISIONS OF SECTION 5 (2)(B) READ W ITH SECTION 9(1)(I) OF INCOME TAX ACT. 2. WHETHER THE PROVISIONS OF SECTION 195(2) WERE A PPLICABLE ON THE APPELLANT AND HE SHOULD HAVE DEDUCTED TAX AND IN CA SE OF NO DEDUCTION HE SHOULD HAVE OBTAINED A NO DEDUCTION CE RTIFICATE FROM THE AO. AND 3. WHETHER THE COMMISSION PAID WAS GENUINE AND THE SERVICES HAVE BEEN RENDERED. 2.14 REGARDING THE FIRST ISSUE IT IS NOTED FROM THE EVIDENCES GIVEN BY THE APPELLANT AS WELL AS NOTED BY THE AO IN HIS ORDER T HAT THE SERVICES HAVE BEEN RENDERED BY THE FOREIGN AGENTS OUTSIDE INDIA. THE S ALES WERE BOOKED BY THEM IN OTHER COUNTRIES OR FOR THE COUNTRY FOR WHICH THEY H AVE BEEN APPOINTED AS COMMISSION AGENTS. NONE OF THE ACTIVITIES SOLICITIN G THE CLIENTS AND PROCURING THE ORDERS HAS TAKEN PLACE IN INDIA. THE GOODS WERE BEI NG DELIVERED BY THE APPELLANT COMPANY IN THE OTHER COUNTRY. THE ACTIVITIES OF PRO CURING THE PAYMENT ON BEHALF OF THE APPELLANT COMPANY WERE ALSO DONE ABROAD. THE AO WAS THEREFORE, INCORRECT TO HOLD THAT THE SOURCE OF INCOME LIES IN INDIA AS THE SAFES HAVE BEEN MADE FROM - 8 - ITA NO.442/AHD/2016 ACIT VS. M &B ENGINEERINGLTD.. ASST.YEAR 2012-13 INDIA. THE PROVISIONS OF INCOME TAX ACT CLEARLY PRO VIDE THAT THE TAX WOULD BE DEDUCTED ON THE INCOME WHICH IS TAXABLE IN INDIA. T HE ACTIVITY OF EARNING THE INCOME IS NOT THE SALE BUT SOLICITING THE SALES BY COMMISSION AGENT. THOUGH THIS ACTIVITY IS LINKED TO THE SALES OF THE COMPANY BUT IT CANNOT BE SAID THAT THE INCOME HAS BEEN DERIVED FROM SALES WHICH HAS BEEN MADE FRO M INDIA. THE INCOME HAS BEEN DERIVED FROM THE ACTIVITY OF SOLICITING THE SA LES ON BEHALF OF THE APPELLANT COMPANY. THE AGENT HAS CARRIED OUT ALL THE ACTIVITY ON THE FOREIGN SOIL AND NONE OF ITS ACTIVITY IS IN INDIA THEREFORE, IT CANNOT BE SA ID THAT THE INCOME HAS ACCRUED OR ARISEN IN INDIA AND THE SOURCE OF INCOME WAS IN IND IA. THERE IS NO FACT BROUGHT OUT BY THE AO IN THE ORDER AS WELL AS OBSERVED BY ME DU RING THE COURSE OF APPELLATE PROCEEDINGS TO INDICATE THAT THE SERVICES HAVE BEEN RENDERED IN INDIA. 2.15 THE JUDGMENT OF HONOURABLE SUPREME COURT IN TH E CASE OF CIT VS. TOSHOKU LIMITED [125 ITR 525 (SC)] IS IMPORTANT ON THE ISSU E, WHEREBY IT HAS BEEN HELD THAT COMMISSION EARNED BY THE NON-RESIDENT FOR ACTI NG AS THE SELLING AGENT FOR THE INDIAN EXPORTER, WHEREIN SUCH NON-RESIDENT WAS REND ERING SERVICES FROM OUTSIDE INDIA DOES NOT ACCRUE IN INDIA. IN THE PRESENT CASE BEFORE ME ALSO, THE. FOREIGN SELLING COMMISSION AGENT IS RESIDENT OF FOREIGN COU NTRY, FROM WHERE THE PROCUREMENT SERVICE HAD BEEN PROVIDED FOR WHICH THE COMMISSION HAS BEEN PAID, AND THEREFORE, THE ISSUE IS DIRECTLY AND SQUARELY C OVERED BY THE APEX COURT DECISION. 2.16 REGARDING THE OBSERVATION OF THE AO THAT THE I NCOME IS DEEMED TO ACCRUE OR ARISE IN INDIA BY APPLYING THE PROVISIONS OF SEC TION 9 (1)(I), IT IS SEEN THAT THERE IS NO FACT ON RECORD TO INDICATE THAT THE AGENT HAD ANY PERMANENT ESTABLISHMENT IN INDIA. THE AGENT HAD ITS OFFICE ON THE FOREIGN SOIL AND NOTHING ON RECORD THAT IT HAD P E IN INDIA. FURTHER THE ASSESSING OFFICER HAS ALSO NOT POINTED OUT ANY SUCH FACT IN ITS ORDER WHICH INDICATE THAT THERE WAS ANY SUCH OF FICE OF THE OVERSEAS AGENT IN INDIA WHICH ATTRACT THE DEEMING PROVISIONS. FURTHER THE OBSERVATION THAT THE SOURCE OF INCOME WAS IN INDIA IS ALSO NOT PROPER AS IT HAS CLEARLY BEEN DISCUSSED IN THE PRECEDING PARAGRAPHS THAT NONE OF THE SERVIC ES HAVE BEEN RENDERED IN INDIA AND SOURCE OF INCOME CANNOT BE SAID TO BE IN INDIA AS THE SOURCE OF INCOME IS THE, SERVICES RENDERED AND NOT THE SALES. THERE IS NO BU SINESS CONNECTION IN. INDIA FROM WHICH THE INCOME HAS BEEN EARNED, THERE IS NO PROPE RTY THROUGH OR FROM WHICH THE INCOME HAS BEEN EARNED. THEREFORE, THE PROVISIONS O F SECTION 9 (L)(I) ALSO CANNOT BE APPLIED. 2.17 RELIANCE IS PLACED ON THE JUDGEMENT OF HONOURA BLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE PRIVATE LIMITED 327 ITR 456 AND THE JUDGEMENT OF HONOURABLE ITAT MUMBAI IN THE CASE OF OUR ARDESI B CURSETJEE & SONS LTD. 115 TTJ 916. - 9 - ITA NO.442/AHD/2016 ACIT VS. M &B ENGINEERINGLTD.. ASST.YEAR 2012-13 2.18 THEREFORE, IN VIEW OF THE PRECEDING DISCUSSION THE AO WAS NOT JUSTIFIED TO HOLD THAT THE COMMISSION PAYABLE TO THE OVERSEAS AG ENT WAS DEEMED TO ACCRUE OR ARISE IN INDIA AND IS TAXABLE UNDER THE ACT IN VIEW OF THE SPECIFIC PROVISIONS OF SECTIONS 5(2)(B) READ WITH SECTION 9(1)(I) OF INCOM E TAX ACT. 2.19 REGARDING THE ISSUE OF OBTAINING NO DEDUCTION CERTIFICATE UNDER SECTION 195 IT IS SEEN THAT FOR THE APPLICABILITY OF THE PROVIS IONS OF THIS SECTION, THE SUM MUST BE CHARGEABLE UNDER THE PROVISIONS OF THE INCOME TA X ACT. SECTION 195 PROVIDES FOR DEDUCTION OF TAX BY THE PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT ANY INTEREST OR ANY OTHER SUM CHARGEABLE UNDER THE PROV ISIONS OF THE ACT. IT IS CLEAR THAT THE PAYMENT WAS NOT THE INTEREST. IF HAS TO BE SEEN WHETHER THE PAYMENT IS COVERED UNDER THE TERM 'ANY OTHER SUM CHARGEABLE UN DER THE PROVISION OF THIS ACT'. IT HAS BEEN OBSERVED IN THE PRECEDING DISCUSS ION THAT INCOME WAS NOT CHARGEABLE TO TAX AS IT HAS NOT BEEN RECEIVED IN IN DIA NOR IT HAS ACCRUED OR ARISEN IN INDIA DIRECTLY OR INDIRECTLY. THEREFORE, ONCE TH E INCOME IS NOT TAXABLE THERE IS NO LIABILITY TO DEDUCT TAX AND THEREFORE, IT WAS NOT O BLIGATORY FOR THE APPELLANT :O DEDUCT TAX IN VIEW OF THIS, THERE WAS NO VIOLATION OF THE PROVISIONS OF SECTION 195 AND THE APPELLANT WAS ALSO NOT REQUIRED TO PAY NO D EDUCTION CERTIFICATE FROM THE AO. 2.20 THE LAST ISSUE WHICH IS TO BE ADJUDICATED IS T HAT WHETHER THE COMMISSION PAYMENT WAS GENUINE AND THE SERVICES WERE RENDERED. THE AO HAS BRIEFLY DEALT WITH THE ISSUE IN PARA - 3 & 4 OF HIS ORDER. THE AP PELLANT HAS PLACED ON RECORD SEVERAL DOCUMENTS WHICH INDICATE THAT THE AGENT HAV E RENDERED SERVICES PRIOR TO THE ACTUAL SALES AS WELL AS SUBSEQUENTLY 'ALSO. IT IS FURTHER OBSERVED THAT THE PAYMENTS HAVE BEEN MADE THROUGH BANKING CHANNEL AND ARE DULY DOCUMENTED. THE APPELLANT HAS MADE COMMISSION PAYMENT TO AGENT DURI NG THE YEAR AND IT HAS PROVIDED COPIES OF AGREEMENTS. THE APPELLANT HAS GI VEN SATISFACTORY EVIDENCES IN RESPECT OF ALL COMMISSION PAYMENT, AND THEREFORE, C ONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES THE PAYMENT MADE TO THE AGENT IS TAKEN AS GENUINE. ACCORDINGLY, IN MY CONSIDERED OPINION THE APPELLANT HAS GIVEN SATISFACTORY EVIDENCES REGARDING THE SERVICES RENDERED BY THE AG ENT AND THE GENUINENESS OF PAYMENT OF COMMISSION. 2.21 THE AO HAS ALSO PLACED RELIANCE ON THE DECISIO N OF HON'BLE AUTHORITY OF ADVANCE RULINGS IN THE CASE OF SKF BOILERS AND DRIE RS (P.) LTD. (2012) 18 TAXMANN 325 AND RAJIV MALHOTRA (2006) 284 ITR 564 ( DELHI). THE JUDGEMENTS ARE NOT APPLICABLE TO THE PRESENT FACTS AS THERE AR E SEVERAL OTHER DECISIONS OF HON'BLE ITAT, MUMBAI IN THE CASE OF ACIT (INTERNATI ONAL TAXATION) VS. STAR CRUISE INDIA TRAVEL SERVICES PVT. LTD. [14 ITR ( T) 282 (MUM)], CLSA LIMITED VS. ITO (INTERNATIONAL TAXATION) [56 SOT 254], WHIC H HOLD THAT SUCH KIND OF COMMISSION IS NOT TAXABLE IN INDIA AND ACCORDINGLY NO LIABILITY TO DEDUCT TAX WAS - 10 - ITA NO.442/AHD/2016 ACIT VS. M &B ENGINEERINGLTD.. ASST.YEAR 2012-13 THERE; FURTHER THE DECISION OF HONOURABLE SUPREME C OURT OF INDIA IN THE CASE OF CIT VS. TOSHOKU LIMITED 125 ITR 525, STILL PREVAILS AS ON DATE AND IS THE LAW OF THE LAND AS REGARDS APPLICABILITY OF TDS PROVISIONS TO COMMISSION PAID TO OVERSEAS/NON-RESIDENT AGENTS BY INDIAN EXPORTERS. 2.22 FURTHER, RELIANCE IS PLACED ON THE FOLLOWING DECISI ONS /JUDGMENTS:- ACIT VS. MODERN INSULATORS LTD. [56 DTR 362 (JAIPUR TRLB.)] ISHIKAWAJAMA - HARIMA HEAVY INDUSTRIES LTD. VS. DIR ECTOR OF INCOME TAX [207 CTR 361] DY. COMMISSIONER OF INCOME TAX VS. DIVI'S LABORATOR IES LTD. [(2011} 60 DTR (HYD) (TRIB) 210] ITO, INTERNATIONAL TAXATION, CHENNAI VS. PRASAD PRO DUCTION LTD. [(2010) 125 ITD 263 CHENNAI) (SB) ACIT, CIRCLE - 16(3)(HYDERABAD-TRIB) VS. PRIYADARSH INI SPINNING MILLS (P.) LTD. (2012) ITA NO. 1776(2011) - ; . ACIT (INTERNATIONAL TAXATION) VS. STAR CRUISE INDIA TRAVEL SERVICES PVT. LTD. [14 ITR (T) 282 (MUM.) CLSA LIMITED VS. ITO (INTERNATIONAL TAXATION) [56 S OT 254 (MUM.) ACIT VS. MODERAL INSULATORS LTD. [56 DTR 362 (ITAT , JAIPUR)] ISHIKAWAJAMA - HARIMA HEAVY INDUSTRIES LTD. VS. DIR ECTOR OF INCOME TAX [207 CTR 361] DCIT VS. EON TECHNOLOGY PVT. LTD. [46 SOT 323 (DELH I ITAT) SUKANI ENTERPRISES VS. ACIT [ITA NO. 1330/MUM/2011] (ITAT, MUMBAI) ITO VS. PIPAVAV SHIPYARD LIMITED [(2014) 42 TAXMANN .COM 159] ACIT 17(2), MUMBAI VS. VILAS N. TAMHANKAR (2015) [55 TAXMANN.COM 413] CIT V. VINAYAK EXPORTS 82 CCH 0032 (GUJ) (2012) - 11 - ITA NO.442/AHD/2016 ACIT VS. M &B ENGINEERINGLTD.. ASST.YEAR 2012-13 CIT VS. FLUIDTHERM TECHNOLOGY (P.) LTD. (2015) 57 . TAXMANN.COM 87 (MADRAS) CIT VS. ORIENT EXPRESS (2015) 56 TAXMANN.COM 331 MA DRAS) ASST. CIT V. INDIA SHOES EXPORTS (P.) LTD. (2015) 57 TAXMANN.COM 303 (CHENNAI-TRIB) INDO INDUSTRIES LTD. V. STO (2015) 53 TAXMANN.COM 4 58 MUMBAI-TRIB.) KHLMJI VISRAM & SONS V. ADDL. CIT (2014) 52 TAXMANN .COM 485 (ITAT, MUMBAI) COMMISSIONER OF INCOME-TAX, CHENNAI V. FALZAN SHOES (P.) LTD. [2014] 48 TAXMAN.COM 48 (MAD.) ASSISTANT COMMISSIONER OF INCOME-TAX, CO. CIRCLE - 1 (3) V. COMEX EXPORTS (P) LTD. [2014] 45 TAXMANN.COM 406 (CHENNAI-TRIB.) ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCL E 111(2), CHENNAI V. T. ABDUL WAHID TANNERIES (P.) LTD. [2014] 47 TAX MANN.COM 133 (CHENNAI TRI.) AJIT IMPEXVS. DCLT46TAXMANN.COM 163 [2014] PANKAJ A. SHAH VS. ITO, WARD - 1, BARODA [47 TAXMAN N.COM 205(2014)] ZANAV HOME COLLECTION VS. JCIT, RANGE - 10, BANGALO RE [2015] 55 TAXMAN.COM 200 (BANGALORE TRIB.) AC1T VS. KARISHMA GLOBAL MINERALS PVT. LTD. [2015] 56 TAXMAN.COM 265 (PANAJI TRIB. ACIT VS. SHIVA TEXYARN LTD. [2015] 53 TAXMAN.COM 495 (CHENNAI TRIB.) 2.23 IN VIEW OF THE PRECEDING DISCUSSIONS AND THE S UBMISSIONS OF THE APPELLANT, INCLUDING THE JUDGMENTS / DECISIONS OF VARIOUS COUR TS, IT IS CLEAR THAT THE APPELLANT - 12 - ITA NO.442/AHD/2016 ACIT VS. M &B ENGINEERINGLTD.. ASST.YEAR 2012-13 WAS NOT LIABLE TO DEDUCT TAX ON THE COMMISSION PAID TO FOREIGN AGENT. ON GOING THROUGH THE MATERIAL ON RECORD, THERE WERE THE UNCO NTROVERTED FACTS THAT THE AGENT WAS NON - RESIDENT AND IT WAS ACTING OUTSIDE INDIA AND PROVIDING THE SERVICES IN LIEU OF COMMISSION FROM ABROAD ONLY, THE AGENT DI D NOT HAVE ANY PERMANENT ESTABLISHMENT FOR BUSINESS CONNECTION OR BUSINESS PLACE IN INDIA. THUS, IN ABSENCE OF ANY ACTIVITY BEING CARRIED OUT IN INDIA BY A NON - RESIDENT COMMISSION AGENT, THE COMMISSION DOES NOT ACCRUE OR ARISE IN I NDIA, AND HENCE, NOT TAXABLE IN INDIA. THEREFORE, THE DISALLOWANCE OF RS.79,32,450/ - UNDER SECTION 40(A)(IA) MADE BY THE AO IS DIRECTED TO BE DELETED. 6. WE HAVE CONSIDERED THE JUDGMENT CITED BY THE LEA RNED COUNSEL APPEARING FOR THE ASSESSEE PASSED BY THE COORDINATE BENCH IN ITA NO. 2503/AHD/2016 FOR ASSESSMENT YEAR 2013-14 ON THE IDENTICAL ISSUE REJECTING THE APPEAL PREFERRED BY THE REVENUE THE RELEVANT PORTION WHEREOF IS AS FOLLOWS: 10. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH TH E PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, ASSESSEE HAS MADE PAYMENT TO VARIOUS AGENTS AS COMMISSION BASED IN FOREIGN COUNT RIES ON ACCOUNT OF EXPORT MADE TO THE PARTIES REFERRED BY THEM. THE AO DISAL LOWED THE SAME ON TWO GROUNDS, FIRSTLY, THE IDENTIFICATION OF THE PARTIES , DETAILS OF PAYMENT & SERVICES RENDERED BY THEM WERE NOT FURNISHED, SECONDLY NO TD S WAS DEDUCTED UNDER SECTION 195 OF THE ACT BY THE ASSESSEE ON SUCH PAYM ENT. THE VIEW TAKE BY THE AO WAS SUBSEQUENTLY REVERSED BY THE LD. CIT-A. HOWEVER THE ISSUE BEFORE US ARISES WITH REGARD TO THE NON-DEDUCTION OF TDS BY THE ASSE SSEE UNDER SECTION 195 OF THE ACT. IN THIS REGARD WE FIND IMPORTANT AND RELEVANT TO REPRODUCE THE PROVISION OF SECTION 195 OF THE ACT WHICH READS AS UNDER:- OTHER SUMS. 71 195. 72 [(1) 73 ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT , NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY INTER EST 74 [***] OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS A CT (NOT BEING INCOME CHARGEABLE UNDER THE HEAD SALARIES 75 [***]) SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT TH E TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME-TAX THEREON AT THE RATES IN FORCE : A PLAIN LOOK AT THE ABOVE STATUTORY PROVISION MAKES IT CLEAR THAT THE ASSESSEE IS LIABLE TO DEDUCT TDS ON THE PAYMENT TO NON RESIDENT S ON ANY SUM CHARGEABLE UNDER THE PROVISION OF THIS ACT. NOW, THE QUESTION AROSE WHETHER PAYMENT MADE TO - 13 - ITA NO.442/AHD/2016 ACIT VS. M &B ENGINEERINGLTD.. ASST.YEAR 2012-13 THE FOREIGN AGENT IS CHARGEABLE TO TAX IN INDIA. FO R THIS PURPOSE, WE NEED TO REFER THE PROVISION OF SEC. 5(2) OF THE ACT WHICH READS A S UNDER:- SCOPE OF TOTAL INCOME. 47 5. 48 (1) SUBJECT TO 49 THE PROVISIONS OF THIS ACT, THE TOTAL INCOME 49 OF ANY PREVIOUS YEAR OF A PERSON WHO IS A RESIDENT INCLUDE S ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH XXXXXXXXXXXXXXX (2) SUBJECT TO 49 THE PROVISIONS OF THIS ACT, THE TOTAL INCOME 49 OF ANY PREVIOUS YEAR OF A PERSON WHO IS A NON-RESIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH (A) IS RECEIVED 50 OR IS DEEMED TO BE RECEIVED 50 IN INDIA IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON ; OR (B) ACCRUES 50 OR ARISES 50 OR IS DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA DURING SUCH YEAR. IT IS BEYOND DOUBT THAT THE PAYMENT FOR THE COMMISS ION WAS NOT RECEIVED BY THE FOREIGN AGENTS IN INDIA. THEREFORE, THE SAME CANNOT BE TAXED IN INDIA AS PER CLAUSE (A) OF SUB-SECTION (2) OF SECTION 5 OF THE ACT. SIM ILARLY, WE FURTHER NOTE THAT THE INCOME WAS RECEIVED BY THE FOREIGN AGENTS ON ACCOUN T OF SERVICES RENDERED BY THEM IN THEIR RESPECTIVE COUNTRIES. THEREFORE, WE C ONCLUDE THAT SUCH INCOME HAS NOT ACCRUED OR ARISEN IN INDIA AND CONSEQUENTIAL NO T CHARGEABLE TO TAX IN INDIA. NOW COMING TO THE FACT THAT WHETHER SUCH COMMISSION INCOME BY THE FOREIGN AGENTS WERE DEEMED TO ACCRUE OR ARISE IN INDIA IN TERMS OF PROVISION OF SECTION 9 OF THE ACT, WHICH READS AS UNDER:- INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. 65 9. 66 (1) THE FOLLOWING INCOMES SHALL BE DEEMED 67 TO ACCRUE OR ARISE IN INDIA : 68 (I) ALL INCOME ACCRUING OR ARISING, WHETHER DIRECT LY OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION 69 IN INDIA, OR THROUGH OR FROM ANY PROPERTY 69 IN INDIA, OR THROUGH OR FROM ANY ASSET OR SOURCE O F INCOME IN INDIA, 70 [* * *] OR THROUGH THE TRANSFER OF A CAPITAL ASSET SITUATE IN INDIA. 71 [EXPLANATION 1].FOR THE PURPOSES OF THIS CLAUSE (A) IN THE CASE OF A BUSINESS OF WHICH ALL T HE OPERATIONS 72 ARE NOT CARRIED OUT IN INDIA, THE INCOME OF THE BUSINESS DEEMED UND ER THIS CLAUSE TO ACCRUE OR ARISE IN INDIA SHALL BE ONLY SUCH PART OF THE INCOME AS IS REASONABLY ATTRIBUTABLE TO THE OPERATIONS 72 CARRIED OUT IN INDIA ; - 14 - ITA NO.442/AHD/2016 ACIT VS. M &B ENGINEERINGLTD.. ASST.YEAR 2012-13 (B) IN THE CASE OF A NON-RESIDENT, NO INCOME SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA TO HIM THROUGH OR FROM OPERATIONS WHICH ARE CONFINED TO THE PURCHASE OF GOODS IN INDIA FOR THE PURPOSE OF EXPORT ; 73 [* * *] 74 [(C) IN THE CASE OF A NON-RESIDENT, BEING A PERSON ENGAGED IN THE BUSINESS OF RUNNING A NEWS AGENCY OR OF PUBLISHING NEWSPAPER S, MAGAZINES OR JOURNALS, NO INCOME SHALL BE DEEMED TO ACCRUE OR AR ISE IN INDIA TO HIM THROUGH OR FROM ACTIVITIES WHICH ARE CONFINED T O THE COLLECTION OF NEWS AND VIEWS IN INDIA FOR TRANSMISSION OUT OF IND IA ;] FROM THE ABOVE PROPOSITION, WE FIND THAT INCOME SHA LL BE DEEMED TO ACCRUE OR ARISE IN INDIA IF IT FULFILLS ANY OF THE CONDITIONS :- I) BUSINESS CONNECTION IN INDIA; OR II) FROM ANY PROPERTY IN INDIA; OR III) FROM ANY ASSET OR SOURCE OF INCOME IN INDIA OR IV) TRANSFER OF CAPITAL ASSET SITUATED IN INDIA FROM THE ABOVE, WE NOTE THAT THE CASE OF ASSESSEE I S NOT FALLING IN ANY OF THE CATEGORY AS DISCUSSED ABOVE. SIMILARLY, WE ALSO NOTE THAT IT IS NOT THE CASE OF REVENUE THAT PAYMENT WAS MADE BY ASSESSEE ON ACCOUNT OF TECHNICAL SERVICES RENDER ED BY THE FOREIGN AGENTS. THEREFORE, IN OUR CONSIDERED VIEW, ASSESSEE WAS NOT LIABLE TO DEDUCT TDS U/S 195 OF THE ACT. IN HOLDING SO, WE FIND SUPPORT AND GUID ANCE FROM THE JUDGMENT OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. FA RIDA LEATHER CO. REPORTED IN 66 TAXMAN.COM 321 (MAD) WHEREIN IT WAS HELD AS UNDE R:- 9.2 THE UNDERLYING PRINCIPLE IS THAT, THE TAX WITHHOLD ING LIABILITY OF THE PAYER IS INHERENTLY A VICARIOUS LIABILITY ON BEHALF OF THE RECIPIENT AND THEREFORE, WHEN THE RECIPIENT / FOREIGN AGENT DOES NOT HAVE THE PRIMARY LIABILITY TO BE TAXED IN RESPECT OF INCOME EMBEDDED IN THE RECEIPT, THE VICARIOUS LIABILITY OF THE PAYER TO DEDUCT TAX DOES NOT ARISE. THIS VICARIOUS TAX WITHHOLDING LIABILITY CANNOT BE INVOKED, UNLESS PRIMARY TAX LIABILITY OF THE RECIPIENT / FOREIGN AGENT IS ESTABLISHED. IN TH IS CASE, THE PRIMARY TAX LIABILITY OF THE FOREIGN AGENT IS NOT ESTABLISHED. THEREFORE, THE VICARIOUS LIABILITY ON THE PART OF THE ASSESSEE TO DEDUCT THE TAX AT SOURCE DOES NOT EXIST. WE ALSO FIND SUPPORT AND GUIDANCE FROM THE ORDER OF ITAT AHMEDABAD BENCH IN THE CASE OF DCIT (INTERNATIONAL TAXATION) VS. WELSP UN CORPORATION LTD., REPORTED IN 77 TAXMANN.COM 165 (AHD), WHEREIN IT WAS HELD AS UNDER;- - 15 - ITA NO.442/AHD/2016 ACIT VS. M &B ENGINEERINGLTD.. ASST.YEAR 2012-13 33. THERE ARE A COUPLE OF RULINGS BY THE AUTHORITY FOR ADVANCE RULING, WHICH SUPPORT TAXABILITY OF COMMISSION PAID TO NON- RESIDENTS UNDER SECTION 9(1)(I), BUT, NEITHER THESE RULINGS ARE BINDING PRE CEDENTS FOR US NOR ARE WE PERSUADED BY THE LINE OF REASONING ADOPTED IN THESE RULINGS. AS FOR THE AAR RULING IN THE CASE OF SKF BOILERS & DRIERS (P.) LTD . IN RE [2012] 343 ITR 385/206 TAXMAN 19/18 TAXMANN.COM 325 (AAR - NEW DEL HI) , WE FIND THAT THIS DECISION MERELY FOLLOWS THE EARLIER RULING IN THE CASE OF RAJIV MALHOTRA, IN RE [2006] 284 ITR 564/155 TAXMAN 101 ( AAR - NEW DELHI) WHICH, IN OUR CONSIDERED VIEW, DOES NOT TAKE INTO ACCOUNT THE IMPACT OF EXPLANATION 1 TO SECTION 9(1)(I) PROPERLY. THAT WAS A CASE IN WHICH THE NON-RESIDENT COMMISSION AGENT WORKED FOR PROCURING PARTICIPATION BY OTHER NON-RESIDENT ENTITIES IN A FOOD AND WINE SHOW IN IN DIA, AND THE CLAIM OF THE ASSESSEE WAS THAT SINCE THE AGENT HAS NOT CARRIED O UT ANY BUSINESS OPERATIONS IN INDIA, THE COMMISSION AGENT WAS NOT C HARGEABLE TO TAX IN INDIA, AND, ACCORDINGLY, THE ASSESSEE HAD NO OBLIGA TION TO DEDUCT TAX AT SOURCE FROM SUCH COMMISSION PAYMENTS TO THE NON-RES IDENT AGENT. ON THESE FACTS, THE AUTHORITY FOR ADVANCE RULING, INTER ALIA , OPINED THAT 'NO DOUBT THE AGENT RENDERS SERVICES ABROAD AND PURSUES AND S OLICITS EXHIBITORS THERE IN THE TERRITORY ALLOTTED TO HIM, BUT THE RIGHT TO RECEIVE THE COMMISSION ARISES IN INDIA ONLY WHEN EXHIBITOR PARTICIPATES IN THE INDIA INTERNATIONAL FOOD & WINE SHOW (TO BE HELD IN INDIA), AND MAKES F ULL AND FINAL PAYMENT TO THE APPLICANT IN INDIA' AND THAT 'THE COMMISSION INCOME WOULD, THEREFORE, BE TAXABLE UNDER SECTION 5(2)(B) READ WI TH SECTION 9(1)(I) OF THE ACT'. THE AUTHORITY FOR ADVANCE RULING ALSO HELD TH AT 'THE FACT THAT THE AGENT RENDERS SERVICES ABROAD IN THE FORM OF PURSUI NG AND SOLICITING PARTICIPANTS AND THAT THE COMMISSION IS REMITTED TO HIM ABROAD ARE WHOLLY IRRELEVANT FOR THE PURPOSE OF DETERMINING SITUS OF HIS INCOME'. WE DO NOT CONSIDER THIS APPROACH TO BE CORRECT. WHEN NO OPERA TIONS OF THE BUSINESS OF COMMISSION AGENT IS CARRIED ON IN INDIA, THE EXPLAN ATION 1 TO SECTION 9(1)(I) TAKES THE ENTIRE COMMISSION INCOME FROM OUT SIDE THE AMBIT OF DEEMING FICTION UNDER SECTION 9(1)(I), AND, IN EFFE CT, OUTSIDE THE AMBIT OF INCOME 'DEEMED TO ACCRUE OR ARISE IN INDIA' FOR THE PURPOSE OF SECTION 5(2)(B). THE POINT OF TIME WHEN COMMISSION AGENT'S RIGHT TO RECEIVE THE COMMISSION FRUCTIFIES IS IRRELEVANT TO DECIDE THE S COPE OF EXPLANATION 1 TO SECTION 9(1 )(I), WHICH IS WHAT IS MATERIAL IN THE CONTEXT OF THE SITUATION THAT WE ARE IN SEISIN OF THE REVENUE'S CASE BEFORE US HI NGES ON THE APPLICABILITY OF SECTION 9(1)(I) AND, IT IS, THEREFORE. IMPORTANT TO ASCERTAIN AS TO WHAT EXTENT WOULD THE RIGOUR OF SECTION 9(1)(I) BE RELAX ED BY EXPLANATION 1 TO SECTION 9(1)(I). WHEN WE EXAMINE THINGS FROM THIS P ERSPECTIVE, THE INEVITABLE CONCLUSION IS THAT SINCE NO PART OF THE OPERATIONS OF THE BUSINESS OF THE COMMISSION AGENT IS CARRIED OUT IN INDIA, NO PART OF THE INCOME OF THE COMMISSION AGENT CAN BE BROUGHT TO TAX IN INDIA. IN THIS VIEW OF THE MATTER, - 16 - ITA NO.442/AHD/2016 ACIT VS. M &B ENGINEERINGLTD.. ASST.YEAR 2012-13 VIEWS EXPRESSED BY THE HON'BLE AAR, WHICH DO NOT FE TTER OUR INDEPENDENT OPINION ANYWAY IN VIEW OF ITS LIMITED BINDING FORCE UNDER S. 245S OF THE ACT, DO NOT IMPRESS US, AND WE DECLINE TO BE GUIDED BY T HE SAME. THE STAND OF THE REVENUE, HOWEVER, IS THAT THESE RULINGS, BEING FROM SUCH A HIGH QUASI- JUDICIAL FORUM, EVEN IF NOT BINDING, CANNOT SIMPLY BE BRUSHED ASIDE EITHER, AND THAT THESE RULINGS AT LEAST HAVE PERSUASIVE VAL UE. WE HAVE NO QUARREL WITH THIS PROPOSITION. WE HAVE, WITH UTMOST CARE AN D DEEPEST RESPECT, PERUSED THE ABOVE RULINGS RENDERED BY THE HON'BLE A UTHORITY FOR ADVANCE RULING. WITH GREATEST RESPECT, BUT WITHOUT SLIGHTES T HESITATION, WE HUMBLY COME TO THE CONCLUSION THAT WE ARE NOT PERSUADED BY THESE RULINGS. SIMILARLY WE ALSO FIND SUPPORT & GUIDANCE FROM THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF PR CIT VS. MGM EXPORTS IN R/TAX APPEAL NO. 309 OF 2018 VIDE ORDER DATED APRIL 11, 2018. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW : 7. IN THE RECENT ORDER IN TAX APPEAL NO. 290 OF 2018, WE HAD DEALT WITH SIMILAR SITUATION MAKING FOLLOWING OBSERVATIONS: 'IT CAN THUS BE SEEN THAT WHILE CONFIRMING THE ORDE R OF CIT [A], THE TRIBUNAL RELIED ON JUDGMENT OF THE SUPREME COURT IN THE CASE OF G.E INDIA TECHNOLOGY CENTRE P. LIMITED VS. COMMISSIONER OF IN COME-TAX & ANR., REPORTED IN [2010] 327 ITR 456 (SC) = 2010-TII-07-S C-INTL IN SUCH JUDGMENT, IT WAS HELD AND OBSERVED THAT THE MOST IMPORTANT EXPRESSION IN SECTION 195[1] OF THE ACT CONSISTS OF THE WORDS, 'CHARGEABLE UNDER THE PROVISIONS OF THE ACT'. IT WAS OBSERVED T HAT, '..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 ACT,' COUNSE L FOR THE REVENUE, HOWEVER, DREW OUR ATTENTION TO THE EXPLANATION 2 TO SUB-SECTION [1] OF SECTION 195 OF THE ACT WHICH WAS INSERTED BY THE FI NANCE ACT OF 2012 WITH RETROSPECTIVE EFFECT FROM 1ST APRIL 1962. SUCH EXPL ANATION READS AS UNDER:- EXPLANATION 2 - FOR THE REMOVAL OF DOUBTS, IT IS HE REBY CLARIFIED THAT THE OBLIGATION TO COMPLY WITH SUBSECTION (1) AND TO MAKE DEDUCTION THEREUNDER APPLIES AND SHALL BE DEEMED TO HAVE ALWA YS APPLIED AND EXTENDS AND SHALL BE DEEMED TO HAVE ALWAYS EXTENDED TO ALL PERSONS, RESIDENT OR NON-RESIDENT, WHETHER OR NOT THE NON-RE SIDENT PERSON HAS- [I] A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CO NNECTION IN INDIA; OR - 17 - ITA NO.442/AHD/2016 ACIT VS. M &B ENGINEERINGLTD.. ASST.YEAR 2012-13 [II] ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER I N INDIA. IS INDISPUTABLY TRUE THAT SUCH EXPLANATION INSERTED WI TH RETROSPECTIVE EFFECT PROVIDES THAT OBLIGATION TO CO MPLY WITH SUBSECTION [1] OF SECTION 195 WOULD EXTEND TO ANY P ERSON RESIDENT OR NON-RESIDENT, WHETHER OR NOT NON-RESIDE NT PERSON HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CO NNECTIONS IN INDIA OR ANY OTHER PERSONS IN ANY MANNER WHATSOE VER IN INDIA. THIS EXPRESSION WHICH IS ADDED FOR REMOVAL O F DOUBT IS CLEAR FROM THE PLAIN LANGUAGE THEREOF, MAY HAVE A B EARING WHILE ASCERTAINING WHETHER CERTAIN PAYMENT MADE TO A NON- RESIDENT WAS TAXABLE UNDER THE ACT OR NOT. HOWEVER, ONCE THE CONCLUSION IS ARRIVED THAT SUCH PAYMENT DID NOT ENT AIL TAX LIABILITY OF THE PAYEE UNDER THE ACT, AS HELD BY TH E SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE P. LIMITED [SUPRA], SUB-SECTION [1] OF SECTION 195 OF THE ACT WOULD NOT APPLY. THE FUNDAMENTAL PRINCIPLE OF DEDUCTING TAX A T SOURCE IN CONNECTION WITH PAYMENT ONLY, WHERE THE SUM IS CHARGEABLE TO TAX UNDER THE ACT, STILL CONTINUES TO HOLD THE FIELD. IN THE PRESENT CASE, THE REVENUE HAS NOT SEV EN SERIOUSLY CONTENDED THAT THE PAYMENT TO FOREIGN COMMISSION AG ENT WAS NOT TAXABLE IN INDIA. TAX APPEAL IS THEREFORE DISMISSED. THE PRINCIPLES LAID DOWN IN THE ABOVE CITED JUDGMEN TS ARE SQUARELY APPLICABLE TO THE INSTANT FACTS OF THE CASE. THUS, IT CAN BE SAFE LY CONCLUDED THAT THE COMMISSION INCOME IN THE HANDS OF FOREIGN AGENT IS NOT CHARGEA BLE TO TAX IN INDIA IN THE GIVEN FACTS & CIRCUMSTANCES. ONCE AN INCOME IS NOT CHARGE ABLE TO TAX IN INDIA THEN THE QUESTION OF DEDUCTING TDS UNDER THE PROVISION OF SE CTION 195 OF THE ACT DOES NOT ARISE. ACCORDINGLY, WE DO NOT FIND ANY REASON TO IN TERFERE IN THE ORDER OF LD. CIT- A. HENCE THE GROUND OF APPEAL RAISED BY THE REVENUE IS HEREBY DISMISSED. HAVING HEARD THE LEARNED COUNSEL APPEARING FOR THE PARTIES HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE JUDGMEN T CITED ABOVE WE ARE OF THE CONSIDERED VIEW THAT THE COMMISSION COMING TO THE H ANDS OF THE FOREIGN AGENTS IS NOT TAXABLE IN INDIA AND THUS THE ASSESSEE IS NOT LIABL E TO DEDUCT TDS. IN THAT VIEW OF THE MATTER WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LEARNED CIT(A). WE THUS CONFIRM THE SAME. - 18 - ITA NO.442/AHD/2016 ACIT VS. M &B ENGINEERINGLTD.. ASST.YEAR 2012-13 7. IN THE RESULT, THE REVENUES APPEAL IS THUS DISM ISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 02/11/2018 SD/- SD/- ( AMARJIT SINGH ) ( MS. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 02/11/2018 PRITI YADAV, SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. () / THE CIT(A)-2, AHMEDABAD 5. , ! ' , #$%% / DR, ITAT, AHMEDABAD 6. &' () / GUARD FILE. / BY ORDER, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) !, #$ / ITAT, AHMEDABAD