M/s Mehta Pharmaceuticals Pvt. Ltd, Amritsar. V. The Dy. Commissioner of Income Tax, Amritsar.

ITA 45/ASR/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7813 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 17-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 12-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PADAM BAHL
• Keywords: Services rendered outside India; Permanent establishment
• Section: 5(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER AND SH. N.K. CHOUDHRY, JUDICIAL MEMBER I.T.A NO. 45/(ASR)/2016 ASSESSMENT YEAR: 2012-13 PAN: AAACM0412F M/S. MEHTA PHARMACEUTICALS (P) LTD., G. T. ROAD, AMRITSAR. VS. THE DY. C. I. T., CIRCLE-3, AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. PADAM BAHL (C. A.) RESPONDENT BY: SH. RAHUL DHAWAN (D.R.) DATE OF HEARING: 04.09.2017 DATE OF PRONOUNCEMENT: 18.09.201 7 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORD ER OF LD. CIT(A), AMRITSAR DATED 18.11.2015 FOR ASST. YEAR: 2012-13. 2. THE GROUNDS OF APPEAL TAKEN BY ASSESSEE ARE REPR ODUCED BELOW: 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)-1, AMRITSAR HAS GROSSLY ERRED IN CONFIRMING THE ADDITI ON OF RS.4,87,895/- MADE BY LEARNED DEPUTY COMMISSIONER O F INCOME TAX, CIRCLE III, AMRITSAR UNDER THE HEAD FOR EIGN TRAVELING EXPENSES. 2. THAT BOTH COMMISSIONER OF INCOME TAX (APP EALS)-1, AMRITSAR AND DEPUTY COMMISSIONER OF TAX, CIRCLE-III, AMRITSA R HAVE FAILED TO APPRECIATE THAT SMT. ANITA MEHTA, W/O SH. RAJIV MEHTA, VICE PRESIDENT OF THE COMPANY ACCOMPANIED HI M ON FOREIGN TRAVEL AS LIAISON OFFICER OF THE COMPANY. 3. THAT LEARNED COMMISSIONER OF INCOME TAX (APPEALS )-1, AMRITSAR HAS GROSSLY ERRED IN CONFIRMING THE ADDITI ON OF RS.43,503/- ON ACCOUNT OF FOREIGN COMMISSION PAID W ITHOUT ITA NO. 45(ASR)/2016 ASSESSMENT YEAR: 2012-13 2 DEDUCTION OF TDS 40A(IA) MADE BY DEPUTY COMMISSIONE R OF INCOME TAX, CIRCLE-III, AMRITSAR. 4. THAT BOTH COMMISSIONER OF INCOME TAX (APPEALS)-1 , AMRITSAR AND DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-III, AMRITSAR HAVE FAILED TO APPRECIATE THAT THE AGENT DID NOT HA VE ANY PERMANENT ESTABLISHMENT IN INDIA AND ASSESSEE WAS U NDER NO OBLIGATION TO DEDUCT TDS. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -1, AMRITSAR HAS GROSSLY ERRED IN OBSERVING THAT PROVIS IONS OF SECTION 195 OF THE INCOME TAX ACT ARE APPLICABLE IN THIS CASE. 3. AT THE OUTSET, THE LD. AR SUBMITTED THAT THE DI SALLOWANCE OUT OF FOREIGN TRAVELING EXPENSES TO THE TUNE OF RS.4,87,8 95/- AS SUSTAINED BY LD. CIT(A) IS NOT JUSTIFIED AS THE FOREIGN TOUR WAS UNDERTAKEN BY DIRECTOR OF THE COMPANY WHO WAS VICE PRESIDENT AND HIS WIFE WHO WAS LIAISON OFFICER OF THE COMPANY AND THE EXPENDITURE WAS NECESSARILY INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSE E AND IT IS NOT NECESSARY THAT THE INCURRENCE OF SUCH EXPENDITURE M UST HAVE YIELDED TO SOME BUSINESS AS HAS BEEN HELD IN VARIOUS CASE LAWS AND FOR THIS PURPOSE RELIANCE WAS PLACED ON THE FOLLOWING CASE L AWS: 1.(A) ITO VS. DHIMAN SYSTEMS 100 TTJ 466 (ASR) (B) CIT VS. WOODCRAFT PRODUCTS LTD. 217 ITR 862 (CA LCUTTA) (C) CIT VS. STEEL INGOTS PVT. LTD. 220 ITR 552 (MP) (D) CIT VS. GEORGE WILLIAMSON (ASSAM) LTD., 234 ITR 130 (GAU) (E) CIT VS. SUNDARAM CLAYTON LTD. 240 ITR 271 (MAD) (F) CIT VS. APPOLLO TYRES LLTD. 237 ITR 706 (KER) [ IN THE ALTERNATIVE IT WAS SUBMITTED THAT THE DISALL OWANCE SUSTAINED BY LD. CIT(A) IS ON A HIGHER SIDE AS THE EXPENSES I NCURRED BY THE WIFE OF ASSESSEE CAN ONLY BE DUE TO HER AIR TICKET, FOREIGN CURRENCY PURCHASED BY ITA NO. 45(ASR)/2016 ASSESSMENT YEAR: 2012-13 3 HER AND AS REGARDS THE OTHER EXPENSES OF LODGING AN D BOARDING, THE LD. AR SUBMITTED THAT THE LODGING BOARDING EXPENSES IN RESPECT OF ONE PERSON AND TWO PERSONS GENERALLY REMAINS SAME. THER EFORE A REASONABLE RELIEF MAY BE GIVEN OUT OF LODGING BOARDING EXPENSE S. THE LD. AR IN THIS RESPECT FILED DETAIL OF FOREIGN EXPENSES INCURRED B Y ASSESSEE. ARGUING UPON ADDITION FOR DISALLOWANCE U/S 40A(IA) , THE LD. AR SUBMITTED THAT THE AUTHORITIES BELOW HAS FAILED TO APPRECIATE THAT THE AGENT DID NOT HAVE ANY PERMANENT ESTABLISHMENT IN I NDIA AND ASSESSEE WAS UNDER NO OBLIGATION TO DEDUCT TDS AS THE COMMIS SION WAS PAID TO AN AGENT SITUATED OUTSIDE INDIA. RELIANCE IN THIS RESP ECT WAS PLACED ON THE FOLLOWING CASE LAWS: 2.(A) GE/INDIA TECHNOLOGY CENTRE (P) LTD. VS. CIT 327 ITR 456 (SC) (B) CIT VS. EON TECHNOLOGY (P) LTD. 343 ITR 666 (DE LHI) (C ) CIT VS. FAIZAN SHOES PVT. LTD., 367 ITR 155 (M AD) (D) ITO VS. TRIDENT EXPORTS 44 TAXMANN.COM 297 (CHE NNAI) (E) CIT VS. FARIDA LEATHER CO. DECISION OF MADRAS H IGH COURT DATED 20.01.2016 4. THE LD. DR ON THE OTHER HAND ARGUING UPON FIRST ISSUE SUBMITTED THAT THE ASSESSING OFFICER ALREADY HAS RESTRICTED T HE ADDITION TO 50% OF THE TOTAL FOREIGN TRAVELING EXPENSES AND THE ARGUME NT OF LD. AR THAT FOR ONE PERSON AND FOR TWO PERSONS EXPENSES ON LODGING AND BOARDING WILL REMAIN SAME IS NOT CORRECT AS IN THE CASE OF ONE PE RSON ROOM OF SINGLE OCCUPANCY CAN BE TAKEN INSTEAD OF DOUBLE OCCUPANCY ROOM. ITA NO. 45(ASR)/2016 ASSESSMENT YEAR: 2012-13 4 AS REGARDS THE DISALLOWANCE U/S 40A(IA), THE LD. D R THAT THE CASE LAWS RELIED ON BY LD. AR HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE KEEPING IN VIEW THE CIRCULAR NO. 23 RD JULY, 1969 AND NO. 786 DATED 7 TH FEB. 2000. THE LD. DR SUBMITTED THAT THIS CIRCULAR HAS BEEN WITHDRAWN WITH IMMEDIATE EFFECT WITH EFFECT FROM 22.10.2009 V IDE CIRCULAR NO. 7/2009, AND THEREFORE THESE CASE LAWS ARE NOT APPLI CABLE. 5. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH OUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT AS REGARDS THE FIRST ISSUE OF FOREIGN TRAVELING EXPENSES, THE FOREIGN CURRENCY PURCHASE E XPENSES AND AIR TICKET EXPENSES OF WIFE OF THE DIRECTOR COMES TO RS .2,04,717/- WHICH CONSISTS OF THE FOLLOWING AMOUNTS. (I) FOREIGN CURRENCY EXPENSES 136227/- (II) AIR TICKET EXPENSES 68490/-(BEING HALF OF TOTA L AIR TICKET EXPENSES) TOTAL- RS.204717/- THEREFORE EXPENDITURE OF RS.2,04,717/- IS DIRECTLY ATTRIBUTABLE TO THE WIFE OF THE DIRECTOR OF THE ASSESSEE COMPANY. T HE REST OF THE EXPENSES AMOUNTING TO RS.566356/- RELATES TO BOARDING AND LO DGING EXPENSES. WE ARE IN AGREEMENT WITH THE ARGUMENT OF LD. AR THAT I NCREMENTAL EXPENSES IN THE CASE OF A SECOND PERSON WILL NOT INCREASE PR OPORTIONATELY. THEREFORE WE TAKE 30% OF THIS EXPENSE AS ATTRIBUTAB LE TO THE WIFE OF DIRECTOR WHICH COMES TO RS.16,9906/- THEREFORE THE TOTAL EXPENDITURE ATTRIBUTABLE TO WIFE COMES TO RS.374623/- THEREFORE WE RESTRICT THE DISALLOWANCE OUT OF TRAVELLING EXPENSES TO RS.37462 3/- THEREFORE THE ASSESSEE GETS A RELIEF OF RS.113272/-. ITA NO. 45(ASR)/2016 ASSESSMENT YEAR: 2012-13 5 IN VIEW OF THE ABOVE GROUNDS NO. 1 AND 2 ARE PARTLY ALLOWED. AS REGARDS THE DISALLOWANCE U/S 40A(IA) FOR COMMIS SION PAID TO FOREIGN AGENT, WE FIND THAT THE PAYMENT OF COMMISSI ON WAS MADE IN BANGLADESH AS THE AGENT WAS SITUATED IN BANGLADESH. THE AGENT DID NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. THE EXPO RT COMMISSION PAID TO PARTY SITUATED IN BANGLADESH DOES NOT GIVE RISE TO INCOME ACCRUING IN INDIA. THE HON'BLE SUPREME COURT IN THE CASE OF GE/ INDIA TECHNOLOGY CENTRE (P) LTD. VS. CIT 327 ITR 456 (SC) HAS EXAMIN ED THIS ASPECT. THE RELEVANT FINDINGS OF THE HON'BLE SUPREME COURT ARE REPRODUCED BELOW: SEC. 195 FALLS IN CHAPTER XVII WHICH DEALS WITH C OLLECTION AND RECOVERY. CHAPTER XVII-B DEALS WITH DEDUCTION AT SOURCE BY TH E PAYER. ON ANALYSIS OL VARIOUS PROVISIONS OF CHAPTER XVII ONE FINDS USE OF DIFFERENT EXPRESSIONS, HOWEVER, THE EXPRESSION 'SUM CHARGEABLE UNDER THE P ROVISIONS OF THE ACT' IS USED ONLY IN S. 195. IN NONE OF THE PROVISIONS T HE EXPRESSION 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT' IS FOUN D, WHICH, IS AN EXPRESSION USED ONLY IN S. 195(1). IT FOLLOWS, THER EFORE, THAT THE OBLIGATION TO DEDUCT TAX AT SOURCE ARISES ONLY WHEN THERE IS A SUM CHARGEABLE UNDER THE ACT. SEC. 195(2) IS NOT MERELY A PROVISION TO P ROVIDE INFORMATION TO THE ITO (TDS). IT IS A PROVISION REQUIRING TAX TO BE DE DUCTED AT SOURCE TO BE PAID TO THE REVENUE BY THE PAYER WHO MAKES PAYMENT TO A NON-RESIDENT. THEREFORE, S. 195 HAS TO BE READ IN CONFORMITY WITH THE CHARGING PROVISIONS, I.E., SS. 4, 5 AND 9. THIS REASONING FLOWS FROM THE WORDS 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT' IN S. 195(1). THE FACT THAT THE REVENUE HAS NOT OBTAINED ANY INFORMATION PER SE CANNOT BE A GRO UND TO CONSTRUE S. 195 WIDELY SO AS TO REQUIRE DEDUCTION OF TAX AT SOURCE EVEN IN A CASE WHERE AN AMOUNT PAID IS NOT CHARGEABLE TO TAX IN INDIA AT AL L. SEC. 195 CANNOT BE READ, AS SUGGESTED BY THE DEPARTMENT, NAMELY, THAT THE MOMENT THERE IS REMITTANCE THE OBLIGATION TO DEDUCT TAX AT SOURCE A RISES. IF SUCH A CONTENTION IS ACCEPTED IT WOULD MEAN THAT ON MERE P AYMENT INCOME WOULD BE SAID TO ARISE OR ACCRUE IN INDIA. THEREFORE, AS STATED EARLIER, IF THE CONTENTION OF THE DEPARTMENT WAS ACCEPTED IT WOULD MEAN OBLITERATION OF THE EXPRESSION 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT' FROM S. 195(1). WHILE INTERPRETING A SECTION ONE HAS TO GIV E WEIGHTAGE TO EVERY WORD USED IN THAT SECTION. WHILE INTERPRETING THE P ROVISIONS OF THE IT ACT ONE CANNOT READ THE CHARGING SECTIONS OF THAT ACT D E HORS THE MACHINERY SECTIONS. THE ACT IS TO BE READ AS AN INTEGRATED CO DE. HENCE, THE PROVISION RELATING TO TDS APPLIES ONLY TO THOSE SUMS WHICH AR E CHARGEABLE TO TAX UNDER THE IT ACT. IF THE CONTENTION OF THE DEPARTME NT THAT ANY PERSON MAKING PAYMENT TO A NON-RESIDENT IS NECESSARILY REQ UIRED TO DEDUCT TAX AT SOURCE IS ACCEPTED THEN THE CONSEQUENCE WOULD BE TH AT THE DEPARTMENT ITA NO. 45(ASR)/2016 ASSESSMENT YEAR: 2012-13 6 WOULD BE ENTITLED TO APPROPRIATE THE MONEYS DEPOSIT ED BY THE PAYER EVEN IF THE SUM PAID IS NOT CHARGEABLE TO TAX BECAUSE THERE IS NO PROVISION IN THE IT ACT BY WHICH A PAYER CAN OBTAIN REFUND. SEC. 237 R/W S. 199 IMPLIES THAT ONLY THE RECIPIENT OF THE SUM, I.E., THE PAYEE COULD SEEK A REFUND. IT MUST THEREFORE FOLLOW, IF THE DEPARTMENT IS RIGHT, THAT THE LAW REQUIRES TAX TO BE DEDUCTED ON ALL PAYMENTS. THE PAYER, THEREFOR E, HAS TO DEDUCT AND PAY TAX EVEN IF THE SO-CALLED DEDUCTION COMES OUT O F HIS OWN POCKET AND HE HAS NO REMEDY WHATSOEVER, EVEN WHERE THE SUM PAID B Y HIM IS NOT A SUM CHARGEABLE UNDER THE ACT. THE INTERPRETATION OF THE DEPARTMENT, THEREFORE NOT ONLY REQUIRES THE WORDS 'CHARGEABLE UNDER THE P ROVISIONS OF THE ACT TO AN ABSURD CONSEQUENCE. THE INTERPRETATION PLACED BY THE DEPARTMENT WOULD RESULT IN A SITUATION WHERE EVEN WHEN THE INC OME HAS NO TERRITORIAL NEXUS WITH INDIA OR IS NOT CHARGEABLE IN INDIA, THE GOVERNMENT WOULD NONETHELESS COLLECT TAX. SEC. 195(2) PROVIDES A REM EDY BY WHICH A PERSON MAY SEEK A DETERMINATION OF THE 'APPROPRIATE PROPOR TION OF SUCH SUM CHARGEABLE' WHERE A PROPORTION OF THE SUM SO CHARGE ABLE IS LIABLE TO TAX. THE ENTIRE BASIS OF THE DEPARTMENT'S CONTENTION IS BASED ON ADMINISTRATIVE CONVENIENCE IN SUPPORT OF ITS INTERPRETATION. THERE IS NO MERIT IN THE CONTENTION. AS STATED HEREINABOVE, S. 195(1) USES T HE EXPRESSION 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT.' ONE HA S TO GIVE WEIGHTAGE TO THOSE WORDS. FURTHER, S. 195 USES THE WORD 'PAYER' AND NOT THE WORD ASSESSEE'. THE PAYER IS NOT AN ASSESSEE. THE PAYER BECOMES AN ASSESSEE-IN- DEFAULT ONLY WHEN HE FAILS TO FULFILL THE STATUTORY OBLIGATION UNDER S. 195(1). IT PAYMENT DOES NOT CONTAIN THE EL EMENT OF INCOME THE PAYER CANNOT BE MADE LIABLE. HE CANNOT BE DECLARED TO BE AN ASSESSEE-IN- DEFAULT. THE CONTENTION OF THE DEPARTMENT IS BASED ON AN APPREHENSION WHICH IS ILL FOUNDED. THE PAYER IS ALSO AN ASSESSEE UNDER THE ORDINARY PROVISIONS OF THE II ACT. WHEN THE PAYER REMITS AN AMOUNT TO A NON-RESIDENT OUT OF INDIA HE CLAIMS DEDUCTION OR ALLOWANCES UNDE R THE IT ACT FOR THE SAID SUM AS AN 'EXPENDITURE'. UNDER S. 40(A)(I), INSERTE D VIDE FINANCE ACT, 1988 W.E.F. 1ST APRIL, 1989, PAYMENT IN RESPECT OF ROYAL TY, FEES FOR TECHNICAL SERVICES OR OTHER SUMS CHARGEABLE UNDER THE IT ACT WOULD NOT GET THE BENEFIT OF DEDUCTION IF THE ASSESSEE FAILS TO DEDUC T TAX AT SOURCE IN RESPECT OF PAYMENTS OUTSIDE INDIA WHICH ARE CHARGEABLE UNDE R THE IT ACT. THIS PROVISION ENSURES EFFECTIVE COMPLIANCE OF S. 195 RE LATING TO TDS IN RESPECT OF PAYMENTS OUTSIDE INDIA IN RESPECT OF ROYALTIES, FEES OR OTHER SUMS CHARGEABLE UNDER THE IT ACT. IN A GIVEN CASE WHERE THE PAYER IS AN ASSESSEE HE WILL DEFINITELY CLAIM DEDUCTION UNDER T HE IT ACT FOR SUCH REMITTANCE AND ON INQUIRY IF THE AO FINDS THAT THE SUMS REMITTED OUTSIDE INDIA COMES WITHIN THE DEFINITION OF ROYALTY OR FEE S FOR TECHNICAL SERVICE OR OTHER SUMS CHARGEABLE UNDER THE IT ACT THEN IT WOUL D BE OPEN TO THE AO TO DISALLOW SUCH CLAIM FOR DEDUCTION. SIMILARLY, VIDE FINANCE ACT, 2008, W.E.F. 1ST APRIL, 2008 SUB-S. (6) HAS BEEN INSERTED IN S. 195 WHICH REQUIRES THE PAYER TO FURNISH INFORMATION RELATING TO PAYMENT OF ANY SUM IN SUCH FORM AND MANNER AS MAY BE PRESCRIBED BY THE BOARD. THERE FORE, THERE ARE ADEQUATE SAFEGUARDS IN THE ACT WHICH WOULD PREVENT REVENUE LEAKAGE. CIT VS. ELI LILLY & COMPANY (INDIA) (P) LTD. (2009) 223 CTR (SC) 20 : (2009) 21 DTR (SC) 74 : (2009) 312 ITR 225 (SC) RELIED ON; TRANSMISSION CORPORATION OF A.P. LTD. VS. CIT (1999) 155 CTR (SC) 489 : (1999) 239 ITR 587 (SC) DISTINGUISHED; CIT VS. SAMSUNG ELECTRONICS CO. LTD. & ORS. (2009) 227 CTR (KAR) 335 : (2009) 31 DTR (KAR) 257 AND CIT (INTERNATIONAL ITA NO. 45(ASR)/2016 ASSESSMENT YEAR: 2012-13 7 TAXATION ) & ANR. VS. SONATA INFORMATION TECHNOLOGY LTD. (2010) 232 CTR (KAR) 20 : (2010) 38 DTR (KAR) 350 SET ASIDE. THE ARGUMENT OF THE LD. DR THAT CIRCULAR NO. 786 H AS BEEN WITHDRAWN AND THEREFORE THE ASSESSEE WAS LIABLE FOR TAX DEDUCTION HAS NO FORCE AS THIS CIRCULAR TALKS ABOUT INCOME ACCRUING OR ARISING THROUGH OR BUSINESS CONNECTION IN INDIA TO A NON RESIDENT UNDE R SECTION 9 OF THE ACT. WE FURTHER FIND THAT HON'BLE ITAT BENCHES CHENNAI I N THE CASE OF ITO VS. TRIDENT EXPORTS VIDE ITS ORDER DATED 27.02.2014 AFTER CONSIDERING THE ARGUMENT OF LD. DR REGARDING WITHDRAWAL OF CIRCULAR NO. 786 HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER : 6. LD. LD. CIT (A) AFTER EXAMINING THE ISSUE ALLOW ED THE APPEAL OF THE ASSESSEE BY OBSERVING AS UNDER: '8. ON ANALYZING THE GROUND OF APPEAL AS WELL AS TH E ASSESSMENT ORDER AS WELL AS CASE LAWS CITED BY THE AR OF THE APPELLANT IN SUPPORT OF THE APPELLANT'S CASE, THE ONLY ISSUE PERTAINS TO THE DI SALLOWANCE OF COMMISSION PAYMENTS'MADE TO FOREIGN AGENTS CLAIMED BY THE RS.3 7,96,073/-. THE AO HAS NOT DOUBTED THE GENUINENESS OF THE PAYMENTS MAD E TO THE COMMISSION AGENTS LOCATED IN FOREIGN COUNTRIES BASE D ON THE CONFIRMATION LETTER AS WELL AS LETTER RECEIVED FROM THE FOREIGN AGENTS WHO HAD NO PE OR PLACE OF BUSINESS IN INDIA. THE FOREIGN AGENTS HAD DONE THE SERVICES IN THEIR COUNTRIES SUCH AS FRANCE AND GERMANY AND RECE IVED COMMISSION PAYMENTS FOR THE SERVICES RENDERED BY THEM IN THEIR COUNTRIES FORGETTING ORDERS TO THE APPELLANT. THE OPERATION OF THE SEC. 195 OF THE IT ACT COMES INTO FORCE FOR DEDUCTING TDS ON FOREIGN PAYMENTS PA ID BY THE RESIDENT ASSESSEE TO NON-RESIDENT AGENTS ONLY WHEN THE PAYME NT MADE TO THE NON- RESIDENTS IF THEIR INCOME CHARGEABLE UNDER INDIAN I NCOME TAX LAW. IN THE INSTANT CASE, THE TDS LIABILITY DOES NOT ARISE ON S UCH COMMISSION PAYMENTS WHICH ARE AN OFFSHOOT FROM ITS CHARGEABILI TY TO INCOME TAX U/S. 5(2) OF THE IT ACT. VARIOUS COURTS DECISIONS HAVE H ELD THAT IN SUCH TYPE OF SITUATIONS, THE PROVISIONS OF DEDUCTING TAX WILL NO T ARISE AS THE OVERSEAS COMMISSION INCOME OF A FOREIGN AGENT IS NOT TAXABLE IN INDIA IN THE ABSENCE OF 'BUSINESS CONNECTION. A COMMISSION PAYMENT WORK ING OUTSIDE INDIA FOR OBTAINING EXPORT ORDERS DOES NOT CARRY OUT ANY BUSI NESS OPERATION IN INDIA AND THEREFORE NO INCOME IS STATED TO ACCRUE OR ARIS E IN INDIA. THE CBDT CIRCULARS CLARIFYING THIS PROVISION HAVE BEEN WITHD RAWN BUT IT HAS NOT CHANGED THE FUNDAMENTAL PRINCIPLES. IF THE COMMISSI ON AGENTS ACTING AS A SELLING AGENT OUTSIDE INDIA WHO IS NOT CHARGEABLE T O TAX IN INDIA AND THE RECEIPT IN INDIA OF THE SALE PROCEEDS REMITTED BY T HE PURCHASERS FROM ABROAD DID NOT AMOUNT TO AN OPERATION CARRIED OUT B Y THE NON-RESIDENT ITA NO. 45(ASR)/2016 ASSESSMENT YEAR: 2012-13 8 COMMISSION AGENT IN INDIA HAS CONTEMPLATED BY CLAUS E (A) OF THE EXPLANATION TO 9(1) OF THE ACT. THE APEX COURT IN T HE CASE OF CIT V. TOSHOKU LTD [19801 125 TTR 525 HAS CATEGORICALLY HELD THAT THE COMMISSION AMOUNTS WHICH WERE EARNED BY THE NON-RESIDENT FOR S ERVICES RENDERED OUTSIDE INDIA COULD NOT BE DEEMED TO BE INCOME WHIC H HAD EITHER ACCRUED OR ARISEN IN INDIA. SIMILARLY VARIOUS CASE LAWS SUC H AS WHEELS INDIA LTD JURISDICTIONAL ITAT HAD HELD THAT THE TDS PROVISION S DO NOT APPLY TO COMMISSION PAYMENTS MADE TO OVERSEAS AGENTS. A SIMI LAR VIEW WAS HELD IN BY HON'BLE ALLAHABAD HIGH COURT IN THE CASE SCHR EINER AIRWAY BV 1990 THAT COMMISSION EARNED BY FOREIGN AGENTS WAS NOT TA XABLE IN INDIA EVEN IN CASES WHERE THE NONRESIDENT WAS A REGULAR AGENT. IN THE CASE OF INDOPEL GARMENTS (P.) LTD. V. DY. CIT [20031 86 ITD 102 (MA D.) WHEREIN IT WAS HELD THAT COMMISSION PAYABLE TO A NON-RESIDENT FOR SERVICES RENDERED OUTSIDE INDIA SHALL NOT BE LIABLE TO TAXABLE IN IND IA. CONSIDERING THE VARIOUS JUDICIAL PRECEDENTS HAS MEN TIONED ABOVE, THE AO IS NOT JUSTIFIED IN DISALLOWING THE COMMISSION PAYM ENTS MADE ABROAD ON THE GROUND THAT NO TDS WAS DEDUCTED AND THEREFORE K EEPING IN VIEW OF THE VARIOUS CASE LAWS MENTIONED SUPRA AND RESPECTFULLY FOLLOWING THEM, THE AO IS DIRECTED TO DELETE THE ADDITION MADE AT RS.37 ,96,073/-' 7. BEFORE US, LD. D.R. ARGUED IN SUPPORT OF THE ORD ER OF LD.A.O AND LD. A.R RELIED ON THE ORDER OF THE LD.CIT (A). FURTHER THE LD. A.R RELIED ON THE DECISIONS OF THE CASE ASSTT. CIT V. FARIDA SHOES (P .) LTD. [20131 143 ITD 400/34 TAXMANN.COM 268 (CHENNAI) , PRAKASH IMPEX V. ASSTT. CIT [IT APPEAL NO. 8(MDS.) OF 2012, VIDE ORDER DT.30.03.201 2] & CIT V. MODEL EXIMS [20131 358 ITR 72/219 TAXMAN 289/38 TAXMANN.COM 319 (ALL.) . 8. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PER USED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS OF THE CASE, IT IS EVIDENT THAT THE ASSESSEE HAD MADE PAYMENTS TO COMMISSION AGENTS LOC ATED IN FOREIGN COUNTRIES. THESE FOREIGN AGENTS HAVE RENDERED SERVI CES IN THEIR RESPECTIVE COUNTRIES AND HAD RECEIVED THE COMMISSION. IT IS AL SO EVIDENT THAT THE FOREIGN AGENTS DID NOT HAVE ANY PE IN INDIA AND THE RE WAS NOTHING BROUGHT ON RECORD TO SHOW THAT THE AGREEMENTS BETWEEN THE A SSESSEE & THE COMMISSION AGENTS WERE ENTERED IN INDIA. IN THESE C IRCUMSTANCES THE DECISION RENDERED IN THE CASE OF TOSHOKU LTD. (SUPR A) IS SQUARELY APPLICABLE CONSIDERING THE FACTS OF THE CASE BEFORE US. IN THIS CASE, THE HON'BLE APEX COURT HELD THAT THE COMMISSION AGENTS, WHO ARE ENGAGED IN THE SERVICES EXECUTED OUTSIDE INDIA, CANNOT BE CONS IDERED TO CARRY ON ANY BUSINESS OPERATIONS IN INDIA AND THEREFORE, PROVISI ONS OF SECTION 9(L)(I) OF THE ACT AND EXPLANATION-1A WILL NOT BE APPLICABLE. SIMILARLY, THE HONBLE APEX COURT, IN THE CASE OF GE INDIA TECHNOLOGY CEN. (P.) LTD (SUPRA) HAS HELD THAT THE EXPRESSION 'CHARGEABLE UNDER THE PROV ISIONS OF THE ACT IN SEC. 195(1)' SHOWS THAT THE REMITTANCE HAS TO BE OF TRAD ING RECEIPT, THE WHOLE OR PART OF WHICH, IS LIABLE TO TAX IN INDIA. IF TAX IS NOT SO ASSESSABLE, THERE IS NO QUESTION OF TAX AT SOURCE BEING DEDUCTED. CONSID ERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE DECISIONS RENDERE D BY THE HON'BLE APEX COURT, WE ARE OF THE CONSIDERED VIEW THAT THE LD. L D. CIT (A) HAD DECIDED THE ISSUE IN ACCORDANCE WITH LAW. THEREFORE, WE HER EBY CONFIRMED THE ORDER OF THE LD.CIT (A). 9. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSE D. ITA NO. 45(ASR)/2016 ASSESSMENT YEAR: 2012-13 9 IN VIEW OF THE ABOVE JUDICIAL PRECEDENTS AND FACTS AND CIRCUMSTANCES OF THE CASE GROUND NO.3 TO 5 OF THE A PPEAL ARE ALLOWED. 6. IN NUTSHELL, THE APPEAL FILED BY ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18.09.2017 SD/- SD/- (N. K. CHOUDHRY) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 18.09.2017. /GP/SR. PS . COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER