M/s. Welspring Universal, New Delhi V. JCIT, New Delhi

ITA 4761/DEL/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86485 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 08-01-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 01-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J P CHANDRAKAR
• Assessee Lawyers: DHARENDER KUMAR
• Keywords: Residential status; Services rendered outside India; Deemed to accrue or arise in india; Retrospective amendment; Advance ruling; Non-deduction of tax
• Section: 5(2); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : H : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI A.T. VARKEY, JM ITA NO.4761/DEL/2014 ASSESSMENT YEAR : 2011-12 WELSPRING UNIVERSAL, B-19, MAYAPURI INDL. AREA, PHASE-I, NEW DELHI. PAN : AAAFW0554F VS. JC IT, RANGE-27, NEW DELHI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : S/ SHRI SATISH AGGARWAL & DHARENDER KUMAR, CA DEPARTMENT BY : S HRI J.P. CHANDRAKAR, SR. DR ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER PASSED BY THE CIT U/S 263 OF THE INCOME-TAX ACT, 19 61 (HEREINAFTER ALSO CALLED THE ACT) ON 8.7.14 IN RELATION TO THE ASSESSMENT YEAR 2011-12. ITA NO.4761/DEL/2014 2 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN MANUFACTURING OF ENGINEERING ITEMS. THE AO OBSERVED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT A SUM OF ` 23,58,813/- WAS PAID BY THE ASSESSEE AS A FOREIGN C OMMISSION WITHOUT DEDUCTION OF TAX AT SOURCE. ON BEING CALLE D UPON TO JUSTIFY SUCH NON-DEDUCTION, THE ASSESSEE TENDERED EXPLANATI ON WHICH HAS BEEN REPRODUCED ON PAGES 2-4 OF THE ASSESSMENT ORDE R. GETTING CONVINCED WITH THE ASSESSEES SUBMISSIONS, THE AO C HOSE NOT TO MAKE ANY DISALLOWANCE U/S 40(A)(I) OF THE ACT. WHI LE EXERCISING REVISIONAL POWER U/S 263 OF THE ACT, THE LD. CIT OP INED THAT IN VIEW OF THE AMENDMENT TO SECTION 195, THE ASSESSEE WAS L IABLE TO DEDUCT TAX AT SOURCE ON SUCH PAYMENT OF COMMISSION TO FOREIGN PARTIES. HAVING NOT DONE SO, THE LD. CIT HELD THAT THE ASSESSMENT ORDER PASSED BY THE AO ON THIS SCORE WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IN SU PPORT OF HIS CONCLUSION, THE LD. CIT ALSO RELIED ON THE OPINION OF THE AUTHORITY OF ADVANCE RULING IN SKF BOILERS AND DRIERS PVT. LTD. (343 ITR 385) AND RAJIV MALHOTRA (285 ITR 564). THE ASSESSEE IS AGGRIEVED AGAINST THE REVISIONAL ORDER DIRECTING THE AO TO MA KE DISALLOWANCE U/S 40(A)(I) OF THE ACT. ITA NO.4761/DEL/2014 3 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE O N THE FACTUAL ASPECT OF THE MATTER THAT THE ASSESSEE PAID COMMISS ION TO A NON- RESIDENT FOR PROCURING EXPORT ORDERS AND SUCH COMMI SSION WAS PAID WITHOUT DEDUCTING TAX AT SOURCE. THE ASSESSEE PLEADED FOR THE CORRECTNESS OF ITS ACTION IN NOT MAKING SUCH DE DUCTION U/S 195 BY STATING THAT THE NON-RESIDENT COMMISSION AGENT P ROVIDED SERVICES OUTSIDE INDIA AND, HENCE, THE AMOUNT WAS N OT CHARGEABLE TO TAX IN HIS HANDS. IT GOES WITHOUT SAYING THAT LI ABILITY FOR DEDUCTION OF TAX AT SOURCE ARISES ONLY WHEN THE AMO UNT IS CHARGEABLE TO TAX IN THE HANDS OF THE PAYEE. IF TH E AMOUNT ITSELF IS NOT SO CHARGEABLE TO TAX, THE LIABILITY FOR DEDUCTI ON OF TAX AT SOURCE IS ALSO OBLITERATED. 4. FIRSTLY, WE WILL ENDEAVOUR TO DETERMINE IF T HE AMOUNT OF COMMISSION IS TAXABLE IN THE HANDS OF THE NON-RESID ENT AGENT. THE SCOPE OF TOTAL INCOME OF A NON-RESIDENT IS GOVERNED BY SECTION 5(2) OF THE ACT. THIS SECTION PROVIDES THAT ALL INCOME O F A NON-RESIDENT FROM WHATEVER SOURCE DERIVED WHICH (A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR ON BEHAL F OF SUCH PERSON OR (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE TO HIM IN ITA NO.4761/DEL/2014 4 INDIA DURING SUCH YEAR, SHALL BE INCLUDED IN HIS TO TAL INCOME. IT IS PATENT THAT THE NON-RESIDENT DID NOT RECEIVE SUCH INCOME IN INDIA INASMUCH AS THE ASSESSEE MADE PAYMENT FOR SUCH COMM ISSION TO THE NON-RESIDENT OUTSIDE INDIA. SECTION 7 DEFINES INCOME DEEMED TO BE RECEIVED . IT REFERS TO THE ANNUAL ACCRETION TO THE BALANCE AT THE CREDIT OF AN EMPLOYEE PARTICIPATING IN A RECOGN IZED PROVIDENT FUND; TRANSFERRED BALANCE IN A RPF TO SOME EXTENT; AND THE CONTRIBUTION MADE BY THE CENTRAL GOVERNMENT OR ANY OTHER EMPLOYER TO THE ACCOUNT OF AN EMPLOYEE UNDER PENSIO N SCHEME REFERRED TO IN SECTION 80CCD. FROM THE DESCRIPTION OF THE CONTENTS OF SECTION 7, IT CAN BE SEEN THAT THE COMMISSION RE CEIVED BY A NON-RESIDENT CANNOT BE CHARACTERIZED AS INCOME DEE MED TO BE RECEIVED IN INDIA. THE NEXT INGREDIENT OF SECTION 5(2) IS THE INCOME WHICH ACCRUES OR ARISES IN INDIA. SINCE THE CHARGEABILITY TO TAX UNDER THIS SEGMENT IS ATTRACTED IF THE INCOM E ACCRUES OR ARISES TO THE NON-RESIDENT IN INDIA, IT BECOMES CRU CIAL TO FIND OUT THE PLACE WHERE INCOME FROM EXPORT COMMISSION ACCRU ES OR ARISES. IN THIS REGARD, THE SOURCE OF ACCRUAL OR ARISING OF INCOME CANNOT BE RELEVANT BECAUSE THE INCIDENCE OF TAX IS ATTACHED W ITH THE PLACE OF ACCRUAL OF INCOME AND NOT ITS SOURCE . ORDINARILY, THERE CAN BE ITA NO.4761/DEL/2014 5 SEVERAL PLACES INVOLVED IN A TRANSACTION, SUCH AS, A PLACE WHERE AN AGREEMENT IS ENTERED INTO OR A PLACE WHERE SERVICES ARE ACTUALLY PERFORMED OR A PLACE WHERE THE SERVICES ARE UTILIZE D OR A PLACE WHERE ENTRIES ARE MADE IN THE BOOKS OR A PLACE WHER E CONSIDERATION IS PAID OR RECEIVED ETC. IN THE CONTE XT OF RENDERING OF SERVICES FOR PROCURING EXPORT ORDERS BY A NON-RESID ENT FROM THE COUNTRIES OUTSIDE INDIA, THERE CAN BE NO WAY FOR CO NSIDERING THE ACTUAL EXPORT FROM INDIA AS THE PLACE FOR THE ACCRU AL OF COMMISSION INCOME OF THE NON-RESIDENT. ONE SHOULD KEEP IN MIND THE DISTINCTION BETWEEN THE ACCRUAL OF INCOME OF EXPORT ER FROM EXPORTS AND THAT OF THE FOREIGN AGENT FROM COMMISSION. AS A FOREIGN AGENT OF INDIAN EXPORTER OPERATES OUTSIDE INDIA FOR PROCU RING EXPORT ORDERS AND FURTHER THE GOODS IN PURSUANCE TO SUCH O RDERS ARE ALSO SOLD OUTSIDE INDIA, NO PART OF HIS INCOME CAN BE SA ID TO ACCRUE OR ARISE IN INDIA. THE LAST COMPONENT OF SECTION 5(2) IS INCOME WHICH IS DEEMED TO ACCRUE OR ARISE IN INDIA. THE EXPRESSION - INCOME DEEMED TO ACCRUE OR ARISE IN INDIA - HAS BEEN DEFI NED IN SECTION 9(1) OF THE ACT. SUB-SECTION (1) OF SECTION 9 HAS SEVEN CLAUSES. CLAUSE (I) DEALS WITH INCOME ACCRUING OR ARISING, W HETHER DIRECTLY OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECT ION IN INDIA OR ITA NO.4761/DEL/2014 6 FROM ANY PROPERTY IN INDIA OR THROUGH OR FROM ANY A SSET OR SOURCE OF INCOME IN INDIA OR THROUGH THE TRANSFER OF THE C APITAL ASSET SITUATED IN INDIA. IT IS QUITE APPARENT THAT THE C OMMISSION INCOME CANNOT BE ASSOCIATED WITH THE LATER CONTENTS OF THI S CLAUSE, NAMELY, ANY PROPERTY OR ASSET OR SOURCE OF INCOME I N INDIA. AT THE MOST, IT CAN BE CONSIDERED AS HAVING SOME BUSINESS CONNECTION. EXPLANATION 3 TO SECTION 9(1)(I) PROVIDES THAT IF B USINESS IS CARRIED ON IN INDIA, ONLY SO MUCH OF THE INCOME AS IS ATTRI BUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA, SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA. THUS, IT IS CLEAR THAT IN ORDER TO BRING ANY INCOME WITHIN THE AMBIT OF SECTION 9(1)(I), IT IS SINE QUA NON THAT THE ACTIVITY RESULTING INTO SUCH INCOME SHOULD BE CARRIED OUT IN INDIA. NOTWITHSTANDING THE EXISTENCE OF A BUSINESS CONNECT ION IN INDIA, AS EVEN UNDERSTOOD IN THE WIDEST POSSIBLE AMPLITUDE , AN INCOME WILL FALL U/S 9(1)(I) ONLY TO THE EXTENT IT RESULT S FROM THE OPERATIONS CARRIED OUT IN INDIA. IF NO OPERATIONS FOR EARNING SUCH INCOME FROM BUSINESS CONNECTION ARE CARRIED OUT IN INDIA, THE A PPLICABILITY OF CLAUSE (I) TO THIS EXTENT IS RULED OUT. AS, ADMITTE DLY, THE NON- RESIDENT PAYEE CARRIED OUT HIS OPERATIONS OUTSIDE I NDIA, THE COMMAND OF CLAUSE (I) OF SECTION 9(1) CANNOT APPLY. THE OTHER SIX ITA NO.4761/DEL/2014 7 CLAUSES OF SECTION 9(1), NAMELY, CLAUSES (II) & (II I) DEALING WITH INCOME UNDER THE HEAD SALARIES; CLAUSE (IV) DEALI NG WITH DIVIDEND; CLAUSE (V) DEALING WITH INTEREST; CLA USE (VI) DEALING WITH ROYALTY; AND CLAUSE (VII) DEALING WITH FEES FOR TECHNICAL SERVICES, HAVE NO APPLICATION TO THE FACTS AND CIR CUMSTANCES OF THE INSTANT CASE. THE AMOUNT OF COMMISSION PAID TO THE NON- RESIDENT CANNOT BE DESCRIBED AS SALARY OR DIVIDEND OR INTEREST OR ROYALTY OR FEES FOR TECHNICAL SERVICES. 5. THE ARGUMENT OF THE LD. DR THAT EXPLANATION B ELOW SECTION 9(2) WILL BRING THE INSTANT CASE WITHIN THE FOLD OF SECTION 9(1), IS DEVOID OF ANY MERIT. THIS EXPLANATION SIMPLY STATE S THAT FOR THE PURPOSES OF THIS SECTION, INCOME OF A NON-RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CLAUSES (V ) OR (VI) OR (VII) OF SUB-SECTION (1) AND SHALL BE INCLUDED IN THE TOT AL INCOME OF THE NON-RESIDENT WHETHER OR NOT THE NON-RESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA O R THE NON- RESIDENT HAS RENDERED SERVICES IN INDIA. A BARE PE RUSAL OF THE EXPLANATION DIVULGES THAT IF THERE IS SOME INCOME O F THE NON- RESIDENT WHICH IS IN THE NATURE OF INTEREST OR ROYA LTY OR FEES FOR TECHNICAL SERVICES, THEN, SUCH INCOME SHALL BE DEEM ED TO ACCRUE ITA NO.4761/DEL/2014 8 OR ARISE IN INDIA IRRESPECTIVE OF THE NON-RESIDENT RENDERING SERVICES IN OR OUTSIDE INDIA ETC. THE PRE-CONDITION FOR MAG NETIZING THIS EXPLANATION IS THAT THE INCOME OF THE NON-RESIDENT SHOULD BE IN THE NATURE OF INTEREST OR ROYALTY OR FEES FOR TECHNICAL SERVICES. IT IS ONLY IN RESPECT OF THESE THREE CATEGORIES OF INCOME S THAT THE DEEMING PROVISION IS ATTRACTED NOTWITHSTANDING THE NON-RESIDENT NOT HAVING A PLACE OF BUSINESS IN INDIA OR NOT REND ERING SERVICES IN INDIA. AS THE COMMISSION INCOME OF NON-RESIDENT DO ES NOT FALL IN ANY OF THESE THREE CLAUSES, NAMELY, (V), (VI) OR (V II) OF SECTION 9(1) OF THE ACT, WE HOLD THAT EXPLANATION BELOW SECTION 9(2) CANNOT HELP THE REVENUES CASE. 6. IN VIEW OF THE FOREGOING DISCUSSION, IT IS APPARENT THAT THE COMMISSION INCOME IN THE HANDS OF THE NON-RESIDENT CAN NEITHER BE CONSIDERED AS RECEIVED OR DEEMED TO BE RECEIVED IN INDIA OR ACCRUING OR ARISING OR DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA IN TERMS OF SECTION 5(2) OF THE ACT. ONCE IT IS HELD THAT THE COMMISSION INCOME OF A NON-RESIDENT FOR RENDERING S ERVICES OUTSIDE INDIA DOES NOT FALL WITHIN THE SCOPE OF HIS TOTAL INCOME, IT AUTOMATICALLY IMPLIES THAT THE SAME IS NOT CHARGEAB LE TO TAX IN HIS HANDS. ITA NO.4761/DEL/2014 9 7. SUB-SECTION (1) OF SECTION 195 PROVIDES THAT ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT, NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY INTEREST OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT , NOT BEING INCOME CHARGEABLE UNDER THE HEAD SALARIES SHALL, AT THE TIME OF CRE DIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME O F PAYMENT THEREOF, WHICHEVER IS EARLIER, SHALL DEDUCT INCOME- TAX THEREON AT THE RATES IN FORCE. A CIRCUMSPECTION OF THIS PROVI SION INDICATES THAT IN ORDER TO ATTRACT THE WITHHOLDING OF TAX ON A PAY MENT MADE TO A NON-RESIDENT, IT IS ESSENTIAL THAT THE SUM SHOULD B E CHARGEABLE TO TAX IN THE HANDS OF THE PAYEE UNDER THE PROVISIONS OF THIS ACT. IT IS QUITE NATURAL ALSO BECAUSE A LIABILITY FOR DEDUCTIO N OF TAX AT SOURCE PRE-SUPPOSES TAX LIABILITY IN THE HANDS OF THE PAYE E. IF THERE IS NO TAX LIABILITY IN RESPECT OF THE PAYMENTS MADE TO TH E PAYEE, THERE CAN BE NO QUESTION OF DEDUCTING ANY INCOME-TAX AT S OURCE FROM SUCH PAYMENT. ONLY IF THE AMOUNT IS CHARGEABLE TO TAX IN THE HANDS OF THE RECIPIENT THAT THE QUESTION OF DEDUCTI NG ANY TAX AT SOURCE THEREFROM ARISES. IN AN EARLIER PARA, WE HA VE SEEN THAT THE EXPORT COMMISSION IS NOT CHARGEABLE TO TAX IN THE H ANDS OF NON- RESIDENT IN TERMS OF SECTION 5(2) OF THE ACT. THE NATURAL OUTCOME, ITA NO.4761/DEL/2014 10 WHICH, THEREFORE, EMERGES IS THAT THERE CAN BE NO O BLIGATION OF THE ASSESSEE-PAYER TO DEDUCT TAX AT SOURCE ON SUCH COMM ISSION PAYMENT TO THE NON-RESIDENT. 8. NOW, WE TURN TO THE AMENDMENT TO SECTION 195, WHICH HAS BEEN INVOKED BY THE LD. CIT TO FORTIFY HIS VIEW THA T THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE BEFORE MAKING PAYMENT OF COMMISSION TO THE NON-RESIDENT. BEFORE EVALUATING S UCH A SUBMISSION, IT WOULD BE APPOSITE TO CONSIDER THE PR ESCRIPTION OF THE EXPLANATION 2, AS UNDER:- EXPLANATION 2.FOR THE REMOVAL OF DOUBTS, IT IS HE REBY CLARIFIED THAT THE OBLIGATION TO COMPLY WITH SUB-SECTION (1) AND TO MAKE DEDUCTION THEREUNDER APPLIES AND SHALL BE DEEMED TO HAVE ALWAYS APPLIED AND EXTENDS AND SHALL BE DEEMED TO HAVE ALW AYS EXTENDED TO ALL PERSONS, RESIDENT OR NON-RESIDENT, WHETHER OR NOT THE NON-RESIDENT PERSON HAS (I) A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA; OR (II) ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER I N INDIA. 9. A GLANCE AT THE ABOVE EXPLANATION INSERTED BY TH E FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 1.4.1962 R EVEALS THAT THE OBLIGATION TO COMPLY WITH SUB-SECTION (1), FOR MAKI NG DEDUCTION OF TAX AT SOURCE BY THE PAYER, APPLIES AND SHALL BE DE EMED TO HAVE ITA NO.4761/DEL/2014 11 ALWAYS APPLIED TO ALL THE PERSONS, RESIDENT OR NON- RESIDENT, WHETHER OR NOT THE NON-RESIDENT PERSON HAS A RESIDE NCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA OR ANY OTH ER PRESENCE IN ANY MANNER WHATSOEVER IN INDIA. THE EXPLANATION SI MPLY CLARIFIES THAT THE OBLIGATION TO DEDUCT TAX AT SOURCE IN TERM S OF SECTION 195(1) IS NOT RESTRICTED ONLY TO THE RESIDENTS, BUT ALSO EXTENDS TO THE NON-RESIDENTS IRRESPECTIVE OF SUCH NON-RESIDENT NOT HAVING A PLACE OF BUSINESS OR A BUSINESS CONNECTION IN INDIA ETC. SINCE THE MAIN PART OF SUB-SECTION (1) OF SECTION 195 CASTS O BLIGATION FOR WITHHOLDING OF TAX AT SOURCE ON THE PAYER, THUS, IT BECOMES AXIOMATIC THAT THE EXPLANATION 2 AMPLIFYING THE SCO PE OF SUB- SECTION (1) OF SECTION 195 SHALL ALSO APPLY TO A PA YER AND NOT A PAYEE. AS THE EXTANT ASSESSEE PAYER IS A RESIDENT OF INDIA, IT IS EVEN OTHERWISE OBLIGED TO DEDUCT TAX AT SOURCE FROM THE PAYMENTS MADE TO NON-RESIDENT IN TERMS OF THE MAIN SUB-SECTI ON (1), WITHOUT APPLICABILITY OF THE EXPLANATION 2, IF THE REQUISIT E CONDITIONS AS PRESCRIBED IN THE SECTION ARE FULFILLED. IN OTHER WORDS, IF A PAYMENT IS MADE ON ACCOUNT OF ANY SUM WHICH IS CHARGEABLE U NDER THE PROVISIONS OF THIS ACT, THEN, THERE WILL BE AN OBLI GATION TO DEDUCT TAX AT SOURCE. PER CONTRA, IF THE AMOUNT IS NOT CH ARGEABLE TO TAX IN ITA NO.4761/DEL/2014 12 THE HANDS OF THE PAYEE, THEN, NO LIABILITY TO DEDUC T TAX AT SOURCE CAN BE FASTENED ON THE PAYER. THUS IT IS VIVID THAT THE INSERTION OF THE EXPLANATION 2 HAS NOT BROUGHT ANY CHANGE TO THE FACTUAL POSITION OBTAINING BEFORE US. THE EFFECT OF INSERTI ON OF EXPLANATION TO SECTION 195(1) IS SIMPLY TO CLARIFY ABOUT LIABIL ITY OF DEDUCTOR. IT HAS NOT DONE AWAY WITH THE PRE-REQUISITE CONDITION OF SECTION 195(1) WHICH MANDATES THAT AMOUNT SHOULD BE CHARGEA BLE TO TAX IN THE HANDS OF THE PAYEE. IN OUR CONSIDERED OPINI ON, THE LD. CIT ERRED IN INVOKING EXPLANATION 2 TO SECTION 195(1) F OR TREATING THE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE I NTEREST OF THE REVENUE ON ACCOUNT OF NON DEDUCTION OF TAX AT SOURC E FROM THE COMMISSION PAYMENT TO THE NON-RESIDENT AND THE CONS EQUENTIAL NON-MAKING OF DISALLOWANCE U/S 40(A)(I) OF THE ACT. 10. THE LD. DR VEHEMENTLY ACCENTUATED ON CIRCUL AR NO. 7 OF 2009 TO CONTEND THAT WITH THE WITHDRAWAL OF THE EAR LIER BENEVOLENT CIRCULARS ON THIS ISSUE, THE INSTANT COMMISSION PAY MENT HAS BECOME CHARGEABLE TO TAX IN THE HANDS OF THE PAYEE AND IN THE ABSENCE OF THE ASSESEE HAVING DEDUCTED TAX AT SOURC E, THE LD. CIT WAS JUSTIFIED IN SETTING ASIDE THE ASSESSMENT ORDER ALLOWING DEDUCTION FOR SUCH COMMISSION PAYMENT. ITA NO.4761/DEL/2014 13 11. WE DO NOT FIND ANY FORCE IN THIS ARGUMENT. IT IS RELEVANT TO NOTE THAT CIRCULAR NO 23 DT. 23/07/1969 CLARIFIED T HAT NO PART OF THE INCOME OF A FOREIGN AGENT OF INDIAN EXPORTER ARISES IN INDIA AND HENCE SUCH AN AGENT IS NOT LIABLE TO INCOME-TAX IN INDIA ON THE COMMISSION. THEN CIRCULAR NO. 786 DT. 7/02/2000 FUR THER ELABORATED THE CONSEQUENCE OF CIRCULAR NO. 23 BY ST ATING THAT SINCE SUCH COMMISSION INCOME OF FOREIGN AGENT IS NO T LIABLE TO TAX IN INDIA, NO TAX IS THEREFORE, DEDUCTIBLE AT SOURCE UNDER SECTION 195 AND CONSEQUENTLY THE EXPORT COMMISSION PAYABLE TO A NON- RESIDENT FOR SERVICES RENDERED OUTSIDE INDIA IS NOT DISALLOWABLE U/S 40(A)(I) OF THE ACT. THEREAFTER, CIRCULAR NO. 7 DAT ED 22/10/2009 WAS ISSUED WITHDRAWING, INTER ALIA, THE ABOVE TWO CIRCULAR NOS. 23 AND 786. THE LEGAL POSITION CONTAINED IN SECTION 5( 2) READ WITH SECTION 9, AS DISCUSSED ABOVE ABOUT THE SCOPE OF TO TAL INCOME OF A NON-RESIDENT SUBSISTING BEFORE THE ISSUANCE OF CIRC ULAR NOS. 23 AND 786 OR AFTER THE ISSUANCE OF CIRCULAR NO. 786 HAS N OT UNDERGONE ANY CHANGE. IT IS NOT AS IF THE EXPORT COMMISSION I NCOME OF A FOREIGN AGENT FOR SOLICITING EXPORT ORDERS IN COUNT RIES OUTSIDE INDIA WAS EARLIER CHARGEABLE TO TAX, WHICH WAS EXEMPTED B Y THE CBDT THROUGH THE ABOVE CIRCULARS AND NOW WITH THE WITHDR AWAL OF SUCH ITA NO.4761/DEL/2014 14 CIRCULARS, THE HITHERTO INCOME NOT CHARGEABLE TO TA X, HAS BECOME TAXABLE. THE LEGAL POSITION REMAINS THE SAME DE HORS ANY CIRCULAR INASMUCH AS SUCH INCOME OF A FOREIGN AGENT IS NOT C HARGEABLE TO TAX IN INDIA BECAUSE IT NEITHER ARISES IN INDIA NOR IS RECEIVED BY HIM IN INDIA NOR ANY DEEMING PROVISION OF RECEIPT O R ACCRUAL IS ATTRACTED. IT IS FURTHER RELEVANT TO NOTE THAT THE LATTER CIRCULAR SIMPLY WITHDRAWS THE EARLIER CIRCULAR, THEREBY THRO WING THE ISSUE ONCE AGAIN OPEN FOR CONSIDERATION AND DOES NOT STAT E THAT EITHER THE EXPORT COMMISSION INCOME HAS NOW BECOME CHARGEA BLE TO TAX IN THE HANDS OF THE FOREIGN RESIDENTS OR THE PROVIS IONS OF SECTION 195 READ WITH SEC. 40(A)(I) ARE ATTRACTED FOR THE F AILURE OF THE PAYER TO DEDUCT TAX AT SOURCE ON SUCH PAYMENTS. 12. EX CONSEQUENTI, WE HOLD THAT THE AMOUNT OF COMMISSION INCOME FOR RENDERING SERVICES IN PROCURING EXPORT O RDERS OUTSIDE INDIA IS NOT CHARGEABLE TO TAX IN THE HANDS OF THE NON-RESIDENT AGENT AND HENCE NO TAX IS DEDUCTIBLE UNDER SECTION 195 ON SUCH PAYMENT BY THE PAYER. RESULTANTLY, NO DISALLOWANCE IS CALLED FOR U/S 40(A)(I) OF THE ACT. ITA NO.4761/DEL/2014 15 13. IT CAN BE SEEN THAT THE LD. CIT RELIED ON TWO D ECISIONS OF THE AUTHORITY OF ADVANCE RULING IN SKF BOILERS & DRIERS (SUPRA) AND RAJIV MALHOTRA (SUPRA) . IT IS CORRECT THAT AT LEAST IN SKF BOILERS (SUPRA), THE AUTHORITY HAS HELD THAT THE PAYMENT OF COMMIS SION ON EXPORT ORDERS IS CHARGEABLE TO TAX U/S 5(2)(B) R EAD WITH SECTION 9(1)(I) OF THE ACT. BY AN INDEPENDENT EVALUATION O F THE MATTER IN THE LIGHT OF THE PROVISIONS OF SECTION 5(2) READ WI TH SECTION 9 OF THE ACT, WE HAVE HELD ABOVE THAT THE FOREIGN COMMISSION IS NOT CHARGEABLE TO TAX IN THE HANDS OF THE NON-RESIDENT. BE THAT AS IT MAY, IT IS IMPORTANT TO NOTE THAT IT IS NOT A SOLIT ARY PRECEDENT AVAILABLE ON THE SUBJECT. THE HONBLE JURISDICTION AL HIGH COURT IN DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) VS. PANALFA AUTO ELEKTRIK LTD. (2004) 272 CTR (DEL) 117 , HAS HELD THAT THE SERVICES RENDERED BY NON-RESIDENT AGENT FOR PROCURING EXPORT ORDERS FOR THE ASSESSEE CANNOT BE HELD AS FEES FOR TECHNICAL SERVI CES U/S 9(1)(VII) OF THE ACT. IN THIS CASE, THE ASSESSEE MADE AN APP LICATION U/S 195(2) FOR AUTHORIZATION TO REMIT CERTAIN AMOUNT AS COMMISSION FOR ARRANGING EXPORT SALES AND REALIZING PAYMENT TO NON -RESIDENT COMPANY. THE AO HELD THAT THE COMMISSION PAYMENT W AS TAXABLE AS FEES FOR TECHNICAL SERVICES U/S 9(1)(VII) OF THE ACT. THAT IS HOW, ITA NO.4761/DEL/2014 16 WHEN ASSAILED, THE HONBLE HIGH COURT HELD THAT THE PAYMENT OF COMMISSION CANNOT BE CONSIDERED AS FEES FOR TECHNIC AL SERVICES IN TERMS OF SECTION 9(1)(VII) SO AS TO CALL FOR ANY DE DUCTION OF TAX AT SOURCE. THE HONBLE MADRAS HIGH COURT IN CIT VS. FAIZAN SHOES (P) LTD. (2014) 272 CTR (MADRAS) 170 , HAS ALSO HELD THAT NO DISALLOWANCE CAN BE MADE U/S 40A(I) IN RESPECT OF C OMMISSION PAID TO NON-RESIDENT AGENT FOR PROVIDING SERVICES OUTSID E INDIA. 14. AT THIS JUNCTURE, IT IS PERTINENT TO NOTE T HAT WE ARE DEALING WITH AN APPEAL AGAINST THE ORDER PASSED U/S 263 OF THE ACT. IT IS SETTLED LEGAL POSITION THAT THERE CAN BE NO REVISIO N ON A DEBATABLE ISSUE. THE HONBLE SUPREME COURT HAS HELD SO IN MALABAR INDUSTRIAL COMPANY LTD. VS. CIT (2000) 243 ITR 83 ( SC) . THIS VIEW HAS BEEN REITERATED BY THE HONBLE APEX COURT IN CIT VS. MAX INDIA LTD. (2007) 295 ITR 282 (SC) . IN THIS CASE, THE HONBLE SUMMIT COURT HELD THAT WHEN TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, IT CANN OT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTEREST O F THE REVENUE, UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE I N LAW. ADVERTING TO THE FACTS OF THE INSTANT CASE, IT CAN BE SEEN THAT THE AO, AFTER CONSIDERING CERTAIN DECISIONS RELIED BY T HE ASSESSEE ITA NO.4761/DEL/2014 17 FAVOURING NON-DEDUCTION OF TAX AT SOURCE IN THE PRE SENT CIRCUMSTANCES, ACCEPTED THE ASSESSEES CONTENTION. THE FACT THAT THE DECISION OF THE AUTHORITY FOR ADVANCE RULING, R ELIED BY THE LD. CIT, FAVOURS THE REVENUES CASE, AT THE MAXIMUM, MAKES THE ISSUE ABOUT DEDUCTION OF TAX AT SOURCE FROM FOREIGN COMMISSION, A DEBATABLE ONE. IN VIEW OF SUCH A CLEAVAGE OF OPINI ON, THIS DEBATABLE ISSUE GOES OUTSIDE THE PURVIEW OF SECTION 263 IN THE LIGHT OF THE ABOVE REFERRED TWO SUPREME COURT JUDGM ENTS. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER. 15. IN THE RESULT, THE APPEAL IS ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 12.01.201 5. SD/- SD/- [ A.T. VARKEY ] [ R.S. SYAL ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 12 TH JANUARY, 2015. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.