M.K.Jailani, CHENNAI V. ITO, CHENNAI

ITA 487/CHNY/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4579 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 27-04-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 27-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M MURALI MOHAN
• Assessee Lawyers: K BALASUBR AMANIAN
• Keywords: Capital asset; Deemed to accrue or arise in india; Permanent establishment; Non-deduction of tax
• Section: 201(1); 10; 11; 139

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D (SMC) BENCH : CHENNAI . , [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT M EMBER ] ./I.T.A. NO. 487/MDS/2017 / ASSESSMENT YEAR : 2013-2014 M.K. JAILANI, PROP: M.N. LEATHERS, NO.8, SARAVANAN STREET, LAKSHMI AMMAN NAGAR, CHENNAI 600 118. [PAN ADWPJ 6156D] VS. THE INCOME TAX OFFICER, NON CORPORATE WARD 4(2) CHENNAI 600 006. ( !' / APPELLANT) ( #$!' /RESPONDENT) / APPELLANT BY : SHRI. K.BALASUBRAMANIAN, ADV. /RESPONDENT BY : SHRI. M. MURALI MOHAN, JCIT. /DATE OF HEARING : 27-04-2017 !' /DATE OF PRONOUNCEMENT : 03-05-2017 % / O R D E R GROUNDS TAKEN BY THE ASSESSEE IN THIS APPEAL DIREC TED AGAINST AN ORDER DATED 28.12.2016 OF COMMISSIONER O F INCOME TAX (APPEALS)-5, CHENNAI ARE REPRODUCED HEREUNDER:- 1. LEARNED A/O HAS ERRED IN DISALLOWING RS.9,67,348 BEING INTEREST PAID TO M/S. RELIANCE CAPITAL AND CI T (A) ERRED IN CONFIRMING THE ADDITION WITHOUT APPRECIATING THE FACT THAT THE WHOLE AMOUNT OF INTEREST WAS PAID BEFORE '31-3-2013 AND NOTHING BY WAY OF INTEREST WAS DUE TO RELIANCE CAPITAL AND THA T ITA NO.487/MDS/2017. :- 2 -: EVEN OTHERWISE THEY FAILED TO APPLY PROVISO TO SEC.201(1) OF THE ACT READ WITH 2ND PROVISO TO SEC. 40(A)(IA). 2. LEARNED A/O HAS ERRED IN DISALLOWING RS.10,35,967 BEING COMMISSION PAID, OUTSIDE INDIA, TO FOREIGN AGENTS FOR PROCURING EXPORT ORDERS AND F OR RENDERING SERVICE FOR COLLECTION OF BILLS ETC OUTSI DE INDIA AND CIT (A) ERRED IN CONFIRMING THE ADDITION WITHOUT APPRECIATING THE FACT THAT: AGENT IS A NON-RESIDENT. AGENT IS OPERATING HIS BUSINESS ACTIVITIES OUTSIDE INDIA. THE COMMISSION PAID RELATED TO SERVICES PROVIDED OUTSIDE INDIA. THE AGENT DOES NOT HAVE ANY PERMANENT ESTABLISHMENT OR PERMANENT BUSINESS PLACE IN INDIA. THE COMMISSION WAS REMITTED TO THE AGENT DIRECTL Y OUTSIDE INDIA. ALL THE ABOVE CONDITIONS BRING TO A REASONABLE CONCLUSION THAT THE COMMISSION PAID IN THE FACTS OF THE PRESENT CASE TO THE NON-RESIDENT AGENT IS NOT TAXABLE IN INDIA AND HENCE SEC.195(1) OR SC.9(1)(VI I) ARE NOT ATTRACTED AND THEREFORE THERE BEING NO CASE FOR TDS, PROVISIONS OF SEC. 40(A)(I) CANNOT BE INVO KED TO THE FACTS OF APPELLANT'S CASE. VIDE CLT V. FAIZAN SHOES (P.) LTD. [2014] 367 ITR 155/226 TAXMAN 115/48 TAXMANN.COM 48 (MAD.) 2. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSE E WAS AGGRIEVED ON TWO COUNTS. BOTH WERE ON DISALLOWANCE MADE FOR WANT OF DEDUCTION OF TAX AT SOURCE ON CLAIMS OF EXPENDIT URE. ACCORDING TO HIM, ASSESSEE HAD PAID INTEREST OF A9,67,348/- TO M /S. RELIANCE CAPITAL LTD. AS PER LD. AUTHORISED REPRESENTATIVE, ASSESSE E WHICH WAS IN LEATHER BUSINESS HAD RAISED CAPITAL FROM NUMBER OF BANKS AND INSTITUTIONS. FURTHER, AS PER THE LD. AUTHORISED RE PRESENTATIVE SEC. ITA NO.487/MDS/2017. :- 3 -: 40(A)(IA) OF THE ACT COULD BE APPLIED ONLY IF THE P AYEE HAD NOT ACCOUNTED THE INTEREST RECEIPT AS A PART OF ITS INC OME. SUBMISSION OF THE LD. AUTHORISED REPRESENTATIVE WAS THAT ASSESSE E WAS HAVING CERTIFICATE OF A CHARTERED ACCOUNTANT AS STIPULATED IN FIRST PROVISO TO SUB-SECTION (1) OF SEC. 201, WHICH CLEARLY SUBSTANT IATED ITS CLAIM THAT THE PAYEE, NAMELY RELIANCE CAPITAL LIMITED HAD TAKE N INTO ACCOUNT THE INTEREST RECEIPTS FROM THE ASSESSEE WHILE COMPUTING ITS TAXABLE INCOME. THUS, AS PER THE LD. AUTHORISED REPRESENTATIVE, ASS ESSEE COULD NOT BE VISITED WITH THE RIGOURS OF SEC. 40(A)(IA) OF THE A CT, CONSIDERING SECOND PROVISO TO THE SAID SECTION. 3. THE SECOND DISALLOWANCE AS PER LD. AUTHORISED REPRESENTATIVE WAS ON PAYMENT OF COMMISSION TO A NO N-RESIDENT AGENT, AGAIN FOR WANT OF DEDUCTION OF TAX. AS PER THE LD. AUTHORISED REPRESENTATIVE, ASSESSEE HAD PAID A COMMISSION OF A 10,35,967/- TO M/S. FREEDOM LEATHER, ITALY. ACCORDING TO HIM, ONE M/S. TARA LEATHER EXIM PVT LTD WAS HAVING AN EXCLUSIVE AGENCY AGREEME NT WITH M/S. FREEDOM LEATHERS, ITALY FOR COLLECTING ORDERS FOR L EATHER GOODS. AS PER LD. AUTHORISED REPRESENTATIVE M/S. TARA LEATHER, TH EREAFTER APPORTIONED THE ORDERS RECEIVED THROUGH M/S. FREED OM LEATHER AMONG VARIOUS LEATHER EXPORTERS OF WHICH ASSESSEE W AS ONE. ACCORDING TO HIM, AS PER THE AGREEMENT BETWEEN ASSE SSEE AND M/S TARA LEATHER, ASSESSEE WAS OBLIGED TO GIVE 5% AS SE RVICE CHARGES TO ITA NO.487/MDS/2017. :- 4 -: M/S. TARA LEATHER AND 4% AS COMMISSION TO M/S. FREE DOM LEATHER, ITALY. CONTENTION OF THE LD. AUTHORISED REPRESENTAT IVE WAS THAT NO MANAGERIAL SERVICE OR TECHNICAL SERVICE WAS DONE BY M/S. FREEDOM LEATHER, ABROAD OR IN INDIA, FOR THE ASSESSEE. AC CORDING TO HIM LOWER AUTHORITIES FELL IN ERROR IN CONSIDERING AS TECHNIC AL SERVICES FALLING UNDER SECTION 9(1)(VII) OF THE ACT. FURTHER, ACCORDING T O HIM, CANVASSING ORDERS WOULD NOT COME WITHIN THE MEANING OF THE TER M TECHNICAL SERVICES AS DEFINED UNDER EXPLANATION 2 OF SEC. 9(1 )(VII) OF THE ACT. RELYING ON THE JUDGMENT OF HONBLE JURISDICTIONAL H IGH COURT IN THE CASE OF CIT VS. FARIDA LEATHER COMPANY (2016) 135 DTR 268, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT WHEN PRIMA RY TAX LIABILITY OF A FOREIGN AGENT CANNOT BE ESTABLISHED, ASSESSEE CAN NOT BE FASTENED WITH A LIABILITY TO DEDUCT TAX AT SOURCE ON PAYMENT S EFFECTED TO THEM. THUS, AS PER LD. AUTHORISED REPRESENTATIVE, LOWER A UTHORITIES FELL IN ERROR IN APPLYING SEC. 40(A)(I) OF THE ACT TO THE P AYMENTS MADE TO THE NON-RESIDENT AGENT. 4. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE SUBMIT TED THAT IF ASSESSEE WAS OF THE OPINION THAT IT WAS NOT NECE SSARY TO DEDUCT TAX AT SOURCE ON THE COMMISSION GIVEN TO NON-RESIDENT A GENT, IT SHOULD HAVE MADE AN APPLICATION TO THE ASSESSING OFFICER A S PRESCRIBED UNDER SECTION 195(2) OF THE ACT. HAVING NOT DONE SO, AS PER THE LD. DEPARTMENTAL REPRESENTATIVE ASSESSEE COULD BY ITS ELF CONCLUDE THAT IT ITA NO.487/MDS/2017. :- 5 -: WAS NOT LIABLE TO DEDUCT TAX ON THE COMMISSION PAID TO THE FOREIGN AGENTS. FURTHER AS PER LD. AUTHORISED REPRESENTATI VE THE AGENT HAD DONE MANAGERIAL/CONSULTANCY SERVICES TO THE ASSESSE E AND THIS WAS NOTHING BUT TECHNICAL SERVICE AS DEFINED IN EXPLANA TION 2 TO SEC. 9(1)(VII) OF THE ACT. FAILURE TO DEDUCT TAX, THERE FORE AS PER THE LD. DEPARTMENTAL REPRESENTATIVE, ATTRACTED SECTION 40(A )(I) OF THE ACT. IN SO FAR AS INTEREST PAYMENT TO M/S. RELIANCE CAPITAL LTD WAS CONCERNED, SUBMISSION OF THE LD. DEPARTMENTAL REPRESENTATIVE WAS THAT ASSESSEE NEVER PREFERRED ANY CLAIM THAT THE PAYEES HAD PAID TAXES THEREON BEFORE ANY OF THE LOWER AUTHORITIES. 5. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. TAKING UP FIRST IS SUE REGARDING DISALLOWANCE FOR WANT OF NON DEDUCTION OF TAX AT SO URCE ON INTEREST PAYMENTS TO M/S. RELIANCE CAPITAL LIMITED, CLAIM OF THE ASSESSEE BEFORE ME IS THAT RECIPIENT HAD ACCOUNTED SUCH IN TEREST AS A PART OF ITS INCOME AND PAID TAXES THEREON. THEREFORE, ACCOR DING TO THE ASSESSEE BY VIRTUE OF FIRST PROVISO TO SEC. 201 REA D ALONGWITH SECOND PROVISO TO SEC. 40 (A) (IA) OF THE ACT, IT WAS NOT LIABLE TO DEDUCT TAX. AS AGAINST THIS, CLAIM OF THE LD. DEPARTMENTAL REPRESE NTATIVE IS THAT SUCH A CLAIM WAS NEVER PREFERRED BY THE ASSESSEE BEFORE LOWER AUTHORITIES AND IT WAS A FRESH GROUND WHICH SHOULD NOT BE CONSI DERED BY THE TRIBUNAL, AT THIS STAGE OF THE PROCEEDINGS. BE THA T AS IT MAY BE, WHAT ITA NO.487/MDS/2017. :- 6 -: I FIND IS THAT ASSESSEE HAS FILED A CERTIFICATE DAT ED 09.01.2017 FROM CHARTERED ACCOUNTANTS AS PRESCRIBED IN FIRST PROVI SO TO SEC. 201(1) OF THE ACT. THIS CERTIFICATE SAYS THAT M/S. RELIANCE CAPITAL LIMITED HAD TAKEN INTO ACCOUNT INTEREST PAID BY THE ASSESSEE FO R COMPUTING THEIR TAXABLE INCOME. IN MY OPINION FIRST PROVISO TO SEC . 201(1) OF THE ACT DID NOT PRESCRIBE THEREIN ANY SPECIFIC TIME LIMIT F OR FURNISHING SUCH A CERTIFICATE. IT MAY BE TRUE THAT ASSESSEE HAD NOT PRODUCED THIS CERTIFICATE BEFORE LOWER AUTHORITIES. HOWEVER, IF PAYEE HAD TAKEN INTO ACCOUNT THE INTEREST PAID BY THE ASSESSEE WHILE COM PUTING THEIR TAXABLE INCOME AND HAD FILED THEIR RETURN, THEN IN MY OPINION ASSESSEE CANNOT BE VISITED WITH RIGOURS OF SEC. 40(A)(IA) O F THE ACT, BY VIRTUE OF FIRST PROVISO THEREIN. ACCORDINGLY, I AM OF THE OP INION THAT QUESTION REGARDING LIABILITY OF THE ASSESSEE TO DEDUCT TAX ON THE INTEREST PAYMENTS MADE TO M/S. RELIANCE CAPITAL LTD, REQUIR ES A REVISIT BY LD. ASSESSING OFFICER. I SET ASIDE THE DISALLOWANCE OF A9,67,348/- AND REMIT THE ISSUE BACK TO THE FILE OF THE LD. ASSESS ING OFFICER FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW, BASED ON THE CERTIFICATE SUBMITTED BY THE ASSESSEE AS PER FIRST PROVISO TO S EC. 201(1) OF THE ACT. 6. COMING TO THE DISALLOWANCE OF COMMISSION PAID TO NO N- RESIDENT ABROAD, AS PER REVENUE SERVICES RENDERED BY M/S. FREEDOM LEATHER FELL WITHIN THE MEANING OF TECHNICAL SERVI CES AS DEFINED IN ITA NO.487/MDS/2017. :- 7 -: EXPLANATION (2) TO SEC. 9(1)(VII) OF THE ACT. SERVI CES RENDERED BY M/S. FREEDOM LEATHER WAS NOT DIRECTLY TO THE ASSESSEE B UT TO M/S. TARA LEATHER EXIM PVT. LTD THROUGH AN EXCLUSIVE AGENCY AGREEMENT ENTERED BY M/S. TARA LEATHER EXIM PVT. LTD WITH M /S. FREEDOM LEATHER. M/S. TARA LEATHER EXIM PVT. LTD HAD DIST RIBUTED THE ORDERS RECEIVED BY THEM THROUGH M/S. FREEDOM LEATHER TO VA RIOUS PARTIES, INTER-ALIA INCLUDING ASSESSEE. FOR SUCH SERVICES M/ S. TARA LEATHER EXIM PVT. LTD CHARGED 2.5% ON THE ASSESSEE AND ADMITTE DLY ASSESSEE HAD DEDUCTED TAX ON SUCH PAYMENTS. HOWEVER, AS PER AGR EEMENT ASSESSEE HAD WITH M/S. TARA LEATHER EXIM PVT. LTD, IT WAS O BLIGED TO PAY 4% COMMISSION TO M/S. FREEDOM LEATHER. THE BUYERS AB ROAD WHILE EFFECTING PAYMENTS TO THE ASSESSEE HAD DEDUCTED 4% COMMISSION. IN MY OPINION SERVICES RENDERED BY M/S. FREEDOM LEATHE R WOULD NOT COME WITHIN THE MEANING OF THE TERM FEES FOR TECH NICAL SERVICES AS GIVEN IN EXPLANATION (2) TO SEC. 9(1)( VII) OF THE ACT. THERE IS NOTHING ON RECORD TO SHOW THAT M/S. FREEDOM LATHER HAD DONE ANY MANAGERIAL OR CONSULTANCY OR TECHNICAL SERVICE TO THE ASSESSEE . ONLY IF SERVICES RENDERED CAME WITHIN THE MEANING OF TECHNICAL SER VICES AS MENTIONED IN SEC. 9(1)(VII) OF THE ACT, THE QUESTIO N OF APPLYING THE EXPLANATION GIVEN UNDER SEC. 9(2) WILL ARISE. THE S AID EXPLANATION APPLIED BY THE LOWER AUTHORITIES WHICH ENABLE THE REVENUE TO DEEM INCOME OF AN NON RESIDENT TO ARISE IN INDIA, EVEN W HERE THE NON ITA NO.487/MDS/2017. :- 8 -: RESIDENT HAS NOT RESIDENCE OR PLACE OF BUSINESS IN INDIA, AND EVEN WHERE A NON RESIDENT HAD NOT RENDERED ANY SERVICES IN INDIA, WOULD APPLY ONLY TO PAYMENTS WHICH ARE IN THE NATURE OF INTEREST, ROYALTY AND TECHNICAL SERVICES. IN THE CASE OF FARIDA LEATHER COMPANY (SUPRA) WHERE ALSO CONCERNED ASSESSEE HAD PAID COMMISSION T O A NON RESIDENT ABROAD, THEIR LORDSHIP HAD HELD AS UNDER AT PARAS 7 TO 16 OF ITS JUDGMENT. 7. IN ORDER TO APPRECIATE THIS CONTENTION, IT IS NE CESSARY TO CONSIDER THE RELEVANT PROVISIONS OF THE ACT:- (I) SECTION 40 (A) (I) OF THE ACT :- SECTION 40 - AMOUNTS NOT DEDUCTIBLE: NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTION S 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMP UTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, (A) IN THE CASE OF ANY ASSESSEE (I) ANY INTEREST (NOT BEING INTEREST ON A LOAN ISSU ED FOR PUBLIC SUBSCRIPTION BEFORE THE 1ST DAY OF APRIL, 1938), RO YALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER TH IS ACT, WHICH IS PAYABLE,- (A) OUTSIDE INDIA; OR (B) IN INDIA TO A NON-RESIDENT, NOT BEING A COMPANY OR TO A FOREIGN COMPANY, ON WHICH TAX IS DEDUCTIBLE AT SOUR CE UNDER CHAPTER XVIIB AND SUCH TAX HAS NOT BEEN DEDUCTED OR , AFTER DEDUCTION, HAS NOT BEEN PAID ON OR BEFORE THE DUE D ATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139: PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TA X HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCT ED DURING THE PREVIOUS YEAR BUT PAID AFTER THE DUE DATE SPECI FIED IN SUB- SECTION (1) OF SECTION 139, SUCH SUM SHALL BE ALLOW ED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS Y EAR IN WHICH SUCH TAX HAS BEEN PAID. ITA NO.487/MDS/2017. :- 9 -: EXPLANATION: FOR THE PURPOSES OF THIS SUB-CLAUSE,- (A)ROYALTY SHALL HAVE THE SAME MEANING AS IN EX PLANATION 2 TO CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9: (B)FEES FOR TECHNICAL SERVICES SHALL HAVE THE S AME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 9: (IA) THIRTY PER CENT OF ANY SUM PAYABLE TO A RESIDE NT, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVIIB AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139. PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCT ED DURING THE PREVIOUS YEAR BUT PAID AFTER THE DUE DATE SPECI FIED IN SUBSECTION (1) OF SECTION 139 THIRTY PER CENT OF, S UCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME O F THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. PROVIDED FURTHER THAT WHERE AN ASSESSEE FAILS TO DE DUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVI SIONS OF CHAPTER XVII-B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SUB- SECTION (1) OF SECTION 201, THEN, FOR THE PURPOSE OF THIS SUB-CLAU SE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME B Y THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVISO (II) EXPLANATION 2 TO SECTION 195 (1) OF THE ACT :- SECTION 195 - OTHER SUMS: (1) ANY PERSON RESPONSI BLE FOR PAYING TO A NON-RESIDENT NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY INTEREST (NOT BEING INTEREST REFERRED TO IN SECTION 194LB OR SECTION 194LC) OR SECTION 194LD OR ANY OTH ER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT (NOT BE ING INCOME CHARGEABLE UNDER THE HEAD SALARIES ) SHALL, AT THE T IME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE O R AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHE QUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INC OME-TAX THEREON AT THE RATES IN FORCE : PROVIDED THAT IN THE CASE OF INTEREST PAYABLE BY TH E GOVERNMENT OR A PUBLIC SECTOR BANK WITHIN THE MEANING OF CLAUS E (23D) OF SECTION 10 OR A PUBLIC FINANCIAL INSTITUTION WITHIN THE MEANING OF THAT CLAUSE, DEDUCTION OF TAX SHALL BE MADE ONLY AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE : PROVIDED FURTHER THAT NO SUCH DEDUCTION SHALL BE MA DE IN RESPECT OF ANY DIVIDENDS REFERRED TO IN SECTION 115-O. ITA NO.487/MDS/2017. :- 10 -: [EXPLANATION 1] : ..... [EXPLANATION 2.- FOR THE REMOVAL OF DOUBTS, IT IS H EREBY 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 H AVE ALWAYS 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 CO NNECTION IN INDIA; OR (II) ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER IN INDIA. (III) EXPLANATION 4 TO SECTION 9 (1) (I) OF THE ACT :- SECTION 9 - INCOME DEEMED TO ACCRUE OR ARISE IN I NDIA - (1) THE FOLLOWING INCOMES SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA : (I) ALL INCOME ACCRUING OR ARISING, WHETHER DIRECTLY OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA, OR THROUGH OR FROM ANY PROPERTY IN INDIA, OR THROUGH O R FROM ANY ASSET OR SOURCE OF INCOME IN INDIA, OR THROUGH THE TRANSFER OF A CAPITAL ASSET SITUATE IN INDIA. ..... EXPLANATION 4.- FOR THE REMOVAL OF DOUBTS, IT IS HE REBY CLARIFIED THAT THE EXPRESSION 'THROUGH' SHALL MEAN AND INCLUD E AND SHALL BE DEEMED TO HAVE ALWAYS MEANT AND INCLUDED ''BY ME ANS OF', 'IN CONSEQUENCE OF' OR 'BY REASON OF'. 7.1. SECTION 40 OF THE ACT SPELLS OUT WHAT AMOUNTS ARE NOT DEDUCTABLE FROM THE INCOME CHARGED TO TAX UNDER THE PROFITS AND GAINS OF BUSINESS OR PROFESSION. 7.2. SECTION 40 (A) (I) OF THE ACT DEALS WITH INTER EST AND OTHER SUMS PAYABLE OUTSIDE INDIA. THE PROVISIONS OF THIS SUB-CLAUSE MADE APPLICABLE TO INTEREST HAVE BEEN EXTENDED TO P AYMENT OF ROYALTY, TECHNICAL FEES AND ANY OTHER SUM CHARGEABL E UNDER THIS ACT. THE SECTION PROVIDES THAT THE SUMS COVERED BY THE SUB- CLAUSE, WHICH ARE CHARGEABLE UNDER THE ACT AND ARE PAYABLE OUTSIDE INDIA, SHALL NOT BE ALLOWED AS AN EXPENDITU RE TO THE ASSESSEE, UNLESS TAX IS PAID THEREON OR IS DEDUCTED THEREFROM UNDER CHAPTER XVII-B OF THE ACT. 7.3. SECTION 195 (1) OF THE ACT DEALS WITH DEDUCTIO N OF TAX FROM PAYMENT TO NON-RESIDENTS AND FOREIGN COMPANIES. SEC TION 195 (1) OF THE ACT COMES INTO PLAY AT A STAGE WHERE THE PAYER, WHO IS ENJOINED TO DEDUCT THE TAX, EITHER CREDIT SUCH INCO ME TO THE ACCOUNT OF THE PAYEE OR MAKE PAYMENT THEREOF, WHETH ER IN CASH / CHEQUE / DRAFT OR ANY OTHER MODE. THE TAXABILITY O F SUCH AMOUNT IN THE HANDS OF THE PAYEE OR OCCASIONING OF THE TAX ABLE EVENT IS ALIEN FOR THE PURPOSE OF SECTION 195 (1) OF THE ACT . ITA NO.487/MDS/2017. :- 11 -: 7.4. SECTION 195 (2) IS AN ENABLING PROVISION, ENAB LING AN ASSESSEE TO FILE AN APPLICATION BEFORE THE ASSESSIN G OFFICER TO DETERMINE THE APPROPRIATE PROPORTION OF THE SUM CHA RGEABLE AND UPON SUCH DETERMINATION, THE TAX HAS TO BE DEDUCTED UNDER SECTION 195 (1) OF THE ACT. THE PAYMENT IS MADE CR EDITED TO THE ACCOUNT OF THE PAYEE. 8. THE QUESTION NOW IS, WHETHER THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE AS CONTEMPLATED UNDER SECTIO N 195 OF THE ACT, WHEN THE ASSESSEE PAID COMMISSION TO FOREIGN A GENT. 9. THIS QUESTION HAS BEEN ANSWERED BY THE HON 'BLE SUPREME COURT, IN THE CASE OF G.E.INDIA TECHNOLOGY CENTRE P VT. LTD. V. CIT (2010) 327 I.T.R. 456, IN WHICH, IT IS VERY CAT EGORICALLY HELD THAT THE TAX DEDUCTED AT SOURCE OBLIGATIONS UNDER S ECTION 195 (1) OF THE ACT ARISES, ONLY IF THE PAYMENT IS CHARGEABL E TO TAX IN THE HANDS OF THE NON-RESIDENT RECIPIENT. 9.1. THEREFORE, MERELY BECAUSE A PERSON HAS NOT DED UCTED TAX AT SOURCE OR A REMITTANCE ABROAD, IT CANNOT BE INFERRE D THAT THE PERSON MAKING THE REMITTANCE, NAMELY, THE ASSESSEE, IN THE INSTANT CASE, HAS COMMITTED A DEFAULT IN DISCHARGIN G HIS TAX WITHHOLDING OBLIGATIONS BECAUSE SUCH OBLIGATIONS CO ME INTO EXISTENCE ONLY WHEN THE RECIPIENT HAS A TAX LIABILI TY IN INDIA. 9.2. THE UNDERLYING PRINCIPLE IS THAT, THE TAX WITH HOLDING LIABILITY OF THE PAYER IS INHERENTLY A VICARIOUS LIABILITY ON BEHALF OF THE RECEIPIENT AND THEREFORE, WHEN THE RECIPIENT / FORE IGN AGENT DOES NOT HAVE THE PRIMARY LIABILITY TO BE TAXED IN RESPE CT OF INCOME EMBEDDED IN THE RECEIPT, THE VICARIOUS LIABILITY OF THE PAYER TO DEDUCT TAX DOES NOT ARISE. THIS VICARIOUS TAX WITH HOLDING LIABILITY CANNOT BE INVOKED, UNLESS PRIMARY TAX LIA BILITY OF THE RECIPENT / FOREIGN AGENT IS ESTABLISHED. IN THIS C ASE, THE PRIMARY TAX LIABILITY OF THE FOREIGN AGENT IS NOT ESTABLISH ED. THEREFORE, THE VICARIOUS LIABILITY ON THE PART OF THE ASSESSEE TO DEDUCT THE TAX AT SOURCE DOES NOT EXIST. 10. FURTHER, JUST BECAUSE, THE PAYER / ASSESSEE HAS NOT OBTAINED A SPECIFIED DECLARATION FROM THE REVENUE AUTHORITIES TO THE EFFECT THAT THE RECIPENT IS NOT LIABLE TO BE TAXED IN INDI A, IN RESPECT OF THE INCOME EMBEDDED IN THE PARTICULAR PAYMENT, THE ASSESSING OFFICER CANNOT PROCEED ON THE BASIS THAT THE PAYER HAS AN OBLIGATION TO DEDUCT TAX AT SOURCE. HE STILL HAS T O DEMONSTRATE AND ESTABLISH THAT THE PAYEE HAS A TAX LIABILITY IN RESPECT OF THE INCOME EMBEDDED IN THE IMPUGNED PAYMENT. 11. IN THE INSTANT CASE, IT IS SEEN, ADMITTEDLY THA T THE NON-RESIDENT AGENTS WERE ONLY PROCURING ORDERS ABROAD AND FOLLOW ING UP PAYMENTS WITH BUYERS. NO OTHER SERVICES ARE RENDER ED OTHER THAN ITA NO.487/MDS/2017. :- 12 -: THE ABOVE. SOURCING ORDERS ABROAD, FOR WHICH PAYME NTS HAVE BEEN MADE DIRECTLY TO THE NON-RESIDENTS ABROAD, DOE S NOT INVOLVE ANY TECHNICAL KNOWLEDGE OR ASSISTANCE IN TECHNICAL OPERATIONS OR OTHER SUPPORT IN RESPECT OF ANY OTHER TECHNICAL MAT TERS. IT ALSO DOES NOT REQUIRE ANY CONTRIBUTION OF TECHNICAL KNOW LEDGE, EXPERIENCE, EXPERTISE, SKILL OR TECHNICAL KNOW-HOW OF THE PROCESSES INVOLVED OR CONSIST IN THE DEVELOPMENT AN D TRANSFER OF A TECHNICAL PLAN OR DESIGN. THE PARTIES MERELY SOU RCE THE PROSPECTIVE BUYERS FOR EFFECTING SALES BY THE ASSES SEE, AND IS ANALOGOUS TO A LAND OR A HOUSE / REAL ESTATE AGENT / BROKER, WHO WILL BE INVOLVED IN MERELY IDENTIFYING THE RIGHT PR OPERTY FOR THE PROSPECTIVE BUYER / SELLER AND ONCE HE COMPLETES TH E DEAL, HE GETS THE COMMISSION. THUS, BY NO STRETCH OF IMAGIN ATION, IT CANNOT BE SAID THAT THE TRANSACTION PARTAKES THE CH ARACTER OF FEES FOR TECHNICAL SERVICES AS EXPLAINED IN THE CON TEXT OF SECTION 9 (1) (VII) OF THE ACT. 12. AS THE NON-RESIDENTS WERE NOT PROVIDING ANY TEC HNICAL SERVICES TO THE ASSESSEE, AS HELD ABOVE AND AS HELD BY THE COMMISSIONER OF INCOME TAX (APPEALS), THE COMMISSIO N 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, HAS NO APPLICATION TO THE FACTS OF THE ASSESSEE'S CASE. 13. IN THIS CASE, THE COMMISSION PAYMENTS TO THE NO N-RESIDENT AGENTS ARE NOT TAXABLE IN INDIA, AS THE AGENTS ARE REMAINING OUTSIDE, SERVICES ARE RENDERED ABROAD AND PAYMENTS ARE ALSO MADE ABROAD. 14. THE CONTENTION OF THE LEARNED COUNSEL FOR THE REVENUE IS THAT THE TRIBUNAL OUGHT NOT TO HAVE RELIED UPON THE DECISION REPORTED IN G.E.INDIA TECHNOLOGY'S CASE, CITED SUPR A, IN VIEW OF INSERTION OF EXPLANATION 4 TO SECTION 9 (1) (I) OF THE ACT WITH CORRESPONDING INTRODUCTION OF EXPLANATION 2 TO SECT ION 195 (1) OF THE ACT, BOTH BY THE FINANCE ACT, 2012, WITH RET ROSPECTIVE EFFECT FROM 01.04.1962. 15. THE ISSUE RAISED IN THIS CASE HAS BEEN THE SUBJ ECT MATTER OF THE DECISION, IN THE RECENT CASE, REPORTED IN (2014 ) 369 I.T.R. 96 (MAD) (COMMISSIONER OF INCOME TAX V. KIKANI EXPORTS PVT. LTD.) WHEREIN THE CONTENTION OF THE REVENUE HAS BEE N REJECTED AND ASSESSEE HAS BEEN UPHELD AND THE RELEVANT OBSER VATION READS AS UNDER:- ... THE SERVICES RENDERED BY THE NON-RESIDENT AGE NT COULD AT BEST BE CALLED AS A SERVICE FOR COMPLETION OF THE E XPORT COMMITMENT AND WOULD NOT FALL WITHIN THE DEFINITION OF 'FEES FOR TECHNICAL SERVICES' AND, THEREFORE, SECTION 9 W AS NOT APPLICABLE AND, CONSEQUENTLY, SECTION 195 DID NOT C OME INTO ITA NO.487/MDS/2017. :- 13 -: PLAY. THEREFORE, THE DISALLOWANCE MADE BY THE ASSES SING OFFICER TOWARDS EXPORT COMMISSION PAID BY THE ASSES SEE TO THE NON-RESIDENT WAS RIGHTLY DELETED 16. WHEN THE TRANSACTION DOES NOT ATRACT THE PROVIS IONS OF SECTION 9 OF THE ACT, THEN THERE IS NO QUESTION OF APPLYING EXPLANATION 4 TO SECTION 9 OF THE ACT. THEREFORE, THE REVENUE HAS NO CASE AND THE TAX CASE APPEAL IS LIAB LE TO BE DISMISSED. CONSIDERING THE ABOVE JUDGMENT AND THE FACTS OF THI S CASE, I AM OF THE OPINION THAT ASSESSEE WAS NOT OBLIGED TO DEDUCT TAX AT SOURCE ON THE COMMISSION PAID BY IT TO THE NON-RESIDENT MARKETEER . QUESTION OF GETTING A CERTIFICATE FROM THE ASSESSING OFFICER UN DER SECTION 195(2) OF THE ACT WILL BE APPLICABLE ONLY WHERE THE ASSESSEE CONSIDERS ONLY A PART OF THE PAYMENT AS LIABLE FOR DEDUCTION OF TAX AT SOURCE AND NOT THE WHOLE. DISALLOWANCE OF A10,35,967/- MADE U/S.40 (A)(I) OF THE ACT STANDS DELETED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED P RO-TANTO. ORDER PRONOUNCED ON WEDNESDAY, THE 3RD DAY OF MAY, 2017, AT CHENNAI. SD/- ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 3RD MAY, 2017 KV &' ()*) / COPY TO: 1. / APPELLANT 3. +,- / CIT(A) 5. )./ 0 / DR 2. / RESPONDENT 4. + / CIT 6. /1 / GF