M/s Home Fashions International, Trichur V. The ACIT, Trichur

ITA 52/COCH/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96813 (ITAT-COCHIN)
• Duration Of Justice: 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2015
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 17-11-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 19-01-2015
• Court: TRIBUNAL
• Department Lawyers: K P GOPAKUMAR
• Assessee Lawyers: V SATYANARAYANAN
• Keywords: Business income; Double taxation relief; Deemed to accrue or arise in india; Permanent establishment; Question of law; Right to appeal

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH C OCHIN BEFORE S/SHRI B.P. JAIN, AM AND GEORGE GEOR GE K., JM I.T.A. NO.52 /COCH/2015 ASSESSMENT YEAR : 2010-11 HOME FASHIONS INTERNATIONAL, XXIX-571/1, PAREKKAT LANE, POONKUNNAM, THRISSUR-680 002. [PAN:AABFH 3829D] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-2(1), RANGE-2, THRISSUR. (ASSESSEE -APPELLANT) (REVENUE-RESPONDENT) ASSESSEE BY SHRI V. SATYANARAYANAN, CA REVENUE BY SHRI K.P. GOPAKUMAR, SR. DR DATE OF HEARING 17/11/2015 DATE OF PRONOUNCEMENT 10/12/2015 O R D E R PER B.P.JAIN, ACCOUNTANT MEMBER: THIS APPEAL OF THE ASSESSEE ARISES FROM THE OR DER OF THE LD. CIT(A)-V, KOCHI DATED 28/10/2014 FOR THE ASSESSMENT YEAR 2010-11. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1.THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-T AX(APPEALS)-V TO THE EXTENT APPEALED IS AGAINST LAW, EQUITY AND JUSTICE. 2. THE COMMISSIONER OF INCOME-TAX(APPEALS) CONFIRME D THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE AGENCY COMMISS ION PAID TO NON RESIDENT AGENT AMOUNTING TO RS.25,28,998/- ON THE GROUND THA T TAX IS NOT DEDUCTED AT SOURCE ON THE PAYMENT OF COMMISSION TO NON RESIDENT AGENT SINCE ACCORDING I.T.A. NO.52/COCH/2015 2 TO HIM IT APPEARS TO BE COMPOSITE PAYMENT FOR THE S ERVICES PROVIDED WHICH ALSO INCLUDE MANAGERIAL SERVICES AND HENCE FALL WIT HIN THE PROVISIONS OF SECTION 9(1)(VII) OF THE INCOME TAX ACT, 1961, BEIN G PAYMENT IN THE NATURE OF FEE FOR TECHNICAL SERVICES AND HENCE TAX HAS TO BE DEDUCTED AT SOURCE. YOUR APPELLANT SUBMITS THAT SINCE THE NON RESIDENT AGENT IS ONLY CANVASSING ORDERS FOR SALE OF GOODS TO FOREIGN CUSTOMERS, THE SERVICES OF THE NON- RESIDENT AGENTS WILL NOT COME WITHIN THE PURVIEW OF MANAGEMENT SERVICES AND HENCE YOUR APPELLANT IS NOT LIABLE TO DEDUCT TAX AT SOURCE. 3. WITHOUT PREJUDICE TO THE ABOVE MENTIONED CONTE NTIONS, IT IS ALSO SUBMITTED THAT, THE PROVISIONS OF SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961, ARE APPLICABLE ONLY ON THE AMOUNT SHOWN AS PA YABLE IN THE BALANCE SHEET AS A LIABILITY, AND IN YOUR APPELLANTS CASE NO AMOUNT IS SHOWN AS PAYABLE AS ON 31/03/2010 IN THE BALANCE SHEET, AND ON THAT GROUND ALSO TAX IS NOT DEDUCTABLE AT SOURCE ON THE EXPORT COMMISSIO N PAID (REF: VECTOR SHIPPING SERVICES (P) LTD 357 ITR 642 (ALL) (2013 ). 4. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF PROPORTIONATE AMOUNT OF INTEREST AM OUNTING TO RS.264,786/- ON THE AMOUNT ADVANCED TO SISTER CONCERNS. YOUR APP ELLANT HAS ADVANCED THE AMOUNT IN EARLIER YEARS AND THERE WERE SUFFICIENT I NTEREST FREE FUNDS IN THE BUSINESS AT THE TIME OF MAKING THE ADVANCE. 5. FOR THE ABOVE AND OTHER GROUNDS THAT MAY BE FU RTHER ADDUCED AT THE TIME OF HEARING OF THE APPEAL, THE ORDER OF THE LEA RNED COMMISSIONER OF INCOME TAX( APPEALS) REQUIRES TO BE MODIFIED ON THE GROUNDS APPEALED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF EXPORT OF TEXTILE GOODS. FOR THE RELEVANT ASSESSMENT YEAR 2010-11, THE ASSESSEE FILED THE RETURN OF INCO ME DECLARING A TOTAL INCOME OF RS.25,58,351/- ON 09/09/2010. THE CASE WAS SELECTE D FOR SCRUTINY ASSESSMENT BY ISSUANCE OF NOTICE U/S. 143(2) OF THE ACT. I.T.A. NO.52/COCH/2015 3 4. THE ASSESSEE MADE EXPORT SALES OF RS.5.65 CRORES TO EUROPE AND RS.9.62 LAKHS TO USA. FOR THE SALES OPERATIONS IN EUROPE, THE ASSESSEE ENTERED INTO AN AGENCY AGREEMENT WITH NORDIC ASSOCIATES, A COMPAN Y REGISTERED UNDER THE LAWS OF NORWAY FOR CANVASSING SALES ORDERS FROM DIF FERENT COUNTRIES OF EUROPE. THE ASSESSEE AGREED TO PAY AN AGENCY COMMISSION OF 7.5% FOR THE SALES MADE ON THE FOB VALUE OF THE GOODS ORDERED. THE COMMISSI ON BECAME DUE ON THE DATE ON WHICH THE INVOICE WAS REALIZED. THE ASSESS ING OFFICER IN THE ASSESSMENT ORDER DATED 28/03/2013 HELD THAT THE ASSESSEE WAS P AYING A COMPOSITE AMOUNT FOR THE SERVICES PROVIDED WHICH ALSO INCLUDED MANAG ERIAL SERVICES. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE NEITHER HAS NOT MADE ANY COMPLIANCE TO THE PROVISIONS CONTAINED IN SECTION 195(2) NOR H AS DEDUCTED TDS U/S. 195 OF THE ACT. ACCORDINGLY, THE AO HELD THAT THE INCOME OF THE NON -RESIDENT AGENT WAS DEEMED TO ACCRUE OR ARISE IN INDIA AND ASSESSEE SHO ULD HAVE DEDUCTED TDS U/S. 195 OF THE ACT. THE SAME RESULTED IN THE DISALLOW ANCE OF AGENCY COMMISSION OF RS.29,60,202/- U/S.40(A)(IA) OF THE ACT. AGGRIEVED BY THE AFORESAID ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). 5. THE LD. CIT(A), WHILE DISMISSING THE APPEAL OF THE ASSESSEE WAS OF THE VIEW THAT THE SERVICES RENDERED BY THE NON RESIDENT AGENT WAS IN THE NATURE OF MANAGERIAL AND CONSULTANCY SERVICES WHICH QUALIFI ED FOR BEING A PAYMENT AS FEE FOR THE TECHNICAL SERVICES AS PER SECTION 9(1) (VII) OF THE ACT. FURTHERMORE, THE LD. CIT(A) OBSERVED THAT THE RATE OF COMMISSION OF 7.5% OF FOB VALUE OF THE I.T.A. NO.52/COCH/2015 4 GOODS WAS SUBSTANTIALLY HIGH TO CONCLUDE THAT THE P AYMENT WAS IN THE NATURE OF FEE FOR TECHNICAL SERVICES. 6. CHALLENGING THE ORDER DATED 28/10/2014 PASSE D BY THE LD. CIT(A), THE ASSESSEE HAS RAISED THE ABOVE SAID GROUNDS OF APPEA L. 7. GROUND NOS. 1 & 5 ARE GENERAL IN NATURE AND REQUIRE NO ADJUDICATION AND THEY ARE DISPOSED OF ACCORDINGLY. 8. AS REGARDS GROUND NO. 2 WHICH PERTAINS TO T HE DISALLOWANCE OF AGENCY COMMISSION PAID TO NON RESIDENT AGENT AMOUNTING TO RS.25,28,998/- . ACCORDING TO THE ASSESSEE, THE AGENCY COMMISSION IS WRONGLY M ENTIONED AS RS.29,60,202/- IN THE ASSESSMENT ORDER AS WELL AS IN THE LD. CIT(A )S ORDER AND THE SAME SHOULD HAVE BEEN RS.25,28,998/-. IT IS THE CASE OF THE AS SESSEE THAT THE SERVICES OF NON RESIDENT AGENT WERE RENDERED OUTSIDE INDIA AND ALSO PAYMENTS WERE MADE OUTSIDE INDIA. FURTHERMORE, THE NON RESIDENT AGENT DID NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. IT WAS FURTHER SUBMITTED B Y THE ASSESSEE THAT THE NATURE OF SERVICES RENDERED BY THE NON RESIDENT AGENT, WHI CH IS PROCUREMENT OF ORDERS, COULD NOT BE TREATED AS MANAGERIAL SERVICE OR TECHN ICAL SERVICE SO AS TO BRING THE SAME WITHIN THE AMBIT OF SECTION 9(1)(VII) OF THE A CT. ALSO THE ASSESSEE HAD THE RIGHT OF EXECUTION OF THE ORDER OR CANCEL THE ORDER PROCURED BY THE AGENT. MOREOVER, THERE WAS NO FIXED PAYMENT TO THE AGENT B Y THE ASSESSEE. I.T.A. NO.52/COCH/2015 5 9 . THE LD. DR ON THE OTHER HAND SUBMITTED THAT THE QU ESTION WHETHER THE TAX HAS TO BE DEDUCTED U/S. 195 OF THE ACT WAS NOT TO BE DECIDED BY THE ASSESSEE AND THE ASSESSEE COULD HAVE AVOIDED TAX DE DUCTION ONLY IF THE PAYEE HAD OBTAINED NON-DEDUCTION CERTIFICATE U/S. 195(2) FROM THE CONCERNED ASSESSING OFFICER. TO SUPPORT HIS SUBMISSIONS, THE LD. DR R ELIED UPON THE ORDER OF THE LD. CIT(A) AND THE JUDGMENT OF THE HONBE SUPREME COURT IN THE CASE OF TRANSMISSION CORPORATION OF A.P. LTD. VS. CIT (1999 ) 239 ITR 587 (SC) WHEREIN IT WAS HELD AS UNDER: THE SCHEME OF SUB-SECTIONS (1), (2) AND (3) OF SEC TION 195 AND SECTION 197 LEAVES NO DOUBT THAT THE EXPRESSION AN Y OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT WOULD MEAN SUM ON WHICH INCOME-TAX IS LEVIABLE. IN OTHER WORDS, THE SAID SUM IS CHARGEABLE TO TAX AND COULD BE ASSESSED TO TAX UNDE R THE ACT. CONSIDERATION WOULD BE WHETHER PAYMENT OF SUM TO NON-RESIDENT IS CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT O R NOT? THAT SUM MAY BE INCOME OR INCOME HIDDEN OR OTHERWISE EMBEDDE D THEREIN . IF SO, TAX IS REQUIRED TO BE DEDUCTED ON THE SAID SUM. WHAT WOULD BE THE INCOME IS TO BE COMPUTED ON THE BASIS OF VARIOUS P ROVISIONS OF THE ACT INCLUDING PROVISIONS FOR COMPUTATION OF THE BUSINES S INCOME, IF THE PAYMENT IS A TRADE RECEIPT. HOWEVER, WHAT IS TO BE DEDUCTED IS INCOME-TAX PAYABLE THEREON AT THE RATES IN FORCE. UNDER THE ACT, TOTAL INCOME FOR THE PREVIOUS YEAR WOULD BECOME CHARGEABL E TO TAX U/S. 4. SUB-SECTION (2) OF SECTION 4, INTER ALIA, PROVIDES THAT IN RESPECT OF INCOME CHARGEABLE UNDER SUB-SECTION (1), INCOME-TAX SHALL BE DEDUCTED AT SOURCE WHERE IT IS SO DEDUCTIBLE UNDER ANY PROVISION OF THE ACT. IF THE SUM THAT IS TO BE PAID TO THE NON-RESID ENT IS CHARGEABLE TO TAX, TAX IS REQUIRED TO BE DEDUCTED. THE SUM WHICH IS TO BE PAID MAY BE INCOME OUT OF DIFFERENT HEADS OF INCOME PROVIDED U/S. 14, THAT IS TO SAY, INCOME FROM SALARIES, INCOME FROM HOUSE PROPER TY, PROFITS AND GAINS OF BUSINESS OR PROFESSION, CAPITAL GAINS AND INCOME FROM OTHER SOURCES. THE SCHEME OF TAX DEDUCTION AT SOURCE APP LIES NOT ONLY TO THE AMOUNT PAID WHICH WHOLLY BEARS INCOME CHARACTER SUCH AS SALARIES, DIVIDENDS, INTEREST OF SECURITIES ETC., BUT ALSO TO GROSS RECIPIENT, SUCH I.T.A. NO.52/COCH/2015 6 AS PAYMENTS TO CONTRACTORS AND SUB-CONTRACTORS AND THE PAYMENT OF INSURANCE COMMISSION, IT HAS BEEN CONTENDED THAT TH E SUM WHICH MAY BE REQUIRED TO BE PAID TO THE NON-RESIDENT MAY ONLY BY A TRADING RECEIPT, AND MAY CONTAIN A FRACTION OF SUM AS TAXAB LE INCOME. IT IS TRUE THAT IN SOME CASES, A TRADING RECEIPT MAY CONT AIN A FRACTION OF SUM AS TAXABLE INCOME, BUT IN OTHER CASES SUCH AS I NTEREST, COMMISSION, TRANSFER OF RIGHTS OF PATENTS, GOODWILL OR DRAWINGS FOR PLANT AND MACHINERY AND SUCH OTHER TRANSACTIONS, IT MAY CONTAIN LARGE SUM AS TAXABLE INCOME UNDER THE PROVISIONS OF THE A CT. WHATEVER MAY BE THE POSITION, IF THE INCOME IS FROM PROFITS AND GAINS OF BUSINESS, IT WOULD BE COMPUTED UNDER THE ACT AS PROVIDED AT THE TIME OF REGULAR ASSESSMENT. THE PURPOSE OF SUB-SECTION(1) OF SECTI ON 195 IS TO SEE THAT THE SUM WHICH IS CHARGEABLE U/S. 4 OF THE ACT FOR LEVY AND COLLECTION OF INCOME-TAX, THE PAYEE SHOULD DEDUCT I NCOME-TAX THEREON AT THE RATES IN FORCE, IF THE AMOUNT IS T BE PAID T O A NON-RESIDENT. THE SAID PROVISION IS FOR TENTATIVE DEDUCTION OF INCOME -TAX THEREON SUBJECT TO REGULAR ASSESSMENT AND BY THE DEDUCTION OF INCOM E-TAX, RIGHTS OF THE PARTIES ARE NOT, IN ANY MANNER, ADVERSELY AFFEC TED. FURTHER, THE RIGHTS OF PAYEE OR RECIPIENT ARE FULLY SAFEGUARDED UNDER SECTIONS 195(2), 195(3) AND 197. ONLY THING WHICH IS REQUIR ED TO BE DONE BY THEM IS TO FILE AN APPLICATION FOR DETERMINATION BY THE AO THAT SUCH SUM WOULD NOT BE CHARGEABLE TO TAX IN THE CASE OF R ECIPIENT, OR FOR DETERMINATION OF APPROPRIATE PROPORTION OF SUCH SUM SO CHARGEABLE, OR FOR GRANT OF CERTIFICATE AUTHORISING RECIPIENT TO R ECEIVE THE AMOUNT WITHOUT DEDUCTION OF TAX, OR DEDUCTION OF INCOME-TA X AT ANY LOWER RATES OR NO DEDUCTION. ON SUCH DETERMINATION, TAX AT APPROPRIATE RATE WOULD BE DEDUCTED AT THE SOURCE. IF NO SUCH APPLIC ATION IS FILED, INCOME-TAX ON SUCH SUM IS TO BE DEDUCTED AND IT IS THE STATUTORY OBLIGATION OF THE PERSON RESPONSIBLE FOR PAYING SUC H SUM TO DEDUCT TAX THEREON BEFORE MAKING PAYMENT. HE HAS TO DISCHARGE THE OBLIGATION OF TAX DEDUCTION AT SOURCE. 10. THE ARGUMENT OF THE LD. DR IS THAT U/S. 195 OF THE ACT, THE ASSESSEE IS UNDER AN OBLIGATION TO DEDUCT TAX AT SOURCE IF P AYMENTS ARE MADE TO A NON RESIDENT. IN A CASE WHERE THE ASSESSEE IS OF TH E OPINION THAT NO SUCH DEDUCTION IS REQUIRED, THE PAYEE IS UNDER OBLIGATIO N TO MOVE AN APPLICATION BEFORE THE ASSESSING OFFICER FOR OBTAINING A CERTIF ICATE TO THIS EFFECT. IT IS I.T.A. NO.52/COCH/2015 7 FURTHER SUBMITTED BY THE REVENUE THAT IN THE PRESEN T CASE, SINCE THE ASSESSEE DID NOT MAKE ANY SUCH APPLICATION, THE ASS ESSEE WAS DUTY BOUND TO DEDUCT TAX AT SOURCE AS PER THE PRESCRIBED RATES IN FORCE. ACCORDINGLY, CONSEQUENCES PROVIDED U/S. 40(A)(IA) OF THE ACT WER E ATTRACTED. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. ADMITTEDLY, THE SERVICES OF THE NON RESIDENT AGENT WERE RENDERED OUTSIDE INDIA. THE SERVICES WERE IN THE NATURE OF PROCUREMENT OF E XPORT ORDERS ON BEHALF OF THE ASSESSEE. THE NON RESIDENT AGENT WAS ACTING AS SEL LING AGENT OF THE ASSESSEE OUTSIDE INDIA. THE NON RESIDENT AGENT DID NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. FROM THE NATURE OF THE OPER ATIONS CARRIED OUT, THE PAYMENTS MADE TO THE NON RESIDENT AGENT CANNOT BE D EEMED TO BE INCOME WHICH HAVE NEITHER ACCRUED NOR ARISEN IN INDIA. A B ARE PERUSAL OF SECTION 9 OF THE ACT GOES TO SHOW THAT IF ALL THE OPERATIONS ARE NOT CARRIED OUT IN INDIA, THE BUSINESS INCOME DEEMED TO ACCRUE SHALL BE ONLY SUCH INCOME AS IS REASONABLY ATTRIBUTABLE TO THAT PART OF THE OPERATIONS CARRIED OUT IN INDIA. HOWEVER, IF NO OPERATIONS ARE CARRIED OUT IN INDIA, THE INCOME ACC RUING OR ARISING ABROAD CANNOT BE DEEMED TO ACCRUE OR ARISE IN INDIA. THERE IS NO FINDING BY THE ASSESSING OFFICER OR THE LD. CIT(A) THAT THE NON RESIDENT AGE NT WAS CARRYING ON ANY OPERATIONS IN INDIA. IN THE CASE OF DIT VS. PANALF A AUTOELEKTRIK LTD. IN I.T.A. NO. 292/2014, THE HONBLE DELHI HIGH COURT HAS HELD AS UNDER: I.T.A. NO.52/COCH/2015 8 15. THE SERVICES RENDERED, THE PROCUREMENT OF EXPO RT ORDERS, ETC. CANNOT BE TREATED AS MANAGEMENT SERVICES PROVIDED BY THE N ON-RESIDENT TO THE RESPONDENT-ASSESSEE. THE NON-RESIDENT WAS NOT ACTIN G AS A MANAGER OR DEALING WITH ADMINISTRATION. IT WAS NOT CONTROLLING THE POLICIES OR SCRUTINIZING THE EFFECTIVENESS OF THE POLICIES. IT DID NOT PERF ORM AS A PRIMARY EXECUTOR, ANY SUPERVISORY FUNCTION WHATSOEVER. 22. IN THE PRESENT CASE, COMMISSION PAID FOR ARRAN GING OF EXPORT SALES AND RECOVERY OF PAYMENTS CANNOT BE REGARDED AS CONSULTA NCY SERVICE RENDERED BY THE NON-RESIDENT. THE NON-RESIDENT HAD NOT REND ERED ANY CONSULTATION OR ADVICE TO THE RESPONDENT-ASSESSEE. THE NON-RESID ENT NO DOUBT HAD ACQUIRED SKILL AND EXPERTISE IN THE FIELD OF MARKET ING AND SALE OF AUTOMOBILE PRODUCTS, BUT IN THE FACTS, AS NOTICE BY THE TRIBUN AL AND THE COMMISSIONER OF INCOME TAX(APPEALS), THE NON-RESIDENT DID NOT AC T AS A CONSULTANT, WHO ADVISED OR RENDERED ANY COUNSELING SERVICES. THE SK ILL, BUSINESS ACUMEN AND KNOWLEDGE ACQUIRED BY THE NON-RESIDENT WERE FOR HIS OWN BENEFIT AND USE. THE NON-RESIDENT PROCURED ORDERS ON THE BASIS OF THE SAID KNOWLEDGE, INFORMATION AND EXPERTISE TO SECURE THEIR COMMISSIO N. IT IS A CASE OF SELF- USE AND BENEFIT, AND NOT GIVING ADVICE OR CONSULTAT ION TO THE RESPONDENT- ASSESSEE ON ANY FIELD, INCLUDING HOW TO PROCURE EXP ORT ORDERS, HOW TO MARKET THEIR PRODUCTS, PROCURE PAYMENTS ETC. THE RE SPONDENT-ASSESSEE UPON RECEIPT OF EXPORT ORDERS, MANUFACTURED THE REQ UIRED ARTICLES/GOODS AND THEN THE GOODS PRODUCED WERE EXPORTED. THERE WAS N O ELEMENT OF CONSULTATION OR ADVISE RENDERED BY THE NON-RESIDENT TO THE RESPONDENT- ASSESSEE. 25. THUS, THE TECHNICAL SERVICES CONSISTS OF SERV ICES OF TECHNICAL NATURE, WHEN SPECIAL SKILLS OR KNOWLEDGE RELATING TO TECHNI CAL FIELD ARE REQUIRED FOR THEIR PROVISION, MANAGERIAL SERVICES ARE RENDERED F OR PERFORMING MANAGEMENT FUNCTIONS AND CONSULTANCY SERVICES RELAT E TO PROVISION OF ADVICE BY SOMEONE HAVING SPECIAL QUALIFICATION THAT ALLOW HIM TO DO SO. IN THE PRESENT CASE, THE AFORESAID REQUISITES AND REQU IRED NECESSITIES ARE NOT SATISFIED. INDEED, TECHNICAL, MANAGERIAL AND CONSU LTANCY SERVICES MAY OVERLAP AND IT WOULD NOT BE PROPER TO VIEW THEM IN WATER TIGHT COMPARTMENTS, BUT IN THE PRESENT CASE THIS ISSUE OR DIFFERENTIATION IS AGAIN NOT RELEVANT. 26. IN VIEW OF THE AFORESAID DISCUSSION, THE SUBS TANTIAL QUESTION OF LAW MENTIONED ABOVE HAS TO BE ANSWERED IN FAVOUR OF THE RESPONDENT-ASSESSEE AND AGAINST THE APPELLANT-REVENUE. THE APPEAL IS A CCORDINGLY DISMISSED. THERE WILL BE NO ORDER AS TO COSTS. I.T.A. NO.52/COCH/2015 9 12. IN THE CASE OF CIT VS. FAIZAN SHOES PVT. LT D. (2014) 367 ITR 155 (MAD.), THE HONBLE MADRAS HIGH COURT HELD AS UNDER: ON A READING OF SECTION 9(1)(VII) OF THE ACT, WE A RE NOT INCLINED TO ACCEPT THE PLEA TAKEN BY THE LEARNED SENIOR STANDING COUNSEL A PPEARING FOR THE REVENUE THAT COMMISSION PAID BY THE ASSESSEE TO THE NON-RES IDENT AGENT WOULD COME UNDER THE TERM FEES FOR TECHNICAL SERVICES. IN T HE CASE ON HAND, FOR PROCURING ORDERS FOR LEATHER BUSINESS FROM OVERSEAS BUYERS WHOLESALERS OR RETAILERS, AS THE CASE MAY BE, THE NON-RESIDENT AGE NT IS PAID 2.5 PER CENT COMMISSION ON FOB BASIS. THAT APPEARS TO BE A COMM ISSION SIMPLICITER. WHAT IS THE NATURE OF TECHNICAL SERVICE THAT THE SO -CALLED NON-RESIDENT AGENT HAS PROVIDED ABROAD TO THE ASSESSEE IS NOT CLEAR FR OM THE ORDER OF THE ASSESSING OFFICER. THE OPENING OF LETTERS OF CREDI T FOR THE PURPOSE OF COMPLETING EXPORT OBLIGATION IS AN INCIDENT OF EXPO RT AND, THEREFORE, THE NON- RESIDENT AGENT IS UNDER AN OBLIGATION TO RENDER SUC H SERVICES TO THE ASSESSEE, FOR WHICH COMMISSION IS PAID. THE NON-RESIDENT AGE NT DOES NOT PROVIDE TECHNICAL SERVICES FOR THE PURPOSES OF RUNNING OF T HE BUSINESS OF THE ASSESSEE IN INDIA. THE SERVICES RENDERED BY THE NON-RESIDENT AGENT CAN AT BEST BE CALLED AS A SERVICE FOR COMPLETION OF THE EXPORT CO MMITMENT. WE ARE, THEREFORE, OF THE CONSIDERED OPINION THAT THE COMMI SSION PAID TO THE NON- RESIDENT AGENT WILL NOT FALL WITHIN THE DEFINITION OF FEES FOR TECHNICAL SERVICES. . 13. THE REASONING GIVEN IN THE IMPUGNED ORDER THAT BECA USE THE PERCENTAGE OF COMMISSION IS HIGH, THE SERVICES RENDERED BY THE NON RESIDENT AGENT ARE MANAGERIAL IN NATURE IS NOT ACCEPTABLE TO US. THE N ATURE OF THE TRANSACTION HAS REMAINED THE SAME WHEREIN THE SERVICES WERE RENDERE D TO THE ASSESSEE ABROAD AND THE PAYMENTS WERE ALSO RECEIVED BY THE NON RESI DENT AGENT ABROAD. IN THE CASE OF DCIT VS. TRANSFORMERS & ELECTRICALS KERALA L TD. (2014) 50 TAXMANN.COM 454) (COCHIN-TRIB.), IT WAS HELD AS UNDER: 13.AS IS EVIDENT FROM THE ASSESSMENT ORDER, EXCEPT ING THIS INFERENCE BY THE AO, THERE IS NOTHING ON RECORD TO SUGGEST THAT THE INCOME IS CHARGEABLE TO TAX IN INDIA OR THE PAYMENT HAS BEEN RECEIVED BY TH E NON RESIDENT AGENTS IN INDIA OR BY ANY OTHER PERSON ON THEIR BEHALF. THERE IS ALSO NO FINDING BY THE AO THAT THE NON RESIDENT AGENTS HAVE A PERMANENT ES TABLISHMENT IN INDIA OR I.T.A. NO.52/COCH/2015 10 HAVE ANY BUSINESS CONNECTION IN INDIA, BY VIRTUE OF WHICH THE PAYMENT OF COMMISSION WOULD HAVE ACCRUED OR AROSE IN INDIA. TH E FACTS AVAILABLE ON RECORD CLEARLY SUGGEST THAT THE NON RESIDENT AGENTS DID NOT CARRY OUT ANY BUSINESS OPERATIONS IN INDIA AND HAS ACTED AS SELLI NG AGENTS OF THE ASSESSEE OUTSIDE INDIA. THEREFORE, THE COMMISSION EARNED BY THEM FOR SERVICES RENDERED BY THEM OUTSIDE INDIA CANNOT BE CONSIDERED AS INCOME CHARGEABLE TO TAX IN INDIA. THAT APART THE SUBMISSION OF THE L EARNED AR THAT DTAA BETWEEN INDIA AND CONCERNED COUNTRIES STIPULATES TH AT THE INCOME OF AN ENTERPRISE OF CONTRACTING STATE SHALL BE TAXABLE ON IN THAT STATE UNLESS ENTERPRISE CARRIES ON BUSINESS IN THE ORDER CONTRAC TING STATE THROUGH PERMANENT ESTABLISHMENTS ALSO REQUIRES CONSIDERATIO N. THE AO HAS NOT ESTABLISHED THE FACT ON RECORD THAT ANY ONE OF THE NON RESIDENT AGENTS IS CARRYING ON BUSINESS THROUGH A PERMANENT ESTABLISHM ENTS. THEREFORE, WHEN THE COMMISSION PAID TO THE NON RESIDENTS ARE NOT CH ARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT, NO DEDUCTION OF TAX IS REQUI RED TO BE MADE U/S 195(1) OF THE ACT. 14. IN THE PRESENT CASE, THE AO HAS FAILED TO BR ING ANY MATERIAL ON RECORD ON THE BASIS OF WHICH IT COULD BE CONCLUDED THAT CO MMISSION PAID TO FOREIGN AGENTS IS CHARGEABLE TO TAX IN INDIA. UNLESS THE IN COME IS CHARGEABLE TO TAX IN INDIA, THEN TAX IS NOT REQUIRED TO BE DEDUCTED U/S 195(1). FROM THE FACTS AND MATERIALS AVAILABLE ON RECORD, NO DEFINITE CONCLUSI ON CAN BE MADE THAT THE COMMISSION PAID TO FOREIGN AGENTS IS CHARGEABLE TO TAX IN INDIA. 15. IN THE PRESENT CASE, THE FOREIGN CONCERN, NAME LY M/S. AL HASSAN ELECTRICALS COMPANY, OMAN WAS ACTING AS THE SELLING AGENT FOR THE ASSESSEE AND FOR THAT THE ASSESSEE HAD OUTSIDE INDIA AND NO SERVICES RENDERED BY IT WITHIN THE TAXABLE TERRITORY , THE AMOUNT PAYABLE A S COMMISSION WAS NOT LIABLE TO TAX AND AS THE INCOME IS ARISING OR ACCRU ING TO A FOREIGN CONCERN IN INDIA, THEREFORE, NO DISALLOWANCE U/S. 40(A)(IA) O F THE ACT ON THE GROUND THAT THE TAX IS NOT DEDUCTED AT SOURCE U/S. 195 OF THE A CT OR REMITTANCES MADE TO A FOREIGN CONCERN. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENU E IS DISMISSED. 14. THE ARGUMENT OF THE REVENUE THAT FOR NON D EDUCTION OF TDS, OBTAINING OF CERTIFICATE FROM THE CONCERNED ASSESSING OFFICER IS MANDATORY IS NOT ACCEPTABLE. ON A PLAIN READING OF THE PROVISIONS CONTAINED IN C HAPTER-XVIIB OF THE ACT, MORE PARTICULARLY SECTION 195, THERE IS NO ABSOLUTE LIA BILITY ON THE PART OF THE ASSESSEE I.T.A. NO.52/COCH/2015 11 TO DEDUCT TAX AT SOURCE NOTWITHSTANDING THAT THE PA YMENT IS NOT CHARGEABLE TO TAX UNDER SECTIONS 4, 5 OR 9 OF THE ACT. IT IS RE ASONABLE TO CONCLUDE THAT TDS PROVISIONS ARE ATTRACTED ONLY WHEN THE PAYMENT IS C HARGEABLE TO TAX IN INDIA. THE REVENUE HAD INCORRECTLY INTERPRETED THE RATIO O F THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TRANSMISSION CORPORATI ON OF A.P. LTD. (SUPRA) WHEREIN THE HONBLE COURT WAS NOT CONCERNED WITH TH IS QUESTION. THE HONBLE DELHI HIGH COURT IN THE CASE OF VAN OORD ACZ INDIA (P) LTD. VS. CIT (2010) 323 ITR 130, WHILE REFERRING TO THE AFORESAID JUDGMENT OF TRANSMISSION CORPORATION OF A.P. LTD. (SUPRA) DEALT WITH THE AFORESAID SITUATION AND HELD AS UNDE R: 14. SINCE BOTH THE PARTIES HEAVILY RELIED UPON THE JUDGMENT OF THE TRANSMISSION CORPORATION OF A.P. LTD. (SUPRA) AND I N FACT, THE IMPUGNED DECISION OF THE TRIBUNAL IS ENTIRELY BASED ON THIS JUDGMENT, IT WOULD BE APPROPRIATE TO FIRST EXAMINE AS TO WHAT THIS CASE A CTUALLY DECIDES. A READING OF THE JUDGMENT WOULD INDICATE THAT THE CASE ISSUE BEFORE THE APEX COURT IN THE SAID JUDGMENT WAS WHETHER THE TAX AT SOURCE WAS TO BE DEDUCTED BY THE PAYER ON THE ENTIRE AMOUNT PAID BY IT TO THE RECIPI ENT OR IT WAS TO BE DEDUCTED ON PURE INCOME PROFITS. SEC. 195 OF THE ACT USES THE EXPRESSION, FOR THE PURPOSE OF DEDUCTION OF TAX AT SOURCE, ON ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT. THE CONTENTION OF THE ASSESSEE WAS THAT IT WOULD BE MEAN SUM ON WHICH INCOME-TAX IS LEVIABLE AND THEREFORE, ONLY ON THAT COMPONENT WHICH WAS PURE INCOME PROFITS , TA X WAS TO BE DEDUCTED AND NOT WHICH WERE TRADE RECEIPTS AND THEREFORE, OU TSIDE THE AMBIT OF INCOME. IT WAS IN THIS CONTEXT THE PRECISE QUESTIO N, WHICH WAS DECIDED WAS AS TO WHETHER THE TAX IS LEVIABLE TO BE DETERMINED ON THE GROSS SUM OF TRADING RECEIPTS PAID TO THE NON-RESIDENTS OR IN RE SPECT OF BAD (SIC-THAT) PORTION OF TRADING RECEIPTS, WHICH MAY BE CHARGEABL E AS INCOME UNDER THE ACT. THE SUPREME COURT WAS OF THE OPINION THAT AS PER S.195 OF THE ACT, ANY OTHER SUM CHARGEABLE UNDER THE PROVISION OF THIS AC T WOULD INCLUDE THE ENTIRE AMOUNT PAID BY THE ASSESSEE TO THE NON-RESID ENTS. IT IS IN THIS CONTEXT, THE OBSERVATIONS OF THE SUPREME COURT ARE TO BE REA D THAT IT WAS NOT FOR THE ASSESSEE TO LOOK INTO THE ASPECT AS TO WHETHER SUCH PAYMENTS ARE INCOME OR THE INCOME IN THE HANDS OF THE RECIPIENTS IN AS M UCH AS HOW MUCH TAX IS ULTIMATELY PAYABLE BY THE RECIPIENTS IS TO BE DETER MINED IN THE ASSESSMENT PROCEEDINGS OF THE RECIPIENTS ONLY. I.T.A. NO.52/COCH/2015 12 15. THE COURT IN THAT CASE, WAS NOT CONCERNED WITH THE SITUATION WHERE NO TAX AT THE HANDS OF RECIPIENT IS PAYABLE AT ALL. H OWEVER, CERTAIN OBSERVATIONS IN THAT JUDGMENT ITSELF, WOULD CLEARLY DEPICT THE M IND OF THE COURT THAT LIABILITY TO DEDUCT T SOURCE ARISES ONLY WHEN THE SUM PAID TO THE NON-RESIDENT IS CHARGEABLE TO TAX. ONCE THAT IS CHARGEABLE TO TAX, IT IS NOT FOR THE ASSESSEE TO FIND OUT HOW MUCH AMOUNT OF THE RECEIPTS IS CHARGEA BLE TO TAX, BUT IT IS THE OBLIGATION OF THE ASSESSEE TO DEDUCT THE TAX AT SOU RCE ON THE ENTIRE SUM PAID BY THE ASSESSEE TO THE RECIPIENT. THIS OBSERVATION OF OURS IS BASED ON THE FOLLOWING EXTRACTS FROM THE SAID JUDGMENT: .THE SCHEME OF SUB-SS. (1), (2) AND (3) OF S. 195 AND S. 197 LEAVES NO DOUBT THAT THE EXPRESSION ANY OTHER SUM CHARGEA BLE UNDER THE PROVISIONS OF THIS ACT WOULD MEAN SUM ON WHICH INCOME-TAX I S LEVIABLE. IN OTHER WORDS, THE SAID SUM IS CHARGEABLE TO TAX AND COULD BE ASSESSED TO TAX UNDER THE ACT. CONSIDERATION WOULD BE WHETHER PAYMENT OF SUM TO NON-RESIDENT IS CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE AC T OR NOT? THAT SUM MAY BE INCOME OR INCOME HIDDEN OR OTHERWISE EMBEDDED THERE IN. IF SO, TAX IS REQUIRED TO BE DEDUCTED ON THE SAID SUM. WHAT WOUL D BE THE INCOME IS TO BE COMPUTED ON THE BASIS OF VARIOUS PROVISIONS OF THE ACT INCLUDING PROVISIONS FOR COMPUTATION OF THE BUSINESS INCOME, IF THE PAYMENT IS TRADE RECEIPT. HOWEVER, WHAT IS TO BE DEDUCTED IS INCOME-TAX PAYAB LE THEREON AT THE RATES IN FORCE. UNDER THE ACT, TOTAL INCOME FOR THE PREVI OUS YEAR WOULD BECOME CHARGEABLE TO TAX UNDER S.4, SUB-S.(2) OF S.4 INTER ALIA, PROVIDES THAT IN RESPECT OF INCOME CHARGEABLE UNDER SUB-S. (1), INCO ME-TAX SHALL BE DEDUCTED AT SOURCE WHERE IT IS SO DEDUCTIBLE UNDER ANY PROVI SION OF THE ACT. IF THE SUM THAT IS TO BE PAID TO THE NON-RESIDENT IS CHARGEABL E TO TAX, TAX IS REQUIRED TO BE DEDUCTED 16. IT IS CLEAR FROM THE ABOVE THAT THE SUPREME COU RT DEALT WITH A SITUATION WHERE THE SUM PAID TO THE NON-RESIDENT WAS CHARGEAB LE AND OPINED THAT IN SUCH A SITUATION TAX AT SOURCE IS TO BE DEDUCTED ON ENTIRE AMOUNT PAID AND NOT ON THE PURE INCOME PROFITS, AS IT WAS NOT FOR THE ASSESSEE TO DETERMINE AS TO HOW MUCH OF THE SUM PAID BY THE ASSESSEE TO T HE RECIPIENT WOULD BE TAXABLE AT THE HANDS OF THE RECIPIENT THE COURT WA S NOT CONFRONTED WITH THE SITUATION WHERE THE AMOUNT PAID WAS NOT CHARGEABLE TO TAX AT THE HANDS OF NON-RESIDENT AT ALL. I.T.A. NO.52/COCH/2015 13 17. THE JUDGMENT OF THE SUPREME COURT IS NOT BE REA D AS A STATUTE. WE HAVE TO CULL OUT THE RATIO OF THE JUDGMENT VIZ. WHAT IT DECIDES AND NOT (WHAT) LOGICALLY FOLLOWS FROM IT. 19. ONE CAN, THEREFORE, REASONABLY SAY THAT THE O BLIGATION TO DEDUCT TAX AT SOURCE IS ATTRACTED ONLY WHEN THE PAYMENT IS CHARGE ABLE TO TAX IN INDIA. THIS POSITION IN LAW FURTHER GETS STRENGTHENED FROM THE READING OF SOME OTHER JUDGMENTS RELIED UPON BY THE LEARNED COUNSEL FOR TH E ASSESSEE. IN THE CASE OF CIT VS. ESTEL COMMUNICATIONS (P) LTD. (SUPRA), TH IS COURT, WHILE DISMISSING THE APPEAL OF THE REVENUE, HELD THAT THE TRIBUNAL H AD RIGHTLY COME TO THE CONCLUSION THAT AS THERE WAS NO INCOME OF THE NON-R ESIDENT LIABLE TO TAX IN INDIA, THE OBLIGATION TO DEDUCTION OF TAX AT SOURCE DID NOT ARISE. LIKEWISE, THE KARNATAKA HIGH COURT IN THE CASE OF JINDAL THERMAL POWER CO. LTD. VS. DY. CIT (SUPRA) MADE THE FOLLOWING PERTINENT OBSERVATIO NS: THE DECISION HOWEVER DOES NOT LAY DOWN THAT THE PE RSON IS OBLIGED TO EFFECT TDS UNDER S.195 HAS NO RIGHT TO QUESTION THE ASSESS MENT OF TAX LIABILITY. SINCE IN LAW, IF TDS IS NOT EFFECTED BY THE PAYER ( JINDAL), THE PAYER WOULD BE ULTIMATELY RESPONSIBLE TO PAY THE TAX LIABILITY OF THE PAYEE (REOL). THE COJOINT READING OF SS.195, 201 R/W S. 246(1)(I) AND S.248 MAKES IT CLEAR THAT THE JINDAL AS A PAYEE HAS EVER RIGHT TO QUESTION TH E TAX LIABILITY OF ITS PAYEE TO AVOID THE VICARIOUS CONSEQUENCES. THEREFORE THE CO NTENTION THAT JINDAL HAS NO RIGHT OF APPEAL IS TO BE REJECTED. 15. IN VIEW OF THE AFORESAID POSITION, WE HOLD THAT THE PROVISIONS OF SECTION 195 ARE NOT APPLICABLE TO THE CASE OF THE ASSESSEE AS NO INCOME CHARGEABLE TO TAX IN INDIA HAS ARISEN. THE DISALLOWANCE OF PAYME NT OF COMMISSION U/S. 40(A)(IA) OF THE ACT IS INCORRECT. ACCORDINGLY, G ROUND NO. 2 RAISED BY THE ASSESSEE IS ALLOWED. I.T.A. NO.52/COCH/2015 14 16. GROUND NO. 3 DOES NOT REQUIRE ANY ADJUDICAT ION AS GROUND NO. 2 RAISED BY THE ASSESSEE IS ALLOWED. WE DISPOSE OF THE SAME AC CORDINGLY. 17. GROUND NO. 4 IS NOT PRESSED AND ACCORDINGLY, THE SAME IS DISMISSED AS NOT PRESSED. 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE I N I.T.A. NO.52/COCH/2015 IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 10-12-2015. SD/- SD/- (GEORGE GEORGE K.) (B.P. JAIN) JUDICIAL MEMBER ACC OUNTANT MEMBER PLACE: KOCHI DATED: 10TH DECEMBER, 2015 GJ COPY TO: 1. HOME FASHIONS INTERNATIONAL, XXIX-571/1, PAREKKAT LANE, POONKUNNAM, THRISSUR-680 002. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE L-2(1), RANGE-2, THRISSUR. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-V, KOCHI . 4. THE COMMISSIONER OF INCOME-TAX, THRISSUR. 5. D.R., I.T.A.T.,COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COC HIN I.T.A. NO.52/COCH/2015 15