Accurate Engineering Co. Pvt. Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 620/PUN/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2542 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 05-11-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 01-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Keywords: Double taxation relief; Services rendered outside India; Deemed to accrue or arise in india; Retrospective amendment; Permanent establishment
• Section: 143(3); 5(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 620/PN/2014 %' ( ')( / ASSESSMENT YEAR : 2010-11 ACCURATE ENGINEERING CO. PVT. LTD., 67, HADAPSAR INDUSTRIAL ESTATE, PUNE - 411013 PAN : AABCA5155E ....... / APPELLANT ' / V/S. DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(1), PUNE / RESPONDENT ASSESSEE BY : SHRI KISHOR PHADKE REVENUE BY : SHRI HITENDRA NINAWE / DATE OF HEARING : 14-01-2016 / DATE OF PRONOUNCEMENT : 14-03-2016 * / ORDER PER VIKAS AWASTHY, JM : THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE OR DER OF COMMISSIONER OF INCOME TAX (APPEALS)-I, PUNE DATED 31-10 -2013 PASSED U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTE R REFERRED TO AS THE ACT) FOR THE ASSESSMENT YEAR 2010-11. THE SOLITARY IS SUE RAISED BY THE ASSESSEE IN APPEAL IS AGAINST THE DISALLOWANCE U/S . 40(A)(I) AMOUNTING TO ` 8,17,740/- PAID TO MOD-EN ITALY AS COMMISSION. 2 ITA NO. 620/PN/2014, A.Y. 2010-11 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACT URING OF PRECISION MEASURING, CHECKING INSTRUMENTS AND GAUGES TO C ONTROL THE DIMENSIONAL PRECISE QUALITY WITHIN MICRON OF ENGINEERING PRODUC TION. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMEN T YEAR 2010-11 ON 15-10-2011 DECLARING TOTAL INCOME OF ` 1,95,25,727/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY NOTICE U/S. 143(2) WAS ISSUED TO THE ASSESSEE ON 24-08-2011. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBS ERVED THAT THE ASSESSEE HAS MADE PAYMENT OF ` 8,17,740/- AS COMMISSION TO MOD- EN ITALY ON WHICH NO TAX AT SOURCE WAS DEDUCTED. THE ASSESSING OFFICER HELD THAT THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE ON THE AFORESAID PAYMENT U/S. 195 OF THE ACT. SINCE, THE ASSESSE E HAS FAILED TO DEDUCT THE SAME, THE AMOUNT OF COMMISSION PAID IS LIABLE TO BE DISALLOWED U/S. 40(A)(I) OF THE ACT. AGGRIEVED BY THE ASSESSMENT ORDER DATED 21-12-2012, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF I NCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) VIDE IMPU GNED ORDER UPHELD THE FINDINGS OF ASSESSING OFFICER ON THE ISSUE A ND REJECTED THE CLAIM OF THE ASSESSEE IN RESPECT OF DISALLOWANCE U/S. 4 0(A)(I). NOW, THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL ASSA ILING THE FINDINGS OF THE AUTHORITIES BELOW. 3. SHRI KISHOR PHADKE APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD PAID COMMISSION TO MOD- EN ITALY A FOREIGN AGENT FOR OBTAINING PURCHASE ORDER FROM M/S. FIAT A UTOMOBILES PVT. LTD., PUNE THROUGH HIS CONTACT WITH FIAT, ITALY. M/S. FIAT 3 ITA NO. 620/PN/2014, A.Y. 2010-11 AUTOMOBILES PVT. LTD., PUNE IS A SUBSIDIARY OF FIAT, ITALY. TH E COMMISSION WAS PAID TO FOREIGN AGENT FOR FOLLOW UP WITH FIAT, ITALY FOR SUPPLY OF MEASURING INSTRUMENTS TO ITS INDIAN SUBSIDIARY. THE ASSESSEE HAD ENGAGED IN THE SERVICES OF MOD-EN ITALY A S IT WAS DIFFICULT TO FOLLOW UP WITH THE FIAT, ITALY FROM INDIA DUE TO DISTANCE AND LANGUAGE BARRIERS. THE FOREIGN AGENT WAS INSTRUMENTAL IN PROCURING THE ORDERS FOR THE ASSESSEE. THE FOREIGN AGENT WAS INVOLVED IN PROCU RING THE PRE- ORDER FOLLOW UP AS WELL AS POST-ORDER FOLLOW UP. THE ENTIRE ACTIVITY WAS CARRIED OUT BY THE FOREIGN AGENT OUTSIDE INDIA. THE LIAISON ING WITH FIAT, ITALY WAS CARRIED OUT BY MOD-EN ITALY OUTSIDE INDIA, TH US, THE SERVICES WERE RENDERED BY THE FOREIGN AGENT OUTSIDE INDIA. THE S AID AGENT HAS NO PERMANENT ESTABLISHMENT IN INDIA. THE PAYMENTS WERE REMITTED THROUGH BANKING CHANNEL OUTSIDE INDIA. THE SERVICES REND ERED BY THE FOREIGN AGENT WERE NOT TECHNICAL IN NATURE. THUS, THE PAY MENT OF COMMISSION IS OUTSIDE THE PURVIEW OF THE PROVISIONS OF SECT ION 195 OF THE ACT. THE LD. AR IN SUPPORT OF HIS SUBMISSIONS PLACED RE LIANCE ON THE CBDT CIRCULAR NO. 23 OF 1969 AND CIRCULAR NO. 786 DAT ED 07-02-2000. THE LD. AR SUBMITTED THAT THE REVENUE HAS NOT DISPUTED THAT THE PAYMENTS WERE DIRECTLY REMITTED ABROAD. THE LD. AR FURTHER SUBMITTED THAT THE CBDT CIRCULARS ARE BINDING ON THE DEP ARTMENT. TO STRENGTHEN HIS ARGUMENTS, THE LD. AR REFERRED TO THE DEC ISION RENDERED IN THE CASE OF UNIT TRUST OF INDIA AND ANOTHER VS. P.K. UNN Y BY HON'BLE BOMBAY HIGH COURT REPORTED AS 249 ITR 612. 3.1 THE LD. AR FURTHER REFERRED TO ARTICLE 7(1) OF THE INDIA-I TALY DTAA. IT WAS CONTENDED THAT AS PER DTAA THE PROFITS OF THE FO REIGN AGENT SHALL BE TAXABLE ONLY IN THE RESIDENT COUNTRY (ITALY) UNLESS TH E ENTERPRISE 4 ITA NO. 620/PN/2014, A.Y. 2010-11 CARRIED ON THE BUSINESS IN THE OTHER COUNTY (INDIA) THRO UGH PERMANENT ESTABLISHMENT SITUATED THEREIN. 3.2 THE LD. AR FURTHER REFERRED TO THE DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. FAIZAN SHOES PVT. LTD. REPORTED AS 367 ITR 155 (MAD) AND THE DECISION OF DE LHI BENCH OF THE TRIBUNAL IN THE CASE OF WELSPRING UNIVERSAL VS. JOINT C OMMISSIONER OF INCOME TAX REPORTED AS 56 TAXMANN.COM 174, WHEREIN IT WAS HELD THAT COMMISSION PAID BY THE ASSESSEE TO NON-RESIDENT AG ENT FOR PROCURING EXPORT ORDERS IS NOT CHARGEABLE TO TAX IN IN DIA, THEREFORE, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE. 4. ON THE OTHER HAND SHRI HITENDRA NINAWE REPRESENTING THE DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISS IONER OF INCOME TAX (APPEALS). THE LD. DR SUBMITTED THAT THE ORDER WAS PROCURED BY THE ASSESSEE FROM AN INDIAN ENTITY. THUS, THE SERVICES WERE PROVIDED IN INDIA, THE CITUS OF THE FOREIGN AGENT IS IN INDIA. THEREFORE, THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOU RCE UNDER THE PROVISIONS OF SECTION 195 ON THE PAYMENT OF COMMISSION FOR PROCURING SUPPLY ORDERS. THE LD. DR IN SUPPORT OF HIS SUBMISSIONS PLA CED RELIANCE ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE C ASE OF COMMISSIONER OF INCOME TAX VS. HAVELLS INDIA LTD. REPORTE D AS 352 ITR 376. THE LD. DR FURTHER SUBMITTED THAT CIRCULAR NO. 23 OF 1969 HAS BEEN WITHDRAWN. THE LD. DR PRAYED FOR DISMISSING THE APPEA L OF THE ASSESSEE AND CONFIRMING THE ORDER OF COMMISSIONER OF INCOM E TAX (APPEALS). 5 ITA NO. 620/PN/2014, A.Y. 2010-11 5. CONTROVERTING THE SUBMISSIONS MADE ON BEHALF OF THE RE VENUE, THE LD. AR SUBMITTED THAT THE VALIDITY OF CBDT CIRCULAR NO. 23 OF 1969 WAS REITERATED BY ANOTHER CBDT CIRCULAR NO. 786 DATED 07-02-2000. THE CIRCULAR WAS SUBSEQUENTLY WITHDRAWN ON 22-10-2009 I.E. MUCH AFTER THE SERVICES WERE RENDERED BY THE FOREIGN AGENT AND THE PAYMENT MADE BY THE ASSESSEE TO THE FOREIGN AGENT. THE LD. AR S UBMITTED THAT THE PAYMENTS WERE MADE ON 27-07-2009. TO SUPPORT HIS CONTENTIONS THE LD. AR REFERRED TO THE BANK STATEMENT AT PAGE 136 OF THE PAPER BOOK. THE LD. AR FURTHER SUBMITTED THAT THE DECISION OF HO N'BLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. HAVELLS INDIA LTD. (SUPRA) RATHER SUPPORTS THE CASE OF THE ASSESSEE. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. WE HAVE ALSO CONSIDERED THE DECISIONS ON WHICH THE RIVAL SIDES HAVE PLACED RELIANCE DURING THE COURSE OF MAKING SUBMISSIONS. THE ONL Y DISPUTE IN THE PRESENT APPEAL IS, WHETHER ON PAYMENT OF COMMISSION T O FOREIGN AGENT BY THE ASSESSEE, THE PROVISIONS OF SECTION 195 WERE ATTRAC TED? 6.1 THE CONTENTIONS OF THE ASSESSEE IS THAT THE SERVICES WERE REN DERED BY THE FOREIGN AGENT, MOD-EN ITALY, OUTSIDE INDIA. THE FO REIGN AGENT WAS INSTRUMENTAL IN PROCURING ORDERS FOR THE ASSESSEE FROM TH E INDIAN SUBSIDIARY OF AN ITALIAN COMPANY. IT IS AN UNDISPUTED FACT THAT THE SERVICES RENDERED BY THE ASSESSEE WERE NOT IN THE NAT URE OF TECHNICAL OR MANAGERIAL SERVICES. THE PAYMENT OF COMMISSION WAS MADE BY THE ASSESSEE TO THE FOREIGN AGENT THROUGH BANKING CHANNEL. THE REVENUE HAS NOT BEEN ABLE TO SHOW THAT THE FOREIGN AGENT HAD P ERMANENT ESTABLISHMENT IN INDIA. THE ONLY GROUND ON WHICH THE REV ENUE HAS 6 ITA NO. 620/PN/2014, A.Y. 2010-11 HEAVILY RELIED IS THAT THE ASSESSEE HAS PROCURED ORDERS FROM AN INDIAN ENTITY, THEREFORE, THE SERVICES WERE RENDERED IN INDIA. WE DO NOT CONCUR WITH THIS VIEW OF THE REVENUE. AS HAS ALREADY BEEN POINTED OUT THAT THE INDIAN ENTITY IS SUBSIDIARY OF AN ITALIAN COMPANY. THEREFORE , THE ITALIAN COMPANY MUST BE HAVING CONTROL ON DECISION MAKING PRECIS ION OF ITS SUBSIDIARY. THE FOREIGN AGENT WAS INVOLVED IN PROCURING THE ORDERS FOR THE ASSESSEE FROM INDIAN SUBSIDIARY COMPANY BY LIAISONING/FO LLOW UP WITH THE ITALIAN COMPANY. 7. THE CBDT CIRCULAR NO. 786 DATED 07-08-2000 HAS CLARIFIE D REGARDING TAXABILITY OF EXPORT COMMISSION PAYABLE TO NON-RE SIDENT AGENT FOR RENDERING SERVICES ABROAD. THE SAME IS REPRODUCED H ERE-IN-UNDER FOR READY REFERENCE: 1314. CLARIFICATION REGARDING TAXABILITY OF EXPORT COMMISSION PAYABLE TO NON-RESIDENT AGENTS RENDERING SERVICES ABROAD 1. IN THEIR AUDIT REPORT FOR 1997-98 [D.P. NO. 79(I .T.)] THE COMPTROLLER & AUDITOR GENERAL (C & A G) RAISED AN OBJECTION THA T THE ASSESSING OFFICER IN COMPUTING THE PROFITS AND GAINS OF BUSIN ESS OR PROFESSION, IN A CASE IN MUMBAI CHARGE, HAD WRONGLY ALLOWED A DEDUCT ION IN RESPECT OF A PAYMENT TO A NON-RESIDENT WHERE TAX HAD NOT BEEN DE DUCTED AT SOURCE. THE NATURE OF THE PAYMENT IN THIS CASE WAS EXPORT C OMMISSION AND CHARGES PAYABLE FOR SERVICES RENDERED OUTSIDE INDIA . IN THE VIEW OF C & A.G. THE EXPENDITURE SHOULD HAVE BEEN DISALLOWED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 40(A)(I) OF THE I.T. ACT, 1961. IT HAS COME TO THE NOTICE OF THE BOARD THAT A SIMILAR VIEW, ON THE SAM E SET OF FACTS HAS BEEN TAKEN BY SOME ASSESSING OFFICERS IN OTHER CHARGES. 2. THE DEDUCTION OF TAX AT SOURCE UNDER SECTION 195 WOULD ARISE IF THE PAYMENT OF COMMISSION TO THE NON-RESIDENT AGENT IS CHARGEABLE TO TAX IN INDIA. IN THIS REGARD ATTENTION TO CBDT CIRCULAR NO. 23 DATED 23RD JULY, 1969 IS DRAWN WHERE THE TAXABILITY OF FOREIGN AGENTS OF INDIAN EXPORTERS WAS CONSIDERED ALONGWITH CERTAIN OTHER SP ECIFIC SITUATIONS. IT HAD BEEN CLARIFIED THEN THAT WHERE THE NON-RESIDENT AGENT OPERATES OUTSIDE THE COUNTRY, NO PART OF HIS INCOME ARISES I N INDIA. FURTHER, SINCE 7 ITA NO. 620/PN/2014, A.Y. 2010-11 THE PAYMENT IS USUALLY REMITTED DIRECTLY ABROAD IT CANNOT BE HELD TO HAVE BEEN RECEIVED BY OR ON BEHALF OF THE AGENT IN INDIA . SUCH PAYMENTS WERE THEREFORE HELD TO BE NOT TAXABLE ININDIA. THE RELEV ANT SECTIONS, NAMELY SECTION 5(2) AND SECTION 9 OF THE INCOME-TAX ACT, 1 961 NOT HAVING UNDERGONE ANY CHANGE IN THIS REGARD, THE CLARIFICAT ION IN CIRCULAR NO. 23 STILL PREVAILS. NO TAX IS THEREFORE DEDUCTIBLE UNDE R SECTION 195 AND CONSEQUENTLY, THE EXPENDITURE ON EXPORT COMMISSION A ND OTHER RELATED CHARGES PAYABLE TO A NON-RESIDENT FOR SERVICES REND ERED OUTSIDE INDIA BECOMES ALLOWABLE EXPENDITURE. ON BEI NG APPRISED OF THIS POSITION, THE COMPTROLLER AND AUDITOR GENERAL HAVE AGREED TO DROP THE OBJECTION REFERRED TO ABOVE. CIRCULAR: NO. 786, DATED 7-2-2000. THUS, FROM THE PERUSAL OF THE ABOVE CIRCULAR IT IS CLEARLY E VIDENT THAT NO TAX IS DEDUCTABLE U/S. 195 ON EXPENDITURE OF EXPORT COMMISSIO N PAYABLE TO NON-RESIDENT FOR SERVICES RENDERED OUTSIDE INDIA. 8. THE HON'BLE MADRAS HIGH COURT IN THE CASE OF COMMISSIO NER OF INCOME TAX VS. FAIZAN SHOES PVT. LTD. (SUPRA) HAD OCCASIO NED TO DEAL WITH THE ISSUE RELATING TO PAYMENT OF COMMISSION FOR PROCU RING EXPORT ORDERS THROUGH NON-RESIDENT AGENT. THE RELEVANT EXTRA CTS OF THE ORDER ARE AS UNDER: 7. ON A READING OF SECTION 9(1)(VII) OF THE ACT, W E ARE NOT INCLINED TO ACCEPT THE PLEA TAKEN BY THE LEARNED SENIOR STANDIN G COUNSEL APPEARING FOR THE REVENUE THAT COMMISSION PAID BY THE ASSESSE E TO THE NON- RESIDENT AGENT WOULD COME UNDER THE TERM FEES FOR TECHNICAL SERVICES. IN THE CASE ON HAND, FOR PROCURING ORDERS FOR LEATH ER BUSINESS FROM OVERSEAS BUYERS WHOLESALERS OR RETAILERS, AS THE CA SE MAY BE, THE NON- RESIDENT AGENT IS PAID 2.5% COMMISSION ON FOB BASIS . THAT APPEARS TO BE A COMMISSION SIMPLICITER. WHAT IS THE NATURE OF TECHNICAL SERVICE THAT THE SO-CALLED NON-RESIDENT AGENT HAS PROVIDED ABROA D TO THE ASSESSEE IS NOT CLEAR FROM THE ORDER OF THE ASSESSING OFFICER. THE OPENING OF LETTERS OF CREDIT FOR THE PURPOSE OF COMPLETING EXPORT OBLIGAT ION IS AN INCIDENT OF EXPORT AND, THEREFORE, THE NON-RESIDENT AGENT IS UN DER AN OBLIGATION TO RENDER SUCH SERVICES TO THE ASSESSEE, FOR WHICH COM MISSION IS PAID. THE 8 ITA NO. 620/PN/2014, A.Y. 2010-11 NON-RESIDENT AGENT DOES NOT PROVIDE TECHNICAL SERVI CES FOR THE PURPOSES OF RUNNING OF THE BUSINESS OF THE ASSESSEE IN INDIA. T HE SERVICES RENDERED BY THE NON-RESIDENT AGENT CAN AT BEST BE CALLED AS A SERVICE FOR COMPLETION OF THE EXPORT COMMITMENT. WE ARE, THEREF ORE, OF THE CONSIDERED OPINION THAT THE COMMISSION PAID TO THE NON-RESIDEN T AGENT WILL NOT FALL WITHIN THE DEFINITION OF FEES FOR TECHNICAL SERVICE S. 8. THE OTHER PLEA RAISED BY MR. T. RAVIKUMAR, LEARN ED SENIOR STANDING COUNSEL APPEARING FOR THE APPELLANT REFERRING TO EX PLANATION TO SECTION 9(2) OF THE ACT IS THAT THE INCOME OF THE NON-RESID ENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CLAUSES (V) OR (VI) OR (VII) OF SECTION 9(1) OF THE ACT AND SHALL BE INCLUDED IN THE TOTAL INCOME O F THE NON-RESIDENT, WHETHER OR NOT THE NON-RESIDENT HAS RENDERED SERVIC ES IN INDIA. 9. THE EXPLANATION TO SECTION 9(2) OF THE ACT WAS S UBSTITUTED BY THE FINANCE ACT, 2010 WITH RETROSPECTIVE EFFECT FRO M 1.6.1976. THE ABOVE SAID EXPLANATION WOULD COME INTO PLAY ONLY IF THE S AID AMOUNT PAID WOULD FALL UNDER THE HEADINGS: (I). INCOME BY WAY OF INTEREST AS SET OUT IN SECTIO N 9(1)(V) OF THE ACT; OR (II). INCOME BY WAY OF ROYALTY AS SET OUT IN SECTIO N 9(1)(VI) OF THE ACT; OR (III). INCOME BY WAY OF FEES FOR TECHNICAL SERVICES AS SET OUT IN SECTION 9(1)(VII) OF THE ACT. 10. WHILE DEALING WITH SECTION 9(1) OF THE ACT, THE SUPREME COURT IN COMMISSIONER OF INCOME TAX V. TOSHOKU LIMITED, (19 80) 125 ITR 525, ON CONSIDERING A TRANSACTION WHERE TOBACCO WAS EXPO RTED TO JAPAN AND FRANCE AND SOLD THROUGH NON-RESIDENT ASSESSEES WHO WERE PAID COMMISSION, HELD AS UNDER (PAGE 530): THE SECOND ASPECT OF THE SAME QUESTION IS WHETHER THE COMMISSION AMOUNTS CREDITED IN THE BOOKS OF THE STATUTORY AGEN T CAN BE TREATED AS INCOMES ACCRUED, ARISEN, OR DEEMED TO HAVE ACCRUED OR ARISEN IN INDIA TO THE NON-RESIDENT ASSESSEES DURING THE RELEVANT YEAR . THIS TAKES US TO S. 9 OF THE ACT. IT IS URGED THAT THE COMMISSION AMOUN TS SHOULD BE TREATED AS INCOMES DEEMED TO HAVE ACCRUED OR ARISEN IN INDI A AS THEY, ACCORDING TO THE DEPARTMENT, HAD EITHER ACCRUED OR ARISEN THR OUGH AND FROM THE BUSINESS CONNECTION IN INDIA THAT EXISTED BETWEEN T HE NON-RESIDENT ASSESSEES AND THE STATUTORY AGENT. THIS CONTENTION OVERLOOKS THE EFFECT OF 9 ITA NO. 620/PN/2014, A.Y. 2010-11 CL. (A) OF THE EXPLANATION TO CL. (I) OF SUB-S. (1) OF S. 9 OF THE ACT WHICH PROVIDES THAT IN THE CASE OF A BUSINESS OF WHICH AL L THE OPERATIONS ARE NOT CARRIED OUT IN INDIA, THE INCOME OF THE BUSINESS DE EMED UNDER THAT CLAUSE TO ACCRUE OR ARISE IN INDIA SHALL BE ONLY SU CH PART OF THE INCOME AS IS REASONABLY ATTRIBUTABLE TO THE OPERATIONS CARRIE D OUT IN INDIA. IF ALL SUCH OPERATIONS ARE CARRIED OUT IN INDIA, THE ENTIR E INCOME ACCRUING THEREFROM SHALL BE DEEMED TO HAVE ACCRUED IN INDIA. IF HOWEVER, ALL THE OPERATIONS ARE NOT CARRIED OUT IN THE TAXABLE TERRI TORIES, THE PROFITS AND GAINS OF BUSINESS DEEMED TO ACCRUE IN INDIA THROUGH AND FROM BUSINESS CONNECTION IN INDIA SHALL BE ONLY SUCH PROFITS AND GAINS AS ARE REASONABLY ATTRIBUTABLE TO THAT PART OF THE OPERATI ONS CARRIED OUT IN THE TAXABLE TERRITORIES. IF NO OPERATIONS OF BUSINESS A RE CARRIED OUT IN THE TAXABLE TERRITORIES, IT FOLLOWS THAT THE INCOME ACC RUING OR ARISING ABROAD THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA CA NNOT BE DEEMED TO ACCRUE OR ARISE IN INDIA (SEE CIT V. R. D. AGGARWAL AND CO. [1965] 56 ITR 20 (SC) AND CARBORANDUM CO. V. CIT [1977] 108 ITR 3 35 (SC) WHICH ARE DECIDED ON THE BASIS OF S. 42 OF THE INDIAN I.T. AC T, 1922, WHICH CORRESPONDS TO S. 9(1)(I) OF THE ACT). IN THE INSTANT CASE, THE NON-RESIDENT ASSESSEES DID NOT CARRY ON ANY BUSINESS OPERATIONS IN THE TAXABLE TERRITORIES. THE Y ACTED AS SELLING AGENTS OUTSIDE INDIA. THE RECEIPT IN INDIA OF THE S ALE PROCEEDS OF TOBACCO REMITTED OR CAUSED TO BE REMITTED BY THE PURCHASERS FROM ABROAD DOES NOT AMOUNT TO AN OPERATION CARRIED OUT BY THE ASSES SEES IN INDIA AS CONTEMPLATED BY CL. (A) OF THE EXPLANATION TO S. 9( 1)(I) OF THE ACT. THE COMMISSION AMOUNTS WHICH WERE EARNED BY THE NON-RES IDENT ASSESSEES FOR SERVICES RENDERED OUTSIDE INDIA CANNOT, THEREFO RE, BE DEEMED TO BE INCOMES WHICH HAVE EITHER ACCRUED OR ARISEN IN INDI A. THE HIGH COURT WAS, THEREFORE, RIGHT IN ANSWERING THE QUESTION AGA INST THE DEPARTMENT. 11. THE FACTS OF THE PRESENT CASE ARE AKIN TO THE F ACTS OF THE DECISION IN TOSHOKU LIMITED CASE, REFERRED SUPRA. IN THE INSTAN T CASE ALSO THE ASSESSEE ENGAGED THE SERVICES OF NON-RESIDENT AGENT TO PROCURE EXPORT ORDERS AND PAID COMMISSION. THAT APART, THE COMMISS IONER OF INCOME (APPEALS) AS WELL AS THE TRIBUNAL HAVE CORRECTLY AP PLIED THE PRINCIPLE LAID DOWN IN GE INDIA TECHNOLOGY CEN. (P) LTD. CASE, REF ERRED SUPRA, TO HOLD THAT THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SO URCE WHEN THE NON- RESIDENT AGENT PROVIDES SERVICES OUTSIDE INDIA ON P AYMENT OF COMMISSION. 9. THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF GE INDIA TECHNOLOGY CENTRE VS. COMMISSIONER OF INCOME TAX REPORTE D AS 327 10 ITA NO. 620/PN/2014, A.Y. 2010-11 ITR 456 (SC) HAS HELD THAT THE EXPRESSION CHARGEABLE UN DER THE PROVISIONS OF THE ACT IN SECTION 195(1) SHOWS THAT THE RE MITTANCE HAS GOT TO BE OF A TRADING RECEIPT, THE WHOLE OR PART OF WHIC H IS LIABLE TO TAX IN INDIA. IF TAX IS NOT SO ASSESSABLE THERE IS NO QUESTION OF TAX AT SOURCE BEING DEDUCTED. 10. THE LD. DR IN SUPPORT OF HIS SUBMISSIONS HAS PLACED RE LIANCE ON THE CASE OF COMMISSIONER OF INCOME TAX VS. HAVELLS INDIA LT D. (SUPRA). WE FIND THAT THE FACTS IN SAID CASE WERE ENTIRELY DIFFERENT FROM THE FACTS OF CASE IN HAND. IN THE SAID CASE, THE ASSESSEE COMPA NY HAD PAID CERTAIN AMOUNT TO USA COMPANY FOR TESTING AND CERTIFICATIO N WITHOUT DEDUCTING TAX AT SOURCE U/S. 195 OF THE ACT. THE PAYM ENT WAS DISALLOWED U/S. 40(A)(IA). THE ASSESSING OFFICER HELD THAT THE AM OUNTS PAID REPRESENTED FEES FOR TECHNICAL SERVICE. THE COMMISSIO NER OF INCOME TAX (APPEALS) UPHELD THE FINDINGS OF ASSESSING OFFICER. ON SECOND APPEAL, THE TRIBUNAL HELD THAT THE PAYMENT MADE IS COVERED BY SECOND EXCEPTION MADE IN SECTION 9(1)(VII)(B) OF THE ACT. ON AP PEAL TO THE HON'BLE HIGH COURT BY DEPARTMENT, THE HON'BLE COURT HELD THAT THE PAYMENT MADE DOES NOT FALL IN THE SECOND EXCEPTION PROV IDED U/S. 9(1)(VII)(B) AND REMITTED THE MATTER BACK TO TRIBUNAL TO EXAM INE IT IN THE LIGHT OF DTAA BETWEEN INDIA AND USA. IN THE PRESENT CASE, THERE IS NO DISPUTE THAT THE PAYM ENT OF COMMISSION BY ASSESSEE IS NOT IN THE NATURE OF FEE FOR TEC HNICAL SERVICE. THE COMMISSION WAS PAID TO FOREIGN AGENT FOR PROCURING OR DER. THEREFORE, THE CASE LAW CITED BY THE LD. DR DOES NOT SUP PORT THE CASE OF DEPARTMENT. 11 ITA NO. 620/PN/2014, A.Y. 2010-11 11. THUS, IN VIEW OF THE FACTS OF THE CASE AND THE JUDGMEN TS DISCUSSED ABOVE WE HOLD THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX ON THE COMMISSION PAID TO NON-RESIDENT AGENT FOR HIS SERV ICES RENDERED OUTSIDE INDIA. ACCORDINGLY, NO DISALLOWANCE U/S. 40(A)(I) COULD H AVE BEEN MADE IN THE CASE OF THE ASSESSEE. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED AN D THE FINDINGS OF THE ASSESSING OFFICER ON THIS ISSUE ARE SET ASIDE. ORDER PRONOUNCED ON MONDAY, THE 14 TH DAY OF MARCH, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 14 TH MARCH, 2016 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-I, PUNE 4. ' / THE CIT-I, PUNE 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE