M/s J K Fabrics Bangalore Pvt. Ltd., Bangalore V. Asst.C.I.T., Bangalore

ITA 714/BANG/2015

• Counselvise Citation: 71421114 RSA 2015
• Duration Of Justice: 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-10-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 13-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KORRA MEGHANATH CHOWHAN
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Double taxation relief; Services rendered outside India; Retrospective amendment; Advance ruling
• Section: 5(2); 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.714/BANG/2015 ASSESSMENT YEAR : 2008-09 M/S. J.K. FABRICS BANGALORE PVT.LTD., NO.28, 28/1, 25 TH CROSS, CUBBONPET, BANGALORE 560 002. PAN: AABCJ 6118Q VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 11(5), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI PADAMCHAND KHINCHA, CA RESPONDENT BY : SHRI KORRA MEGHANATH CHOWHAN, ADDL.CIT(DR) DATE OF HEARING : 08.10.2015 DATE OF PRONOUNCEMENT : 23.10.2015 O R D E R PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 28.01.2010 OF THE CIT(APPEALS)-4, BANGALORE RELATIN G TO ASSESSMENT YEAR 2008-09. 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY, ENGAG ED IN THE BUSINESS OF EXPORT AND SALE OF SILK FABRICS. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT TH E ASSESSEE FIRM HAD ITA NO.714/BANG/2015 PAGE 2 OF 12 CLAIMED EXPENSES RELATING TO OVERSEAS COMMISSION PA ID TO A FOREIGN NON- RESIDENT AGENT AMOUNTING TO RS. 17.87 LAKHS. THE FA CTS BROUGHT ON RECORD BY THE AO ARE REPRODUCED AS UNDER:- THE AGREEMENT ENTERED INTO BY THE ASSESSEE COMPANY WAS PERUSED INTO TO KNOW THE TRUE NATURE OF THESE TRANS ACTIONS. THE FOLLOWING POINTS IN THE AGREEMENT ARE WORTH MENTION ING. FUNCTION OF THE AGENT: (A) THE AGENT WILL UTILIZE ITS BEST EFFORTS TO PRO CURE ORDERS IN FAVOUR OF THE PRINCIPALS (ASSESSEE) FOR THE SUPPLY AND EXPORT OF FABRICS. (B) INFORM TO AND RECEIVE FROM PRINCIPALS REQUIRED SAMPLES FOR SUBMISSION TO PROSPECTIVE BUYERS IN ITALY. (C) WILL LINK ALL INSTRUCTION, TECHNICAL DETAILS, CLARIFICATIONS AND REQUESTS BETWEEN CUSTOMERS AND PRINCIPALS AND TIME. (D) WILL FOLLOW-UP WITH CUSTOMERS FOR PROMPT PAYMEN T TO PRINCIPALS IN THE POWER MANNERS. (E) WILL ACT IN GENERAL TO THE BEST ADVANTAGE OF T HE PRINCIPALS AND TAKE CARE OF THEIR INTERESTS SINCERELY. THE ABOVE AGREEMENT CAN BE SUMMARISED TO UNDERSTAND THAT THE AGENT IS MARKETING THE PRODUCT IN ITALY AND BRAZIL AND HAS OBTAINED THE RIGHT TO MARKET THE PRODUCT. IT IS NOT ONLY LIMITED TO MARKETING THE PRODUCT OF THE ASSESSEE BUT PROCURING BUSINESS OPPORTUNITIES, AND ALL OTHER SERVICES REGARDING THE POTENTIAL CLIENTS, COLLECTING INFORMATION ON CLIENTS, COMPETI TORS, THEIR PRODUCTS AND PRICES, COMPLYING WITH THE LAWS, RULES AND REGULATIONS OF THE LAND, OBTAINING APPROVALS, ADVER TISING AND PROMOTING THE SERVICES OF THE ASSESSEE ETC. 3. THE ASSESSEE SUBMITTED THE COPY OF THE AGREEMENT ENTERED INTO WITH DR. MATTEO MORA, ITALY AND A NOTE EXPLAINING AS TO WHY THE COMMISSION OF ITA NO.714/BANG/2015 PAGE 3 OF 12 RS. 17,89,110/- PAID TO DR. MATTEO MORA, ITALY WAS NOT LIABLE FOR TDS UNDER SECTION 195. 4. THE AO, HOWEVER, WAS OF THE VIEW THAT THE SERVIC ES RENDERED BY THE NON-RESIDENTS WERE TECHNICAL IN NATURE FALLING WITH IN THE PURVIEW OF SECTION 9(1)(VII) OF THE ACT, AS FEES FOR TECHNICAL SERVICE AND HENCE, THE ASSESSEE WAS LIABLE TO DEDUCT TAXES AS PER THE PROVISIONS U/ S. 195(1) OF THE ACT, AND THEREFORE, THE ENTIRE EXPENDITURE WAS DISALLOWED U/ S. 40(A)(IA) OF THE ACT. 5. BEFORE THE CIT(APPEALS) THE ASSESSEE SUBMITTED T HAT IT IS NOT IN DISPUTE THAT THE COMMISSION PAID TO DR. MATTEO MORA , ITALY WAS FOR PROCUREMENT OF ORDERS AND THE SAID PAYMENT WAS MADE DURING THE FINANCIAL YEAR 2007-08 RELEVANT TO AY 2008-09. IT WAS FURTHE R SUBMITTED THAT THE AGENT RENDERED SERVICES OUTSIDE INDIA AND NO SERVIC ES WERE RENDERED FROM INDIA OR IN INDIA. THE AGENT WAS A NON RESIDENT U NDER SECTION 2(30) READ WITH SECTION 6 OF THE ACT. 6. IT WAS SUBMITTED BY THE ASSESSEE THAT CIRCULAR N O. 23 DATED 23-7- 1969 AND CIRCULAR NO. 786 DATED 07.02.2000 PROVIDES THAT THERE WOULD BE NO REQUIREMENT TO DEDUCT TAX AT SOURCE U/S. 195 IN RESPECT OF THE COMMISSION PAID TO A NON RESIDENT AGENT. IN CIRCUL AR NO.786, IT HAS BEEN STATED AS FOLLOWS:- 2. THE DEDUCTION OF TAX AT SOURCE UNDER SECTION 1 95 WOULD ARISE IF THE PAYMENT OF COMMISSION TO THE NON-RESID ENT AGENT IS CHARGEABLE TO TAX IN INDIA. IN THIS REGARD ATTENTIO N TO C. B. D. T. CIRCULAR NO. 23, DATED 23RD JULY, 1969, IS DRAWN, W HERE THE ITA NO.714/BANG/2015 PAGE 4 OF 12 TAXABILITY OF FOREIGN AGENTS OF INDIAN EXPORTERS WAS CONSIDERED ALONGWITH CERTAIN OTHER SPECIFIC SITUATI ONS. IT HAD BEEN CLARIFIED THEN THAT WHERE THE NON-RESIDENT AGENT OP ERATES OUTSIDE THE COUNTRY, NO PART OF HIS INCOME ARISES IN INDIA. FURTHER, SINCE 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 IN I NDIA. THE RELEVANT SECTIONS, NAMELY, SECTION 5(2) AND SECTION 9 OF THE INCOME-TAX ACT, 1961, NOT HAVING UNDERGONE ANY CHAN GE IN THIS REGARD, THE CLARIFICATION IN CIRCULAR NO. 23 STILL PREVAILS. NO TAX IS THEREFORE DEDUCTIBLE UNDER SECTION 195 AND CONSEQUE NTLY, THE EXPENDITURE ON EXPORT COMMISSION AND OTHER RELATED CHARGES PAYABLE TO A NON-RESIDENT FOR SERVICES RENDERED OUT SIDE INDIA BECOMES ALLOWABLE EXPENDITURE. ON BEING APPRAISED F OR THIS POSITION, THE COMPTROLLER AND AUDITOR-GENERAL HAVE AGREED TO DROP THE OBJECTION REFERRED TO ABOVE. 7. FURTHER IT WAS SUBMITTED THAT CIRCULAR NO. 7/200 9 [F. NO. 500/135/2007-FTD-1], DATED 22-10-2009 HAS WITHDRAWN CIRCULAR NO. 23 AND CIRCULAR NO. 786. HOWEVER, IN THE PRESENT CASE, THE ASSESSMENT PERTAINS TO AY 2008-09 RELEVANT TO FINANCIAL YEAR 2 007-08. CIRCULAR NOS. 23 AND 786 WERE IN FORCE WHEN COMMISSION WAS PAID. THE SE CIRCULARS WERE OPERATIVE ON THE FIRST DAY OF THE ASSESSMENT YEAR U NDER CONSIDERATION. NO TAX WAS DEDUCTED AT SOURCE IN RESPECT OF THE COMMIS SION PAID, INTER ALIA, RELYING ON THE ABOVE CIRCULARS. CIRCULAR NO. 7 OF 2 009 STATES THAT CIRCULAR NOS. 23 AND 786 HAS BEEN WITHDRAWN WITH IMMEDIATE E FFECT I.E., W.E.F. 22.10.2009. IN OTHER WORDS, THE SAID CIRCULARS CANN OT BE SAID TO BE INOPERATIVE PRIOR TO 22.10.2009. THUS, THE SAID CIR CULARS WOULD BE APPLICABLE/OPERATIVE IN RESPECT OF TRANSACTIONS PRI OR TO 22.10.2009. IN OTHER ITA NO.714/BANG/2015 PAGE 5 OF 12 WORDS, CIRCULAR NO. 7 OF 2009 DOES NOT OPERATE RETR OSPECTIVELY. RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS:- EXOTIC FRUITS PVT. LTD V ITO (IT) ITA NOS. 1008 TO LOL3FBANG/2012 DATED 4.10.2013 ITAT BANGALORE. (COP Y ENCLOSED) CIT V. ANGELIQUE INTERNATIONAL LTD. [2013] 359 I TR 9 (DELHI) CIT V. MODEL EXIMS [2013] 358 ITR 72 (ALL) CIT V. ALLIED EXIMS [2014] 363 ITR 62 (ALL) ASST. CIT V. MODERN INSULATOR LTD. [2011110 ITR (TRIB) 147 (JAIPUR) DCIT V. DIVIS LABORATORIES LTD. [2011110 ITR (T RIB) 501 (HYD) ACIT V RAPID PACK ENGG. P LTD (2014] 32 ITR (TRI B) 329 (MUMBAI) 8. THE ASSESSEE ALSO SUBMITTED THAT IT HAS BEEN HEL D THAT SERVICES OF EXPORT COMMISSION AGENT DOES NOT CONSTITUTE MANAGER IAL, TECHNICAL OR CONSULTANCY SERVICES U/S. 9(1)(VII) AND HENCE NOT C HARGEABLE TO TAX IN INDIA AND NOT LIABLE FOR TDS U/S. 195 OF THE ACT IN THE F OLLOWING DECISIONS:- DIT (IT) V PANALFA AUTOELEKTRIK LTD ITA NO. 292/ 2014 DATED 18.9.20 14 DELHI HC ADIDAS SOURCING LTD V ADJT [2012] 80 DTR 369 (DE LHI) 9. IT WAS SUBMITTED THAT THE HONBLE SUPREME COURT IN ISHIKAWAJMA HARIMA HEAVY INDUSTRIES LTD V CIT 288 ITR 408 HELD THAT TO ATTRACT SECTION 9(1)(VII), TWO CONDITIONS ARE TO BE SATISFIED VIZ., SERVICES SHOULD BE RENDERED ITA NO.714/BANG/2015 PAGE 6 OF 12 IN LNDIA AND SUCH SERVICES SHOULD BE UTILISED IN IN DIA. THE DECISION OF THE BOMBAY HIGH COURT IN CLIFFORD CHANCE V. DCIT 12009] 318 ITR 237 IS AN AUTHORITY FOR THE PROPOSITION THAT THE RATIO OF SUP REME COURT IN ISHIKAWAJMA HARIMA HEAVY INDUSTRIES LTD. (SUPRA) REGARDING TWIN CRITERIA OF RENDERING OF SERVICE IN INDIA AND ITS UTILISATION IN INDIA HAS N OT BEEN DONE AWAY WITH BY THE INCORPORATION OF EXPLANATION TO SECTION 9(2) BY FINANCE ACT, 2007. SIMILAR VIEW WAS TAKEN BY THE JURISDICTIONAL HIGH C OURT IN JINDAL THERMAL POWER CO. LTD V CIT (2009) 182 TAXMAN 0252 WHEREIN IT WAS HELD THAT THERE WAS NO REQUIREMENT TO DEDUCT TAX AT SOURCE IN RESPECT OF TECHNICAL SERVICES WHICH ARE RENDERED OUTSIDE INDIA. IT WAS FURTHER HELD AS FOLLOWS:- . IN RESPECT OF TECHNICAL SERVICES THE RENDERI NG OF SERVICES BEING PURELY OFFSHORE AND OUTSIDE INDIA, THE REMUNE RATION WHATEVER PAID TOWARDS TECHNICAL SERVICES DOES NOT A TTRACT TAX LIABILITY. 10. IT WAS SUBMITTED THAT FOLLOWING THE ABOVE DECIS ION OF THE HONBLE JURISDICTIONAL HIGH COURT, THE TRIBUNAL IN THE CAS E OF BOVIS LEND LEASE INDIA P LTD V ITO, ORDER DATED 28.08.200,9 HELD THAT THERE WAS NO LIABILITY TO DEDUCT TAX AT SOURCE IN RESPECT OF FEES FOR TECHNIC AL SERVICES PAID OUTSIDE INDIA FOR SERVICES RENDERED OUTSIDE INDIA. 11. IN VIEW OF THE ABOVE, THE ASSESSEE SUBMITTED TH AT THE COMMISSION PAID TO DR. MATTEO MORA, ITALY COULD NOT BE CONSIDE RED AS FEES FOR TECHNICAL SERVICES U/S. 9(1)(VII) OF THE ACT. THUS, THE SAID PAYMENT WOULD NOT CONSTITUTE INCOME CHARGEABLE TO TAX IN INDIA UNDER ANY OF THE LIMBS OF ITA NO.714/BANG/2015 PAGE 7 OF 12 SECTION 5(2) OR UNDER SECTION 9 AND AS SUCH, THERE WAS NO LIABILITY TO DEDUCT TAX AT SOURCE IN RESPECT OF COMMISSION PAID TO AGEN TS UNDER SECTION 195 OF THE ACT. 12. IT WAS ALSO SUBMITTED THAT THE BANGALORE BENCH OF THE TRIBUNAL IN DCIT V ANAND MARAKALA (ITA NO.1584/2012 AND CO 58/2013) HELD THAT DISALLOWANCE U/S. 40(A)(IA) IS LIMITED TO THE EXTEN T OF AMOUNT PAYABLE AS ON THE LAST DAY OF THE PREVIOUS YEAR AND THE PAYMENTS ACTUALLY MADE DURING THE YEAR CANNOT BE DISALLOWED U/S. 40(A)(IA). THE CHENNAI BENCH OF THE TRIBUNAL IN DCIT V MRF LTD. IN ITA NO. 1985/MDS/201 1, ORDER DATED 4.3.2014 HELD THAT IF THERE ARE TWO VIEWS POSSIBLE, THE VIEW FAVOURABLE TO THE ASSESSEE IS TO BE FOLLOWED AND CONSEQUENTLY PAY MENTS ACTUALLY MADE WERE HELD TO BE NOT LIABLE FOR DISALLOWANCE UNDER S ECTION 40(A)(IA). 13. IT WAS SUBMITTED THAT IN THE PRESENT CASE THERE WAS NO OUTSTANDING COMMISSION AMOUNT PAYABLE TO DR. MATTEO MORA, ITALY AS ON 31.3.2008. THE ENTIRE SUM OF RS. 17,89,110/- WAS ACTUALLY PAID TO DR. MATTEO MORA DURING THE RELEVANT PREVIOUS YEAR. IN VIEW OF THE ABOVE, COMMISSION OF RS. 17,89,110/- PAID TO DR. MATTEO MORA, ITALY WAS NOT LIABLE FOR TDS U/S. 195 AND CONSEQUENTLY THE SAID EXPENDITURE CANNOT BE DIS ALLOWED U/S. 40(A)(I) / 40(A)(IA) OF THE ACT. 14. THE LD. CIT(APPEALS) RELYING ON THE DECISION OF AAR IN THE CASE OF SKF BOILERS AND DRIERS PVT. LTD. IN RE, 345 ITR 385 AAR, HELD AS FOLLOWS:- ITA NO.714/BANG/2015 PAGE 8 OF 12 5. ON EXAMINING THE INSTANT CASE CAREFULLY, THERE CAN BE NO TWO OPINIONS THAT THE SIMILAR ISSUES CONSIDERED BY THE HONBLE AUTHORITY ARE ON IDENTICAL FACTS. IN FACT, THE CONT ENTIONS OF THE ASSESSEES REPRESENTATIVE ARE SIMILAR TO THAT RAISE D IN THE AFORESAID CASES. WITH RESPECT TO TREATY LAW, THE INDO-FRENCH DTAA WAS CONSIDERED IN RAJIV MALHOTRA CASE (SUPRA) AND RELEV ANT ARTICLES DEALING WITH TAXABILITY OF THE PAYMENT IN THE LNDO- FRENCH DTAA AS WELL AS DTAAS RELIED ON ARE PARI-MATERIA. THE DE CISIONS OF THE AAR ARE CERTAINLY CASE SPECIFIC, BUT POSSESS PERSUA SIVE VALUE. IN MY VIEW, THE DECISIONS ARE WHOLLY APPLICABLE TO THE INSTANT CASE AS THE FACTS AND ISSUES ARE IDENTICAL. WHEN A HIGHE R JUDICIAL FORUM CONSIDERS SIMILAR ISSUES ON IDENTICAL FACTS, I SEE NO REASON IN NOT APPLYING THE REASONING AS WELL AS DECISION T O THE INSTANT CASE. HENCE, THE ACTION OF THE AO IS UPHELD. 15. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE ASS ESSEE HAS COME UP IN APPEAL BEFORE US ON THE FOLLOWING EFFECTIVE GROU NDS OF APPEAL:- 2.1 THE LEARNED CIT(A)-IV, BANGALORE HAS ERRED IN CONFIRMING THE DISALLOWANCE OF COMMISSION PAID TO NON-RESIDENT AGENT AMOUNTING TO RS 17,87,000/- UNDER SECTION 40(A)(IA) FOR THE REASON THAT THE PAYMENT TO NON-RESIDENT AGENT CONST ITUTE FEES FOR TECHNICAL SERVICES UNDER SECTION 9(1)(VII) OF THE I NCOME TAX ACT, 1961. 2.2 THE LEARNED CIT(A)-IV HAS ERRED IN HOLDING THA T THE COMMISSION PAID TO A NON RESIDENT AGENT IN THE NATU RE OF FEES FOR TECHNICAL SERVICES UNDER SECTION 9(1)(VII) OF THE INCOME TAX ACT, 1961. THE APPELLANT WAS NOT OBLIGED TO WITHHOLD TAX AT SOURCE UNDER SECTION 195(1) OF THE ACT. THE PAYMENT MADE D OES NOT FALL WITHIN THE AMBIT OF THE DEFINITION OF FEES FOR TEC HNICAL SERVICES UNDER SECTION 9(1)(VII) OF THE INCOME TAX ACT, 1961 . ITA NO.714/BANG/2015 PAGE 9 OF 12 16. THE LD. COUNSEL FOR THE ASSESSEE, SHRI PADAMCHA ND KHINCHA, REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(APPE ALS) AND TOOK US THROUGH THE PAPERBOOK WHICH CONTAINED THE COMPILATI ON OF CASE LAWS. HE POINTED OUT TO THE DECISION OF THE HONBLE ALLAHABA D HIGH COURT IN THE CASE OF CIT V. ALLIED EXIMS [2014] 48 TAXMAN.COM 180 (ALL) WHEREIN THE ASSESSMENT YEAR INVOLVED WAS AY 2008-09 AS IN THE P RESENT CASE. THE HONBLE ALLAHABAD HIGH COURT HELD AS FOLLOWS:- A CERTAIN SUM WAS DISALLOWED UNDER SECTION 40(A)(I ) FOR NON- DEDUCTION OF TDS ON PAYMENTS MADE TO NON-RESIDENT A S PER CIRCULAR NO.7, DATED 22-10-2009 ASSESSEE SUBMITTE D THAT WHEN RETURN WAS FILED, EARLIER CIRCULAR NO.786, WAS APPL ICABLE AS PER WHICH ASSESSEE WAS NOT OBLIGED TO DEDUCT TDS WHET HER SINCE EARLIER CIRCULAR CREATED A VESTED RIGHT IN TAXPAYER AND SUBSEQUENT CIRCULAR SOUGHT TO WITHDRAW SAID RIGHT, SUBSEQUENT CIRCULAR WILL NOT HAVE RETROSPECTIVE EFFECT AND DISALLOWANCE WAS TO BE DELETED HELD, YES [PARA 6] [IN FAVOUR OF ASSESSEE]. 17. THE LD. COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE ITAT DELHI BENCH DECISION IN THE CASE OF WELSPRING UNIVERSAL V. JT. CIT [2015] 56 TAXMAN.COM 174 (DELHI-TRIB.) WHEREIN AT PARA 13 OF THE ORDER, IT HAS BEEN OBSERVED AS FOLLOWS:- IT CAN BE SEEN THAT THE LD. CIT RELIED ON TWO DECI SIONS 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 PA YMENT OF COMMISSION ON EXPORT ORDERS IS CHARGEABLE TO TAX U/ S 5(2)(B) READ WITH SECTION 9(1)(I) OF THE ACT. BY AN INDEPENDENT EVALUATION OF THE MATTER IN THE LIGHT OF THE PROVISIONS OF SECTIO N 5(2) READ WITH SECTION 9 OF THE ACT, WE HAVE HELD ABOVE THAT THE F OREIGN COMMISSION IS NOT CHARGEABLE TO TAX IN THE HANDS OF THE NON- ITA NO.714/BANG/2015 PAGE 10 OF 12 RESIDENT. BE THAT AS IT MAY, IT IS IMPORTANT TO NOT E THAT IT IS NOT A SOLITARY PRECEDENT AVAILABLE ON THE SUBJECT. THE HO NBLE JURISDICTIONAL 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-RES IDENT AGENT FOR PROCURING EXPORT ORDERS FOR THE ASSESSEE CANNOT BE HELD AS FEES FOR TECHNICAL SERVICES U/S 9(1)(VII) OF THE ACT. IN THI S CASE, THE ASSESSEE MADE AN APPLICATION U/S 195(2) FOR AUTHORI ZATION TO REMIT CERTAIN AMOUNT AS COMMISSION FOR ARRANGING EXPORT S ALES AND REALIZING PAYMENT TO NON-RESIDENT COMPANY. THE AO H ELD THAT THE COMMISSION PAYMENT WAS TAXABLE AS FEES FOR TECHNICA L SERVICES U/S 9(1)(VII) OF THE ACT. THAT IS HOW, WHEN ASSAILE D, THE HONBLE HIGH COURT HELD THAT THE PAYMENT OF COMMISSION CANN OT BE CONSIDERED AS FEES FOR TECHNICAL SERVICES IN TERMS OF SECTION 9(1)(VII) SO AS TO CALL FOR ANY DEDUCTION OF TAX AT SOURCE. THE HONBLE MADRAS HIGH COURT IN CIT VS. FAIZAN SHOES ( P) LTD. (2014) 367 ITR 155 / 226 TAXMAN 115 / 48 TAXMANN.CO M 48, HAS ALSO HELD THAT NO DISALLOWANCE CAN BE MADE U/S 40A( I) IN RESPECT OF COMMISSION PAID TO NON-RESIDENT AGENT FOR PROVID ING SERVICES OUTSIDE INDIA. 18. THE ASSESSEE ALSO RELIED ON THE DECISION OF DIT V. PANALFA AUTO ELEKTRIK LTD. [ 2014] 49 TAXMANN.COM 412 (DELHI) . 19. THE LD. DR, ON THE OTHER HAND, RELIED ON THE O RDER OF CIT(APPEALS). 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. TAKI NG THE TOTALITY OF FACTS AND CIRCUMSTANCES INTO CONSIDERATION AND RELY ING ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. EON TECHNOLOGY P. LTD., 343 ITR 366, WE ARE OF THE VIEW THAT THE BUSINESS PROFITS OF A NON-RESIDENT CANNOT BE BROUGHT TO TAX UNTIL AND UNLESS THERE IS A PE IN INDIA. FURTHER IT HAS BEEN OBSERVED BY THE DELHI BENCH WITH RESPECT T O THE POSITION OF PLACING RELIANCE ON THE DECISION OF AUTHORITY FOR A DVANCE RULING AS FOLLOWS:- ITA NO.714/BANG/2015 PAGE 11 OF 12 . THE FACT THAT THE DECISION OF THE AUTHORITY FOR ADVANCE RULING, RELIED BY THE LD. CIT FAVOURS THE R EVENUES CASE, AT THE MAXIMUM, MAKES THE ISSUE ABOUT DEDUCTI ON OF TAX AT SOURCE FROM FOREIGN COMMISSION, A DEBATABLE ONE. 21. HENCE IN THE PRESENT CASE, THE CIT(A)S RELIANC E ON THE DECISION OF THE AUTHORITY FOR ADVANCE RULING IS CONTROVERTED BY THE DECISION OF THE HONBLE MADRAS HIGH COURT IN CIT V. FAIZAN SHOES (P.) LTD., 367 ITR 155 . FURTHER, WE FIND THAT THE AO HAS NOT DISPUTED THE N ATURE OF PAYMENT BEING THE COMMISSION PAID TO DR. MATTEO MORA OF ITALY AND THEREFORE THE SAID PAYMENT DOES NOT FALL U/S. 5(2) OR CLAUSE (VII) OF SECTION 9(1) SO THAT EXPLANATION 2 CAN BE ATTRACTED ON THIS AMOUNT. FUR THER, CIRCULAR NO.786 OF 7.2.2000 WAS WITHDRAWN ON 22.10.2009 AND THEREFORE WITHDRAWAL OF THE CIRCULAR IS PROSPECTIVE AND NOT RETROSPECTIVE. THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX IN RESPECT OF COMMISSION PAID TO THE NON-RESIDENT AGENT, WHEN DURING THE RELEVANT YEAR, CIRCULAR NO.786 DATE D 7.2.2000 WAS VERY MUCH IN EXISTENCE. THE SUBSEQUENT WITHDRAWAL OF TH E CIRCULAR DOES NOT AFFECT THE POSITION OF THE ASSESSEE ON THIS ISSUE D URING THE YEAR UNDER CONSIDERATION. 22. IN CIRCULAR NO.23 DATED 23.7.1969, IT HAS BEEN MADE CLEAR THAT A FOREIGN AGENT OF INDIAN EXPORTER OPERATES IN HIS OWN COUNTRY AND NO PART OF HIS INCOME ARISES IN INDIA. HIS COMMISSION IS USUALLY REMITTED DIRECTLY TO ITA NO.714/BANG/2015 PAGE 12 OF 12 HIM AND IS, THEREFORE, NOT RECEIVED BY HIM OR ON HI S BEHALF IN INDIA. SUCH AN AGENT IS NOT LIABLE TO INCOME-TAX IN INDIA ON THE C OMMISSION. 23. HENCE, THE ASSESSEES APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF OCTOBER, 2015. SD/- SD/- ( JASON P. BOAZ ) (ASHA VIJAYARAGHAVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 23 RD OCTOBER, 2015. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.