DCIT 28(3), NAVI MUMBAI V. S.R.M AGRO FOODS, NAVI MUMBAI

ITA 7397/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3244 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 11-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N SATHYA MOORTHYDR
• Assessee Lawyers: MITESH THAKKAR
• Keywords: Deemed dividend
• Section: 37; 2

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -EBENCH MUMBAI , . . , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND C. N. PRASAD,JUDICIAL MEMBER ./ITA/7397/MUM/2014, /ASSESSMENT YEARS: 2011-12 DCIT-28 (3)(1) 3 RD FLR, VASHI RLY STATION COMPLEX VASHI, NAVI MUMBAI-400 703. VS. M/S. S.R.M. AGRO FOODS OFFICE NO.519, PLOT NO.20, THE GREAT EASTERN GALLERIA, SECTOR-4, NERUL NAVI MUMBAI-400 706. PAN:AANFS 1876 K ( /APPELLANT ) ( / RESPONDENT) REVENUE BY: SHRI N. SATHYA MOORTHY-DR ASSESSEE BY: SHRI MITESH THAKKAR / DATE OF HEARING: 18.07.2016 / DATE OF PRONOUNCEMENT: 24.08.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(AC T) PER RAJENDRA, AM - CHALLENGING THE ORDER DTD.12/09/2014 OF THE CIT(A)- 33,MUMBAI,THE ASSESSING OFFICER(AO)HAS FILED THE PRESENT APPEAL. ASSESSEE-F IRM, ENGAGED IN THE BUSINESS OF EXPORT OF MEAT AND SEAFOOD, FILED ITS RETURN OF INCOME ON 25/09/2011, DECLARING TOTAL INCOME OF RS. 2.39 CRORES.THE AO CO MPLETED THE ASSESSMENT U/S.,143(3) OF THE ACT,ON 26/12/2013,DETERMINING TH E INCOME OF THE ASSESSEE AT RS.5.19 CRORES. 2.FIRST GROUND OF APPEAL PERTAINS TO DELETING THE A DDITION OF RS. 2.39 CRORES, MADE BY THE AO,U/S.2(22)(E) OF THE ACT.DURING THE A SSESSMENT PROCEEDINGS, THE AO NOTED THAT THE ASSESSEE HAD TWO PARTNERS, THAT E ACH OF THE PARTNERS WAS ALSO HOLDING MORE THAN 10% SHARES IN SRM AGRO FOODS PRIV ATE LTD. (SAFPL) AND SPHYNK AGRO PRIVATE LTD. (SAPL), THAT IT HAD RECEIV ED ADVANCES FROM THE SAID COMPANIES.THE AO WAS OF THE OPINION THAT THE PROVIS IONS OF SECTION 2 (22) (E) OF THE ACT WERE APPLICABLE IN THE CASE UNDER CONSID ERATION TO THE EXTENT OF COMMITTED PROFITS RETAINED BY THOSE COMPANIES. IN R EPLY TO THE SHOW CAUSE NOTICE ISSUED BY THE AO, THE ASSESSEE REPLIED THAT BOTH THE PARTNERS DID NOT HAVE SUBSTANTIAL INTEREST IN THE FIRM, THAT SRMAFPL HAD RECEIVED UNSECURED LOANS FROM BOTH THE PARTNERS AMOUNTING TO RS.64.26 LAKHS AND RS.5.40 LAKHS RESPECT - 7397/M/2014-SRMAGROFOODS 2 TIVELY,THAT DURING THE YEAR AT ANY POINT OF TIME LO ANS AND ADVANCES GIVEN BY THE COMPANY TO THE ASSESSEE DID NOT EXCEED LOAN GIVEN B Y THE DIRECTORS TO THE COMPANY,THAT ANY SOME DUE TO ASSESSEE COULD NOT BE CONSIDERED AS DEEMED DIVIDEND, THAT THE AMOUNT OF RS.35.30 LAKHS, ADVANC ED BY THE COMPANY TO THE FIRM WAS LESS THAN ADVANCE RECEIVED OF RS.64.26 LAK HS BY THE COMPANY FROM ITS DIRECTORS AND WHO WERE ALSO PARTNERS OF THE ASSESSE E-FIRM.WITH REGARD TO THE ADVANCE RECEIVED FROM SAPL IT WAS CONTENDED THAT BO TH THE PARTNERS OF THE ASSESSEE FIRM WERE ALSO SHAREHOLDERS OF THE COMPANY , THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD SALE AND PURCHASE TR ANSACTION WITH THE COMPANY, THAT THE ADVANCES RECEIVED WERE WITH RESPECT TO THE COMMERCIAL TRANSACTION, THAT THE PROVISIONS OF SECTION 22(22)(E) OF THE ACT WERE NOT APPLICABLE. HOWEVER,THE AO WAS OF THE OPINION THAT THE ASSESSEE HAD SATISFI ED ALL THE CONDITIONS TO ATTRACT THE PROVISIONS OF SECTION 22(22)(E)OF THE ACT,THAT THE PARTNERS OF THE ASSESSEE- FIRM HELD MORE THAN 10% SHARES IN BOTH THE COMPANIE S, THAT THE COMPANIES WERE HAVING ACCUMULATED PROFITS, THAT THE ASSESSEE HAD R ECEIVED SUBSTANTIAL ADVANCES FROM THE COMPANIES.HE,THEREFORE,COMPUTED THE PEAK A DVANCES AND TAXED THE SAME AS DIVIDEND U/S.22(22)(E) OF THE ACT. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA)AND MADE THE SAME SU BMISSIONS THAT WERE ADVANCED BEFORE THE AO.AFTER CONSIDERING SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER,HE HELD THAT LOANS/ADVANCES TO THE SPECIFIED SHAREHOLDERS OR FOR THE BENEFIT OF SUCH SHAREHOLDERS OR TO THE CONCERNS IN WHICH SUCH SHAREHOLDERS WERE SUBSTANTIALLY INTERESTED, WERE TAXABLE AS DIVI DEND. HE REFERRED TO THE CASE OF UNIVERSAL MEDICARE PRIVATE LTD.(324 ITR 263) OF THE HONBLE BOMBAY HIGH COURT WHEREIN THE HONBLE COURT HAD APPROVED THE DE CISION OF THE SPECIAL BENCH OF THE TRIBUNAL THAT THE DIVIDEND CAN BE TAXE D IN THE HANDS OF SHAREHOLDER ONLY AND NOT IN THE HANDS OF THE CONCERN AND THAT T HE SHAREHOLDER HAD TO BE BOTH REGISTERED SHAREHOLDER AS WELL AS BENEFICIAL SHAREH OLDER.HE ALSO REFERRED TO THE 7397/M/2014-SRMAGROFOODS 3 CASE OF SEA QUEEN DEVELOPERS (ITA/3086/MM/2013) WHE REIN IT WAS HELD THAT PROVISIONS OF SECTION 2(22)(E) OF THE ACT WOULD NOT BE APPLICABLE TO THE CASE OF A FIRM WHEN IT WAS NEITHER REGISTERED SHAREHOLDER NOR BENEFICIAL SHAREHOLDER. FINALLY,HE HELD THAT THE AMOUNTS IN QUESTION SQUARE LY FELL UNDER THE PROVISIONS OF SECTION 2(22)(E)OF THE ACT AND WERE LIABLE TO BE TAXED AS SUCH IN THE HANDS OF THE REGISTERED AND BENEFICIAL SHAREHOLDERS I.E. PAR TNERS OF THE ASSESSEE-FIRM. ACCORDINGLY,HE DIRECTED THE AO TO DELETE THE ADDITI ONS MADE BY HIM IN THE HANDS OF THE FIRM AND TAX THE SAID AMOUNTS IN THE H ANDS OF THE INDIVIDUAL PARTNERS. 4. DURING THE COURSE OF HEARING BEFORE US,THE DEPARTME NTAL REPRESENTATIVE(DR) SUPPORTED THE ORDER OF THE AO. THE AUTHORISED REPRE SENTATIVE(AR) REFERRED TO THE PAGES 26 TO 35 OF THE PAPER BOOK AND ARGUED THA T THE TRANSACTIONS IN QUESTION WERE BUSINESS TRANSACTIONS.HE RELIED UPON THE CASES OF RAJKUMAR (ITA NO. 1130 OF 2007, DATED 14/05/2009) OF THE HONBLE DELHI HIG H COURT. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND TAKEN NOTE OF THE MATERIAL AVAILABLE ON RECORD.THE UNDISPUTED FACT, NOT CONTRAVENED BY T HE AO, IS THAT THE ASSESSEE FIRM IS NOT THE SHARE HOLDER OF THE COMPANIES I.E. IT IS ALSO A FACT THAT IN CASE OF ONE OF THE COMPANIES THE TRANSACTIONS WERE IN THE C OURSE OF REGULAR BUSINESS-IT WAS NEITHER LOAN NOR ADVANCE.AS THE ASSESSEE WAS NO T REGISTERED SHAREHOLDER OF THE COMPANIES, SO,THE PROVISIONS OF SECTION 2(22)(E )WERE NOT APPLICABLE TO IT.THE FAA HAS HELD THAT SECTION HAD TO BE APPLIED IN THE CASES OF THE INDIVIDUAL PARTNERS. 5.1. HERE, WE WOULD LIKE TO REFER TO THE CASE OF SUBRATA ROY(375 ITR 207)OF HONBLE DELHI HIGH COURT.IN THAT MATTER THE HONBLE COURT HAS HELD AS UNDER: SECTION 2(22)(E) OF THE INCOME-TAX ACT, 1961, ENAC TS THAT PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIAL LY INTERESTED, OF ANY SUM (WHETHER REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) MADE AFTER MAY 31, 1987, BUT BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDE R, BEING A PERSON WHO IS THE BENEFICIAL OWNER OF THE SHARES, NOT BEING SHARES EN TITLED TO A FIXED RATE OF DIVIDEND, 7397/M/2014-SRMAGROFOODS 4 WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN P ROFITS, HOLDING NOT LESS THAN 10 PER CENT. VOTING POWER IS DEEMED TO BE DIVIDEND. THE SE COND CLASS OF PAYMENTS IS BY WAY OF ADVANCE OR LOAN TO ANY CONCERN IN WHICH SUCH SHA REHOLDER IS A MEMBER OR PARTNER AND IN WHICH HE HAS SUBSTANTIAL INTEREST. THE THIRD CLASS IS PAYMENT BY ANY SUCH COMPANY FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAR EHOLDERS TO THE EXTENT OF WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFIT S. SECTION 2(22)(E) PULLS IN NOTIONAL OR ARTIFICIAL INCOME FOR ASSESSMENT BY A F ICTION. THE PRIMARY BURDEN TO BRING TO TAX AMOUNTS, ON THE GROUND THAT THE TRANSACTION IS A DEEMED DIVIDEND, (WHEN IT IS NOT SO OTHERWISE) IS UPON THE DEPARTMENT. TO DISCHA RGE THAT BURDEN, THE DEPARTMENT CANNOT REST CONTENT OR SURMISES AND ASSUMPTIONS ; I T SHOULD PREMISE THEM, RATHER ON FACTS. WE WOULD ALSO LIKE TO REFER TO THE CASE OF IMPACT C ONTAINERS P.LTD.(367ITR346) OF THE HONBLE BOMBAY HIGH COURT,WHEREIN THE HONBL E COURT HAS HELD AS UNDER: A BARE PERUSAL OF SECTION 2(22) OF THE INCOME-TAX ACT, 1961, WOULD INDICATE THAT THE TERM DIVIDEND INCLUDES ANY DISTRIBUTION BY A COMP ANY OF ACCUMULATED PROFITS. ANY DISTRIBUTION TO ITS SHAREHOLDERS BY A COMPANY OF DE BENTURES, DEBENTURE STOCK, OR DEPOSIT CERTIFICATES IN ANY FORM, WHETHER WITH OR W ITHOUT INTEREST, ANY DISTRIBUTION MADE TO THE SHAREHOLDERS BY THE COMPANY ON ITS LIQU IDATION, ANY DISTRIBUTION MADE TO THE SHAREHOLDERS BY A COMPANY ON THE REDUCTION OF I TS CAPITAL AND ALL THIS IS DEALT WITH BY SUB-CLAUSES (A) TO (D) OF SECTION 2(22). THEN CO MES SUB-CLAUSE (E) WHICH SAYS THAT ANY PAYMENT BY A COMPANY AND NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER AS RE PRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) MADE AFTER MAY 31, 1987, BUT BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER BEING A PERSON WHO IS THE BENEFICI AL OWNER OF THE SHARES NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS HOLDING NOT LESS THAN 10 PER CENT. OF THE VOTING POWER. THIS IS ONE CATEGORY AND THE SECOND ONE IS A PAYMENT BY WAY OF ADVANCE OR LOAN TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR PA RTNER AND IN WHICH HE HAD SUBSTANTIAL INTEREST. THE THIRD CATEGORY IS ANY PAY MENT BY ANY SUCH COMPANY FOR INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDERS TO THE EXTENT OF WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS. THE LATT ER PART OF THIS DEFINITION STATES WHAT IS NOT INCLUDED IN DIVIDEND AND THE LEGISLATURE H AS CAREFULLY SPECIFIED THAT ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER OR CONCERN IN WHICH SHAREHOLDER IS A MEMBER OR PARTNER AND IN WHICH HE HAS SUBSTANTIAL INTEREST , BY THE COMPANY IN THE ORDINARY COURSE OF HIS BUSINESS WHERE THE LENDING OF MONEY I S A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY OR ANY DIVIDEND PAID BY A COMPANY WH ICH IS SET OFF BY THE COMPANY AGAINST THE WHOLE OF ANY PART OF SUM PREVIOUSLY PAI D BY IT AND TREATED AS A DIVIDEND WITHIN THE MEANING OF SUB-CLAUSE (E) TO THE EXTENT TO WHICH IT IS SET OFF, IS NOT DIVIDEND WITHIN THE MEANING OF THIS DEFINITION. A HIGH COURT MUST NOT BRUSH ASIDE THE BINDING PRECE DENT OR THE JUDGMENT OF A CO- ORDINATE BENCH SIMPLY BECAUSE SOME OF THE ARGUMENTS WERE EITHER NOT CANVASSED OR IF CANVASSED WERE NOT CONSIDERED. THE BINDING PRECEDEN T CAN BE IGNORED ONLY IF IT IS PER INCURIAM. THE VIEW TAKEN BY THE BOMBAY HIGH COURT IN THE CASE OF UNIVERSAL MEDICARE P. LTD. [2010] 324 ITR 263 DOES NOT REQUIRE ANY RECONSIDERATION. THE HIGH COUR T 7397/M/2014-SRMAGROFOODS 5 MERELY RESTATED THE PRINCIPLE WHICH REMAINS UNALTER ED THROUGHOUT FROM THE CASE OF RAMESHWARLAL SANWARMAL V. CIT [1980] 122 ITR 1 . THE SUPREME COURT HELD THAT IT IS ONLY WHERE A LOAN IS ADVANCED BY TH E COMPANY TO THE REGISTERED SHAREHOLDER AND OTHER CONDITIONS SET OUT IN SECTION 2(6A)(E) OF THE INDIAN INCOME-TAX ACT, 1922, ARE SATISFIED THAT THE AMOUNT OF THE LOA N WOULD BE LIABLE TO BE REGARDED AS DEEMED DIVIDEND WITHIN THE MEANING OF THAT PROVISIO N. THE LOAN GRANTED TO THE BENEFICIAL OWNER OF THE SHARE, WHO IS NOT A REGISTE RED SHAREHOLDER WOULD NOT FALL WITHIN THE MEANING OF SECTION 2(6A)(E) OF THE 1922 ACT. WHAT THE SECTION IS DESIGNED TO STRIKE AT IS ADVANCE OR LOAN TO A SHAREHOLDER AN D THE WORD SHAREHOLDER CAN MEAN ONLY THE REGISTERED SHAREHOLDER. ALL THE THREE LIMBS OF THE SECTION ANALYZED IN UNIVERSAL MEDICARE DENOTE THE INTENTION THAT CLOSELY HELD COMPANIES, N AMELY, COMPANIES IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INT ERESTED WHICH ARE CONTROLLED BY A GROUP OF MEMBERS, EVEN THOUGH HAVING ACCUMULATED PR OFITS WOULD NOT DISTRIBUTE SUCH PROFIT AS DIVIDEND BECAUSE IF SO DISTRIBUTED THE DI VIDEND INCOME WOULD BECOME TAXABLE IN THE HANDS OF THE SHAREHOLDERS. INSTEAD OF DISTRI BUTING THE ACCUMULATED PROFITS AS DIVIDEND, COMPANIES DISTRIBUTE THEM AS LOAN OR ADVA NCES TO SHAREHOLDERS OR TO CONCERN IN WHICH SUCH SHAREHOLDERS HAVE SUBSTANTIAL INTEREST OR MAKE ANY PAYMENT ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF SUCH SHA REHOLDER. IN SUCH AN EVENT, BY THE DEEMING PROVISION, SUCH PAYMENT BY THE COMPANY IS T REATED AS DIVIDEND. THE PURPOSE IS TO TAX DIVIDEND IN THE HANDS OF THE SHAREHOLDER. AFTER CONSIDERING THE ABOVE AND RESPECTFULLY FOLLOW ING THE ABOVE MENTIONED JUDGMENTS OF THE HONBLE DELHI AND BOMBAY HIGH COUR TS WE ARE OF THE OPINION THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY.SO, UPHOLDING THE SAME WE DECIDE THE FIRST GROUND OF APPEAL AGAIN ST THE AO. 6. SECOND GROUND OF APPEAL IS ABOUT DELETING THE ADDIT ION, AMOUNTING TO RS.39,00,434/-,MADE BY THE AO,U/S.40(A)(I) OF THE A CT. DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD DEBI TED TO ITS PROFIT AND LOSS ACCOUNT EXPORT COMMISSION.HE DIRECTED IT TO FURNISH DETAILS OF TAX DEDUCTED AT SOURCE FROM THE PAYMENTS,AS THE PAYMENTS WERE MADE TO NON-RESIDENT ENTITIES. IN ITS REPLY,THE ASSESSEE ADMITTED THAT NO TAX WAS DEDUCTED AT SOURCE, THAT THE NON-RESIDENT AGENTS WERE OPERATING FROM THEIR RESPE CTIVE COUNTRIES AND PROCURED EXPORT ORDERS FOR THE ASSESSEE FIRM OUTSIDE INDIA, THAT THE COMMISSION WAS ALSO PAID OUTSIDE INDIA, THAT NO TAX WAS REQUIRED TO BE DEDUCTED U/S.195 OF THE ACT. HOWEVER, THE AO HELD THAT COMMISSION PAYABLE TO AGE NTS ABROAD WAS DEEMED TO ARISE IN THE GROUP IN INDIA, THAT PROVISIONS OF SECTION 40 WERE APPLICABLE TO THE PAYMENTS IN QUESTION. 7397/M/2014-SRMAGROFOODS 6 7. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FAA.AFTER CONSIDERING THE AVAILABLE MATERIAL,HE HEL D THAT THE AO HAD DISALLOWED THE PAYMENT MADE TO FOREIGN AGENTS ONLY ON THE GROUND THAT NO TAX WAS DEDUCTED AT SOURCE AS PER THE PROVISIONS OF SEC TION 195 OF THE ACT, THAT THERE WAS NO OTHER GROUND FOR DISALLOWANCE OF SUCH PAYMEN TS, THAT THE FOREIGN AGENTS PROCURED EXPORT ORDERS, THAT THE ENTIRE SERVICES WE RE RENDERED OUTSIDE INDIA, THAT THE COMMISSION AGENTS DID NOT HAVE ANY PERMANENT ES TABLISHMENT IN INDIA, THAT THE AMOUNTS PAID BY IT TO THE AGENTS FOR RENDERING SERVICES DID NOT ACCRUE IN INDIA.FINALLY, HE DELETED THE ADDITION MADE BY THE AO. 8. BEFORE US,THE DR STATED THAT MATTER COULD BE DECIDE D ON MERITS. THE AR SUPPORTED THE ORDER OF THE FAA. HE RELIED UPON THE CASE OF ARMAYESH GLOBAL (ITA/ 8822/MUM/2010-AY.2007-08, DATED 04/05/2012). WE ARE AWARE THAT THE SECTION 195 OF THE ACT DEALS WITH THE DEDUCTION OF TAX AT SOURCE BY THE PAYER, I.E.,THE ASSESSEE,IF THE PAYME NTS ARE TO BE MADE TO A NON- RESIDENT.THE OBLIGATION TO DEDUCT THE TAX AT SOURCE ARISES ONLY WHEN THE PAYMENT IS CHARGEABLE UNDER THE PROVISIONS OF THE ACT-I.E.T AXABLE IN INDIA.FACTS OF THE CASE ARE THAT THE ASSESSEE HAD MADE PAYMENTS TO NON -RESIDENT AGENTS,THAT THE AGENTS DID NOT HAVE PE IN INDIA,THAT THE SERVICES W ERE RENDERED OUTSIDE INDIA. IN OUR OPINION, CONSIDERING THESE FACTS THE ASSESSEE H AD RIGHTLY NOT DEDUCTED TAX AT SOURCE FOR MAKING THE PAYMENTS TO THE NON-RESIDENT AGENTS. WE FIND THAT IN THE CASE OF FAIZAN SHOES PVT. LTD.( 367 ITR 155)THE HONBLE MADRAS HIGH COURT HAS DEALT THE ISSUE OF DEDUCTION OF TAX AT SOURCE WITH REGARD TO THE PAYMENT MADE TO FOREIGN ENTITIES.THE FACTS O F THE CASE WERE THAT THE ASSESSEE WAS ENGAGED IN THE LEATHER BUSINESS.FOR TH E AY.2009-10,IT ENTERED INTO AN AGENCY AGREEMENT WITH A NON-RESIDENT AGENT TO SE CURE ORDERS FROM VARIOUS CUSTOMERS,INCLUDING RETAILERS AND TRADERS, FOR THE EXPORT OF LEATHER SHOE UPPERS AND FULL SHOES BY THE ASSESSEE.IN TERMS OF THE AGEN CY AGREEMENT, THE BUSINESS WAS TO BE TRANSACTED BY OPENING LETTERS OF CREDIT O R BY CASH AGAINST DOCUMENTS 7397/M/2014-SRMAGROFOODS 7 BASIS. THE NON-RESIDENT AGENT WAS RESPONSIBLE FOR P ROMPT PAYMENT IN RESPECT OF ALL SHIPMENTS EFFECTED ON CASH AGAINST DOCUMENTS BA SIS.IT UNDERTOOK TO PAY COMMISSION OF 2.5% ON THE FREE ON BOARD VALUE ON AL L ORDERS PROCURED BY THE NON-RESIDENT AGENT.THE ASSESSEE CLAIMED THE COMMISS ION AS EXPENDITURE IN TERMS OF SECTION 37 OF THE ACT.THE AO OFFICER DISAL LOWED THE CLAIM OF THE ASSESSEE U/S.40(A)(I),HOLDING THAT THE PAYMENT OF C OMMISSION TO THE NON-RESIDENT AGENT WAS TO BE DEALT WITH IN ACCORDANCE WITH THE P ROVISIONS OF SECTION 9(1) READ WITH SECTION 195,THAT THE AMOUNT PAID TO THE NON-RE SIDENT AGENT WAS DEEMED TO HAVE ACCRUED OR ARISEN IN INDIA U/S.9(1)(VII) AND T HAT SINCE IT HAD NOT DEDUCTED TAX AT SOURCE ON THE PAYMENTS MADE TO THE NON-RESID ENT AGENT, THE EXPENDITURE WAS TO BE DISALLOWED U/S.40(A)(I). THE TRIBUNAL, WH ILE CONCURRING WITH THE FINDINGS OF THE FAA THAT THE NON-RESIDENT AGENT WAS ONLY PROCURING ORDERS FOR THE ASSESSEE AND FOLLOWING UP PAYMENTS AND NO OTHER SERVICES WERE RENDERED, HELD THAT THE NON-RESIDENT AGENT DID NOT PROVIDE AN Y TECHNICAL SERVICES TO THE ASSESSEE, THAT THE COMMISSION PAYMENT MADE TO THE N ON-RESIDENT AGENT DID NOT FALL UNDER THE CATEGORY OF ROYALTY OR FEES OF TECHN ICAL SERVICES AND, THEREFORE, THE EXPLANATION TO SECTION 9(2) HAD NO APPLICATION TO T HE FACTS OF THE ASSESSEES CASE.THE COMMISSION PAYMENTS TO THE NON-RESIDENT AG ENTS WERE NOT CHARGEABLE TO TAX IN INDIA AND, THEREFORE, THE PROVISIONS OF S ECTION 195 WERE NOT APPLICABLE. ON APPEAL,THE HONBLE COURT HELD AS UNDER: HELD, DISMISSING THE APPEAL, THAT ON A READING OF S ECTION 9(1)(VII) , COMMISSION PAID BY THE ASSESSEE TO THE NON-RESIDENT AGENTS WOULD NO T COME UNDER THE TERM FEES FOR TECHNICAL SERVICES. FOR PROCURING ORDERS FOR LEATH ER BUSINESS FROM OVERSEAS BUYERS, WHOLESALERS OR RETAILERS, AS THE CASE MAY BE, THE N ON-RESIDENT AGENT WAS PAID 2.5 PER CENT. COMMISSION ON FREE ON BOARD BASIS. THIS WAS A COMMISSION SIMPLICITER. WHAT WAS THE NATURE OF TECHNICAL SERVICE THAT THE NON-RE SIDENT AGENTS HAD PROVIDED ABROAD TO THE ASSESSEE WAS NOT CLEAR FROM THE ORDER OF THE ASSESSING OFFICER. THE OPENING OF LETTERS OF CREDIT FOR THE PURPOSE OF COMPLETING THE EXPORT OBLIGATION WAS AN INCIDENT OF EXPORT AND, THEREFORE, THE NON-RESIDENT AGENT WAS U NDER AN OBLIGATION TO RENDER SUCH SERVICES TO THE ASSESSEE, FOR WHICH COMMISSION WAS PAID. THE NON-RESIDENT AGENT DID NOT PROVIDE TECHNICAL SERVICES FOR THE PURPOSES OF RUNNING OF THE BUSINESS OF THE ASSESSEE IN INDIA. THEREFORE, THE COMMISSION PAID T O THE NON-RESIDENT AGENTS WOULD NOT FALL WITHIN THE DEFINITION OF FEES FOR TECHNIC AL SERVICES AND THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE ON PAYMENT OF COMMIS SION. 7397/M/2014-SRMAGROFOODS 8 CONSIDERING THE FACTS OF THE CASE AND THE ABOVE JUD GMENT,WE HOLD THAT THE ORDER OF THE FAA NEEDS NO INTERFERENCE FROM OUR SIDE.SO,C ONFIRMING HIS ORDER,WE DECIDE THE SECOND GROUND AGAINST THE AO. APPEAL BY THE AO STANDS DISMISSED. . ORDER PRONOUNCED I N THE OPEN COURT ON 24 TH AUGUST,2016. 24 ! , 2016 SD/- SD/- ( . . '# / C.N. PRASAD ) ( $% / RAJENDRA ) #! / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 24.08.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.