January 2014
Business expenditure: TDS: Disallowance u/s. 40(a)(i) r/w. s/s. 9(1)(vii) and 195: A. Y. 2009-10: Commission or discount paid to nonresident: Circular clarifying that tax need not be deducted if non-resident did not have PE in India: Withdrawal of circular in October 2009: Not applicable to A. Y. 2009-10: Payment not to be disallowed:
By K. B. Bhujle, Advocate
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CIT vs. Angelique International Ltd; 359 ITR 9(Del): 38 taxman.com 425 (Del):
The payments made by the assessee to the nonresidents by way of commission and discount were covered by the Circular Nos. 23, dated 23-07-1969; 163 dated 29-05-1975; and 786 dated 02-07-2000 wherein it was clarified that payments in the form of a commission or discount to a foreign party were not chargeable to tax in India u/s. 9(1)(vii) of the Income-tax Act, 1961 and accordingly, tax was not deductible at source. In view of these circulars the assessee had not deducted tax at source on payments aggregating to Rs. 37,87,26,158/- in the relevant year, i.e. A. Y. 2009-10. These circulars were withdrawn by circular No. 7 of 2009 dated 22- 10-2009.
In the A. Y. 2009-10, the Assessing Officer disallowed the said amount applying section 40(a) (i) of the Act and relying on the said circular No. 7 of 2009 dated 22/10/2009. The Tribunal deleted the disallowance.
On appeal by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under: “Circular No. 7 of 2009, cannot be classified as explaining or clarifying the earlier circulars issued in 1969 and 2000. Hence, it did not have retrospective effect. The deletion of disallowance u/s. 40(a)(i) was justified.”
