By C. N. Vaze
Jagdish T. Punjabi
Bhadresh Doshi
Chartered Accountants
6.
Divya Creation vs. ACIT
Members:
R. K. Panda (A. M.) and Suchitra Kamble (J. M.)
ITA No.5603/Del/2014.
A.Y.: 2010-11
Date of Order: 14th September,
2017
Counsel for Assessee / Revenue: Piyush Kaushik / Arun Kumar Yadav
Section 40a(i) read with section 195 –
Sales commission paid to foreign agent is neither technical service nor
managerial, hence not covered under Explanation to section 9(2). No tax
required to be deducted u/s. 195.
FACTS
The assessee is a partnership firm engaged
in the business of manufacturing and export of plain and studded gold and
silver jewellery. During the year under
appeal, the assessee had paid commission of Rs. 62.13 lakh to two parties in
France and Switzerland for promoting the sales in Europe.The AO disallowed the
commission u/s. 40a(i) for non-deduction of tax at source u/s. 195 giving
following reasons:
– commission
has been remitted to the foreign agent only after realisation of proceeds by
the assessee from the customers solicited by the agents;
– as
per the agreement, in case of losses / interest which are not paid by the
customers on account of delay in payment, the same was to be adjusted against
commission payable to the agent;
– as
per the agreement, the agent was personally acting as agent of the assessee,
which was inferred by the AO as that the income of foreign agent had a real and
intimate connection with the income accruing to the assessee and this
relationship amounted to a business connection through or from which income can
be deemed to accrue or arise to the non-resident.
Further, relying on the decision of the AAR
in the case of SKF Boilers and Driers Pvt. Ltd. reported in 68 DTR 106 and the
decision of AAR in the case of Rajiv Malhotra reported in 284 ITR 564, the AO
disallowed the commission u/s. 40a(i). According to the CIT(A) although the
non-resident agents had rendered services and procured orders abroad, but the
right to receive the commission arose in India when the orders got executed by
the assessee. Accordingly, he upheld the order of the AO.
Before the Tribunal, the revenue relied on
the orders of the lower authorities.
HELD
The Tribunal referred to the following
decisions:
– The
Ahmedabad Tribunal in the case of DCIT (International Taxation) vs. Welspun
Corporation Ltd. reported in 77 taxmann.com 165 held that the commission
paid to agent cannot be considered as the fees for payment for technical
services. Such payments were in nature of commission earned from services
rendered outside India which had no tax implications in India. The Tribunal
while deciding the issue had also considered the two decisions of the AAR which
were relied on by the AO as well as the CIT(A);
– The
Allahabad High Court in the case of CIT vs. Model Exims reported in 363
ITR 66 held that the payments of commission to non-resident agents, who have
their own offices in foreign country, cannot be disallowed, since the agreement
for procuring orders did not involve any managerial services. It was held that
the Explanation to section 9(2) was not applicable;
– The
Delhi High Court in the case of CIT vs. EON Technology P. Ltd. reported
in 343 ITR 366, held that non-resident commission agents based outside India
rendering services of procuring orders cannot be said to have a business
connection in India and the commission payments to them cannot be said to have
been either accrued or arisen in India;
– The
Tribunal also referred to the decision of the Supreme Court in the case of CIT
vs. Toshoku Ltd. reported in 125 ITR 525, Madras High Court in the cases of
CIT vs. Kikani Exports Pvt. Ltd. reported in 369 ITR 96 and CIT vs.
Faizan Shoes Pvt. Ltd. reported in 367 ITR 155.
In view of the above, the Tribunal held that
the assessee was not liable to deduct tax under the provisions of section 195
on account of foreign agency commission paid outside India for promotion of
export sales.
