Saturday, August 24, 2013

income tax case laws

Reduction of waiver of loan granted to meet cost of assets from actual cost is not required u/s 43(1) (Expln 10) for calculating depreciation since Explanation 10 covers subsidy or reimbursement and not waiver of loan; however, where assessee reduces loans waived from cost of assets for accounting purposes, same will be reduced from actual cost to calculate depreciation u/s 32 also as such accounting practice will show that assessee understood receipt of loans from Government as having been given towards meeting part of cost of assets and will bring assessee's case within mischief of main provision of section 43(1) itself and it will not even be necessary to invoke Explanation 10 to section 43(1)

• Manner in which entries are made in books of account is not conclusive of question, which has to be resolved on a true interpretation of provisions of law

• However, real nature of a transaction can be understood by reference to contemporaneous act of parties, which would throw considerable light on their true intention and their understanding of transaction; it is therefore not impermissible to look into entries made in books of account, in absence of any other evidence; they show that assessee understood receipt of loans from Government as having been given towards meeting a part of cost of assets

[2012] 20 taxmann.com 198 (Delhi)
HIGH COURT OF DELHI

Steel Authority of India Ltd. v. Commissioner of Income-tax

IT/ILT : Where non-resident agent did not have PE in India, Commission paid by assessee to non-resident agent for rendering services in foreign countries cannot be disallowed under section 40(a)(i)
IT/ILT : Since non-resident shipping companies was separately taxed under section 172, TDS was not required to be deducted from freight expenses paid to them
IT: Enduring nature expenditure cannot be considered as capital in nature unless an asset was created
■■■
[2013] 35 taxmann.com 587 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'K'
Gujarat Reclaim & Rubber Products Ltd.
v.
Additional Commissioner of Income-tax, 10(2)*
B. RAMAKOTAIAH, ACCOUNTANT MEMBER 
AND VIJAY PAL RAO, JUDICIAL MEMBER
IT APPEAL NOS. 8868 (MUM.) OF 2010, 
8789 (MUM.) OF 2011 AND 169 (MUM.) OF 2012
[ASSESSMENT YEARS 2007-08 & 2008-09]
APRIL  19, 2013 
I Section 9, read with sections 40(a)(i) and 195 of the Income-tax Act, 1961 - Income - Deemed to accrue or arise in India [Commission] - Assessment years 2007-08 to 2008-09 - Whether where assessee paid commission to non-resident agent outside India for services provided in foreign countries, in absence of PE of non-resident agent in India said payment would not be chargeable to tax in India hence, no disallowance under section 40(a)(i) can be made - Held, yes [Para 4.6] [In favour of assessee]
II. Section 195, read with section 40(a)(i) and section 172 of the Income-tax Act, 1961 - Deduction of tax at source - Payment to non-resident [In section 172 cases] - Assessment year 2007-08 - Assessee paid ocean freight expenses to non-resident shipping company - Assessing Officer disallowed ocean freight expenses on ground that assessee had not deducted tax at source - Whether since income of non-resident shipping companies was separately taxed under section 172, assessee was not required to deduct tax at source and thus, disallowance under section 40(a)(i) cannot be made - Held, yes [Para 7.5] [In favour of assessee]
III. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of [Enduring benefit] - Assessment year 2007-08 - Whether where expenditure was of enduring nature, same could not be disallowed by considering it as capital in nature unless an asset was created - Held, yes [Para 8.6] [In favour of assessee]
IV. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of [Interest] - Assessment year 2007-08 - Assessee claimed interest and finance charges paid by it - Assessing Officer disallowed proportionate interest on interest free advances and investment made by assessee to its associate concern - Whether since assessee's available capital and reserves was more than borrowed fund, it can be presumed that loan and investment in associate concern were made from interest free funds available with assessee and thus, proportionate interest cannot be disallowed as it had no nexus to other finance charges claimed by assessee - Held, yes [Paras 9.5 & 9.6] [In favour of assessee]
Circulars and Notifications : Board Circular No. 723 dated 19-9-1995.
FACTS-I
 
 During the assessment years 2007-08 and 2008-09, the assessee paid commission of Rs. 17.29 lakh and 32.73 lakh respectively to non-resident agents for rendering services in respect of procuring export orders from various countries.
 The Assessing Officer invoked the provisions of section 40(a)(i) and disallowed the commission expenses claimed by the assessee on grounds that the assessee had not remitted the amount after deducting the tax at source.
 In appeal, the assessee contended that the non-resident agents did not had any business connection in India thus, tax was not required to be deducted. The Commissioner (Appeals) in assessment year 2007-08 confirmed the disallowance whereas in Assessment year 2008-09 deleted the disallowance made by the Assessing Officer.
 On appeal before the Tribunal:
HELD-I
 
 There is no dispute with reference to the fact that the assessee paid commission at 5 per cent on FOB value of the shipment of the product to the foreign agents and is also not in dispute that the agent is not authorised to market the products to any third party and it does not have any business connection in India. Their services are also not utilised in India. Therefore, respectfully following the decision of the Delhi High Court in the case ofCIT v. EON Technology (P.) Ltd[2011] 203 Taxman 266/15 taxmann.com 391 and also the Coordinate bench decision in the case ofArmayesh Global v. ACIT (supra), the income of the non-resident cannot be considered as accrued or arisen or deemed to accrue or arise in India as the services of the said agents were rendered/utilized outside India and the commission was also payable/paid outside India. Further, in the absence of permanent establishment in India, the income of the said agents cannot be subjected to tax in India and hence the assessee was not liable to deduct tax on payments made to the said agents. Therefore, provisions of section 40(a)(i) have no application on the given facts. [Para 4.6]
 Discussion made by the Commissioner (Appeals) in the assessment year 2008-09 is correct both on facts and on law, the same is upheld and the revenue ground on this issue in assessment year 2008-09 is dismissed and assessee's grounds in assessment year 2007-08 are allowed. [Para 4.7]
FACTS-II
 
 The assessee claimed the ocean freight expenses paid to a non-resident shipping company aggregating to Rs. 58.82 lakh.
 The Assessing Officer invoked the provisions of section 40(a)(i) and disallowed the ocean freight expenses on ground that the tax was not deducted by the assessee.
 In appeal, the assessee contended that shipping income was taxable under section 172 which itself was a self-contained code and as per the Board Circular No. 723, provision of section 194(c) and 195 was not applicable as provision of section 172 applied on shipping income. The Commissioner (Appeals) rejected the contention of the assessee and confirmed the order of the Assessing Officer.
 On second appeal:
HELD-II
 
 The Assessing Officer without assigning any specific reasons disallowed Ocean Freight Expenses under section 40(a)(i). There is no dispute with reference to the fact that the Ocean freight was paid to foreign shipping companies. [Para 7]
 In view of Board Circular No. 723 dated 19-9-1995 the assessee company is not required to deduct tax at source from the ocean freight paid by it of Rs. 58,82,475 to Transmode Overseas Partners, Germany, because the said company is liable to tax under section 172. [Para 7.1]
 Since the Board circular is binding on the authorities and since the incomes are being taxed under section 172 separately, there is no need for deducting any tax under the provisions of the TDS and therefore, disallowance under section 40(a)(i) does not arise. [Para 7.5]
FACTS-III
 
 The assessee claimed legal and professional expenses of Rs. 6.35 lakh.
 The Assessing Officer found that the sum of Rs. 6 lakh was spent for development of ERO software systems which results into the creation of assets and remainder amount of Rs. 35,000 was spent for acquiring land which was not related to revenue expenditure. On the basis of above finding, the Assessing Officer disallowed the legal expenses of Rs. 6.35 lakh. However, the Assessing Officer allowed depreciation of Rs. 3.6 lakh at the rate of 60 per cent on Rs. 6 lakhs.
 On appeal, the Commissioner (Appeals) deleted the disallowance of Rs. 35,000 stating that the same pertains to revenue expenditure for rendering professional services and sustained the balance amount of Rs. 6 lakhs.
 In second appeal, the assessee submitted that out of Rs. 6 lakh amount of Rs. 2.5 lakh was paid for providing consultancy services for smooth working of Networking System which was recurring in nature and there was no acquisition of asset or advantage for enduring benefits. A fee of Rs. 3 lakh was paid to provide the consultancy in relation to FOXPRO and SAP related issue and an amount of Rs. 0.5 lakh was paid for consultancy services in respect of ERP facilities which was already in existence and thus, there was no creation of any asset.
HELD-III
 
 The nature of the expenditure and the submissions of the assessee had been considered. Even though the expenditure may be of enduring nature, the same cannot be considered as capital in nature always unless an asset was created. [Para 8.6]
 Since the same principle were also upheld by the Bombay High Court in the case of CIT v. Raychem RPG Ltd[2012] 346 ITR 138/21 taxmann.com 507 the orders of the Assessing Officer is modified and is directed to allow the expenditure as revenue in nature. Consequently, depreciation, if any, allowed by the Assessing Officer can be withdrawn. [Para 8.7]
FACTS-IV
 
 The assessee had paid interest and financial charges of Rs. 1.01 crore and claimed deduction for the same.
 The Assessing Officer noticed that the assessee had given interest free loan of Rs. 6.5 lakh to its associate concern in which it had on equity participation of Rs. 20.05 lakh and disallowed the proportionate interest of Rs. 3.18 lakh.
 On appeal, the Commissioner (Appeals) confirmed the order of the Assessing Officer.
 On second appeal, the assessee submitted that it had interest free funds in the form of capital and reserves and surplus aggregating to Rs. 16.09 crore and had earned profit after tax but before depreciation allowance of Rs. 12.56 crore thus, the interest free loan and investment in associate company was made out of its own funds and not out of the borrowed fund.
HELD-IV
 
 There is no dispute with reference to the availability of the interest free fund in the form of capital and reserves aggregating to Rs. 16.09 crore. In fact the income declared during the year itself was to the tune of Rs. 7.29 crore. Further, as seen from the schedule III of the secured loans, the assessee has a cash credits, bill discounting, loan for its working capital requirements to an extent of Rs. 5.65 crore and term loan for Mumbai Office premises at Panoli Plant and captive power plant at Ankleshwar to the tune of Rs. 1.16 crore, the details of which can be referred the notes forming part of the account for the year ended on 31-3-2007. The interest charges and the finance charges as seen from the record are mostly paid for these loans and working capital requirements including discounting of bills. Therefore, no part of the interest could be disallowed on the reason that the assessee had advanced interest free advances to its sister concern. It is also a fact that the assessee has invested money in a sister concern and if any disallowance is required the same has to be considered under section 14A which is the case not here as assessee has not earned an exempt income. Since assessee's available capital is more than the borrowed funds, presumption as decided by the jurisdictional High Court in the case of CIT v. Reliance Utilities & Power Ltd[2009] 313 ITR 340 (Bom.) equally apply. [Para 9.5]
 Respectfully following the Coordinate Bench in the case of Dy. CIT v. Mohit Diamonds (P.) Ltd. in [ITA No. 2097/M/11, dated 31-7-2012] both on facts and principles the amount of Rs. 3,18,600 cannot be disallowed as it has no nexus to the other finance charges claimed by assessee as business expenditure. [Para 9.6]
CASE REVIEW-I
 
CIT v. EON Technology (P.) Ltd[2011] 203 Taxman 266/15 taxmann.com 391 (Delhi) (para 4.6) and Armayesh Global v. Asstt. CIT [2012] 51 SOT 564/21 taxmann.com 130 (Mum.) (para 4.6) followed.
CASE REVIEW-IV
 
Dy. CIT v. Mohit Diamonds (P.) Ltd. [IT Appeal No. 2097/M/11, dated 31-7-2012] (para 9.6) and CIT v. Reliance Utilities & Power Ltd[2009] 313 ITR 340 (Bom.) (para 9.5) followed.
CASES REFERRED TO
 
BASF (India) Ltd. v. W. HasanCIT [2006] 280 ITR 136/151 Taxman 31 (Bom.) (para 4.4), Unit Trust of India v. P.K. Unny [2001] 249 ITR 612/116 Taxman 658 (Bom.) (par 4.4), Armayesh Global v. Asstt. CIT [2012] 51 SOT 564/21 taxmann.com 130 (Mum.) (Para 4.4), CIT v. EON Technology (P.) Ltd[2011] 203 Taxman 266/15 taxmann.com 391 (Delhi) (para 4.4), ITO v. Freight Systems India (P.) Ltd[2006] 6 SOT 473 (Delhi) (para 6), Subhash Chand Gupta v. ITO [IT. Appeal No. 898, 899 & 731 (JP) of 2010, dated 23-9-2011] (para 7.3), Hindustan M-1 Swaco Ltd. v. ITO [IT Appeal No. 1004 (Ahd.) of 2010, dated 7-9-2012] (para 7.3), Dy .CIT v. Mahindra Realty & Inf. Developers Ltd. [IT Appeal No. 1160 (Mum.) of 2010, dated 28-1-2011] (para 8.5), CIT v. Raychem RPG Ltd[2012] 346 ITR 138/21 taxmann.com 507 (Bom.) (para 8.5), Dy. CIT v. Mohit Diamonds (P.) Ltd. [IT. Appeal No. 2097 (Mum.) of 2011, dated 31-7-2012] (para 9.4), Sheetal Manufacturing Co. v. Jt. CIT [IT. Appeal No. 7107 (Mum.) of 2011, dated 28-9-2012] (para 9.4) and CIT v. Reliance Utilities & Power Ltd[2009] 313 ITR 340 (Bom.) (para 9.5).
B.V. Jhhaveri and Ms. Manju Sisodia for the Appellant. Deepak K. Sinha for the Respondent.
ORDER
 
Per Bench - These are appeals by assessee and Revenue in AY 2007-08 and 2008-09. The appeal in 2007-08 is by assessee against the orders of the CIT (A-22 Mumbai dated 25.10.2010, whereas the cross appeals for the AY 2008-09 are against the order of the CIT (A)-21 Mumbai dated 10.10.2011. Since the issues are common in all the appeals, these are considered together. Grounds raised by assessee in AY 2007-08 are as under:
ITA No.8868/Mum/2010 - AY 2007-08:
"(1) On the facts and circumstances of the case and in law, the Commissioner of Income Tax (A) erred in directing the Assessing Officer to carry out the rectification u/s.154 of the Act instead of deciding on merit in respect of additions of Rs. 14,24,448/- being Excise Duty on Opening Stock on the mistaken presumption that the said amount is claimed twice in the return, though the full facts in respect of the same were available before the CIT(A). The CIT(A) ought to have decided the matter on the merit.
(2) Without prejudice to above, AO has wrongly made addition of Rs. 14,24,448/- being excise duty on opening stock on the presumption that the same has been claimed twice.
(3) On the facts and circumstances of the case and in law, the Commissioner of Income Tax (A) erred in confirming addition on account of Commission payments of Rs. 17,29,389/- under section 40(a)(i) without considering the fact that the said payments are not covered u/s. 40(a)(i) of the Act and 1 or no tax was required to be deducted.
(4) On the facts and circumstances of the case and in law, the Commissioner of Income Tax (A) erred in confirming addition on account of Ocean Freight expenses of RS. 58,82,475/- under section 40(a)(i) without considering the fact that the said payments are not covered u/s. 40(a)(i) of the Act and 1 or no tax was required to be deducted.
(5) Without prejudice to above and on the facts and circumstances of the case and in law, the CIT(A) erred in relying on circular nO.7 of 2009, which has come in to effect only prospectively and hence question of disallowance u/s.40(a)(i) does not arise.
(6) On the facts and circumstances of the case and in law, the Commissioner of Income Tax(A) erred in confirming addition of Legal & Professional Expenses of Rs. 6,00,0001- though these expenses were of revenue nature and not of capital nature.
(7) On the facts and circumstances of the case and in law, the CIT(A) erred in directing the Assessing Officer to carry out the rectification u/s.1S4 of the Act instead of deciding on merit in respect of Repair & Maintenance (Computer Software Expenses) of Rs. 9,85,864/- though these expenses were not claimed in Profit and Loss Account and were in fact been capitalised and therefore there was no question of disallowing the said expenses. In fact, though the CIT(A) decided on the merit, it was wrongly directed to carry rectification u/s.154 of the Act instead of allowing the same.
(8) On the facts and circumstances of the case and in law, the CIT(A) erred in directing the Assessing Officer to carry out the rectification u/s.154 of the Act instead of deciding on merit in respect of Repair & Maintenance (Office Renovation Expenses) of Rs. 3,60,845/- though these expenses were not claimed in Profit & Loss Account and were in fact been capitalised and therefore there was no question of disallowing the said expenses. In fact, though the CIT(A) decided on the merit, it was wrongly directed to carry rectification u/s.154 of the Act instead of allowing the same.
(9) On the facts and circumstances of the case and in law, the Commissioner of Income Tax(A) erred in confirming addition on account of interest expenses of Rs. 3,18,6001-, without considering that:
(a) No borrowed funds were utilised for Investments/ Advances.
(b) Most of the amounts were given for strategic investment and not by way of loan.
(c) The Investments were made on various dates and not on the first day of the year for working out interest".
2. In the course of the appellate proceedings the Ground Nos.1,2,7 & 8 were not pressed as AO rectified the order under section 154.
3. The issue in Ground Nos. 3 & 5 is on the disallowance of an amount of Rs. 17,29,389 under section 40(a)(i) of the Act of commission paid to non resident agents. This ground is similar to Ground Nos. 1 & 2 raised by the Revenue in AY 2008-09 in ITA No.169/Mum/2012 as the CIT (A) therein has held against the Revenue on similar facts. Therefore, all the grounds are considered together for the sake of convenience.
4. Briefly stated, assessee paid an amount of Rs. 17,29,389 as commission payment to non-resident agents for the services provided in foreign country. As they do not have any business connection in India, assessee has not deducted any tax when the amounts were remitted. On the reason that assessee should have remitted the amount after deducting the tax, AO invoked provisions of section 40(a)(i) and disallowed the amount. The learned CIT (A) in AY 2007-08 rejected assessee's contentions and confirmed the disallowance. Therefore, assessee is in appeal.
4.1 In AY 2008-09 assessee paid an amount of Rs. 32,73,538 to non residents for services provided in foreign countries. For the same reasons, AO disallowed the above amount invoking the provisions of section 40(a)(i). The learned CIT (A) after elaborate discussion deleted the said addition. Therefore, the Revenue is aggrieved in that year.
4.2 Before us the learned Counsel submitted that during the AY 2007-08 assessee paid commission to five non resident agents for rendering services in respect of procuring export orders from various countries. Copies of commission agreements, copies of credit notes and payment advices are at pages 20 to 63 of the Paper Book. It was stated that the non residents agents were operating in their own respective countries and they procured the orders for assessee from the parties outside India and the commission was paid to them outside India directly in foreign currency. In India, neither these agents have any business connection nor do they have any place of business. Therefore, commission income earned by the non resident agents outside India has not deemed to accrue or arise in India and hence the said commission income of the non resident agents are not taxable in India.
4.3 It was further submitted that the assessee company appointed aforesaid agents for marketing and distribution of various grades of reclaim rubber in the respective countries for a commission of 5% of the FOB value of the shipment of the products to the clients. The terms & conditions of sales of the products by the principal including price, delivery schedule, packing, payment terms, product grades and specifications is to be mutually decided between the Principal, Agents and the Customers which is confirmed by a purchase order from the agent or from the customer. In other words, assessee reserves the right of execution of order and/or cancel the order procured by the agent. The agent is not authorized to market the products of third party which are competing with those of the assessee company.
4.4 Assessee relied on the Board Circular No.23 and 786 which was subsequently withdrawn by the Circular No.7 issued on 22.10.2009. The learned Counsel relied on the decision of the Hon'ble Bombay High Court in the case of BASF (India) Ltd. v. W. HasanCIT [2006] 280 ITR 136/151 Taxman 31 that the circular which are in force during the relevant AYs are to be applied. It was further relied on the Hon'ble Bombay High Court decision in the case of Unit Trust of India v. P.K. Unny [2001] 249 ITR 612/116 Taxman 658 to submit that the subsequent withdrawal of the circular will have no effect on the circular issued and applicable in the relevant AY. On merits the learned Counsel relied on the decision of the Coordinate Bench in the case of Armayesh Global v. Asstt. CIT [2012] 51 SOT 564/21 taxmann.com 130 (Mum.) to submit that the commission amounts paid does not arise or accrue in India as the services are rendered outside India. Therefore, provisions of section 195 does not apply and consequently cannot be disallowed under section 40(a)(i). He also relied on the judgment of the Hon'ble Delhi High Court in the case of CIT v. EON Technology (P.) Ltd.[2011] 203 Taxman 266/15 taxmann.com 391 to submit that the payment of commission paid by the Indian Exporters to non resident agents cannot be disallowed under section 40(a)(i).
4.5 The learned DR however, relied on the orders of the CIT (A) in AY 2007-08 to submit that having withdrawn the Board Circular and is applicable for the proceedings pending, AO has rightly disallowed the amount and so the amount has to be disallowed under section 40(a)(i) and the order of the CIT (A) in AY 2008-09 is not correct. Therefore, that has to be reversed and the order of the CIT (A) in AY 2007-08 should be confirmed.
4.6 We have considered the issue. There is no dispute with reference to the fact that assessee paid commission at 5% on FOB value of the shipment of the product to the foreign agents and is also not in dispute that the agent is not authorized to market the products to any third party and it does not have any business connection in India. Their services are also not utilized in India. Therefore, respectfully following the decision of the Hon'ble Delhi High Court in the case of EON Technology (supra) and also the Coordinate bench decision in the case of Armayesh Global (supra), the income of the non resident cannot be considered as accrued or arisen or deemed to accrue or arise in India as the services of the said agents were rendered/utilized outside India and the commission was also payable/paid outside India. Further, in the absence of permanent establishment in India, the income of the said agents cannot be subjected to tax in India and hence assessee was not liable to deduct tax on payments made to the said agents. Therefore, provisions of section 40(a)(ia) have no application on the given facts. This issue was very elaborately discussed by the CIT (A) in AY 2008-09 which we consider as worth extracting for completeness of the order. The order of the CIT (A) in Para 4.3 in AY 2008-09 is as under:
"4.3 I have considered the facts of the case. The appellant made payment of commission to three non-resident commissions agents aggregating to Rs. 32,73,538/- for procuring the orders for export of reclaimed rubber manufactured by the appellant. It was admitted fact that firstly the non- resident commission agents procured orders outside India, secondly rendered services outside India and thirdly the payment to such non- resident commission agents were made by appellant in foreign currency and outside India. It was also an admitted fact that the said non-resident commission agents had no permanent establishment in India. The A.O. disallowed such payment of commission holding that firstly no documentary evidence was furnished to substantiate as to how the above payments were not liable for TDS except the mere statement that services were not rendered in India, secondly there were various provisions under the Act in which even services were performed outside India but if services were utilized in India the payments were liable to Indian Taxation Laws and thirdly the sec.195 mandates that if any sum which is chargeable to tax in India, tax at source needs to be deducted. The A.O. also held that if the appellant was believing that such payment was not liable for TDS, the appellant should have approached the IT Authorities for a certificate for Nil deduction of tax. I have considered the A.O's observation for making the disallowance of commission payment ujs.40(a)(i) of the Act. I am not in agreement with the A.O's observation. It is not understood as to what more evidence should have been submitted by appellant to substantiate that the payments were not liable for TDS except claiming that the services were not rendered in India. The A.O. also incorrectly observed that the TDS provisions were applicable if services are rendered outside India but if services are utilized in India. In the case under consideration though the services were rendered outside India but the services were not utilized in India and, therefore, the A.O's observation was not relevant. The A.O's observation was also irrelevant that the appellant should have approached the IT authorities for obtaining the certificate of Nil deduction of tax. When the appellant was claiming that such payment of commission to non-resident agents was not liable for TDS therefore, there was no need for approaching the IT authorities for obtaining such certificate. In the assessment order the A.O. also considered CBDT's Circular No.23 of 1969 and 786 of 2000 and withdrawal of such Circulars by CBDT vide Circular No.7 of 2009. The A.O. held that payment of commission by appellant to the non-resident commission agents was attracting the provisions of sec.195 of the Act and hence the appellant should have deducted TDS thereon.
I have considered the facts of the case. The question under consideration is as to whether the payment of commission to the non- resident commission agents was covered by the provisions of sec.195 of the Act. As per provisions of sec.195, any person responsible for paying to a non-resident any interest or any other sum chargeable under the provisions of this Act deducted income-tax thereon at the rates enforced. The payment made by appellant was admittedly not on account of any interest payment. Consequently it has to be examined whether the commission paid by appellant is covered by the term "any other sum chargeable under the provision of this Act" as provided in sec.195 of the Act. It is worth to mention here that for the purpose of applicability of sec.195 any other sum must be chargeable under the provisions of the I. T. Act. Sec. 5 of the I.T. Act deals with the "scope of total income". As per sub-sec.(2) of sec.5, the total income of a person who is not resident includes all income from whatever sources derived which is received or deemed to be received in India in such year by or on behalf of such person or accrue or arise or is deemed to accrue or arise to him in India during such year. Sec.7 explains the income deemed to be received. Sec.9 further explained/ defined the income deemed to accrue or arise in India. As per sub-sec.(I) of sec.9, the income shall be deemed to accrue or arise in India in case of all income accruing or arising whether directly or indirectly, through or from any business connection in India, or through any property in India, or from any asset or sources of income in India, or through the transfer of capital asset situated in India. In the case of payment of commission by appellant to its non-resident commission agents, such commission income to such non-resident commission agents was not received in India or was not accruing or arising in India whether directly or indirectly. Such income was also not accruing or arising to non-resident through or from any business connection in India since these commission agents were rendering services outside India and the payments were also made outside India. In the facts and circumstances it could not be said that these commission agents were having any business connection in India particularly when these non-resident commission agents were having no permanent establishment in India. Income (in the form of commission paid by appellant) was also not arise or accrued to those non-resident through or from any asset or sources of income in India or through transfer of capital asset situated in India. In the facts and circumstances, I am of considered view that provisions of sub-sec.(I)(i) of sec.9 were not applicable in the case of payment of commission to those non-resident commission agents. The ITAT, Mumbai in the case of DIT v. Ardeshi B. Cursetjee & Sons Ltd. 115 ITJ 916 has held that commission paid to non-resident agents outside India for services rendered outside India were not chargeable to tax in India. In the facts and circumstances, in my considered opinion, commission paid by appellant to the non resident commission agent was not chargeable under the provisions of I. T. Act. Such payment of commission was not chargeable to tax as the conditions specified in sub-clause (i) of sec.9(1) were not attracted. Sub Clause (iii), (iv), (v), (vi) & (vii) of sec.9(1) were also not applicable in the case under consideration. The Explanation to sec.9(2) inserted by Finance Act, 2010 with retrospective effect (01.06.1996) was also not applicable since the said explanation was not applicable to sub clause (i) of sec.9(1) of the Act.
The next question for consideration is the effect of withdrawal of Circular No.23 of 1969 and 786 of
...

[Message clipped]  View entire message

No comments:

Post a Comment

updates from Economic Times

MUMBAI: The government is planning a separate legislation for registered valuers who can help arrive at better valuation of bankrupt compan...