IN THE ITAT DELHI BENCH ‘A’
Deputy Commissioner of Income-tax
versus
Angelique International Ltd.
IT APPEAL NO. 4167 (DELHI) OF 2012
ASSESSMENT YEAR 2009-10
Date of pronouncement – 26.10.2012
ORDER
A.D. Jain, Judicial Member – This is an appeal filed by the department for Assessment Year 2009-10 against the order dated 10.05.2012 passed by the CIT (A)-IV, New Delhi, taking the following grounds of appeal:-
“1. The ld. CIT (A) has erred in facts and in law in deleting addition of Rs. 37,87,26,158/- u/s 40(a)(ia) on account of non-deduction of TDS on payment of Export Commission.
2. The Ld. CIT (A) has erred on facts and in law in deleting addition of Rs. 1,23,57,341/-.”
2. Apropos ground No.1, the Assessing Officer made an addition of Rs. 37,87,26,158, u/s 40(a)(ia) of the IT Act on account of non-deduction of tax at source. While doing so, it was observed that a perusal of the assessee’s Profit & Loss Account showed that the assessee had debited the amount of Rs. 37,87,26,158/- on account of commission/discount on sales paid. On a query as to why the export commission be not disallowed for non-deduction and non-deposit of the TDS, the assessee submitted before the Assessing Officer, the requisite details, from which, it was seen that the assessee had the aforesaid amount on commission of export, on which, the assessee had neither deducted, nor deposited TDS; that the assessee company had stated before the Assessing Officer that it was dealing in export of projects and commodities and was also into construction activities; that it stated that in the course of its export business activities, it was required to appoint agents and pay commission to its foreign agents for their services; that it was stated that these agents provided invaluable services to the assessee company in the foreign country; that it was stated that the agents provided services in the form of obtaining orders, clearance of goods, support in scheduling of timely inspection of goods and issuance of clearance, follow up and arranging payments and other miscellaneous services relating to contractual obligations during the execution of the contract; that it was stated that the Reserve Bank of India permitted payment of commission in all export dealings; that it was stated that the assessee had paid commission to its agents well within the limits prescribed by the Reserve Bank of India and all such remittances were made through permitted banking channels; that it was stated that the agents were providing services out of India and none of them had any office or place of profit or any other business connection in India that it was stated that the agents operated out of India and provided their services outside India, due to which no part of the income of the foreign agents arose in India and, consequently, no tax was to be deducted from the commission payments being made to the foreign agents of the assessee company; and that the assessee placed reliance on clause No. 4 of CBDT Circular No. 23 dated 23.071969, which deals with payment of foreign agents of Indian exporters. The Assessing Officer observed that Section 9(1)(vii) of the IT Act classifies and covers all incomes accruing and arising in India, which partake the character of payment on account of fee for technical services, which includes any payment for rendering of any managerial or consultancy services rendered by the non-resident agent; that in the assessee’s case, since the assessee had to sell its goods offshore, he had to engage the acumen and expertise of the outsiders/non-residents, the consideration for which was termed as ‘commission’; that the payment thus made by the assessee was nothing, but a fee paid by the assessee to the outsiders/non-residents for the services rendered and it amounted to fee for technical services; that normally, the exporter appoints the agents as his selling agent and designer and technical advisor for his products; that the agent undertakes to keep the exporter fully informed about the trade activities in the area of his operation; that he also keeps the exporter informed about new design and development of new products; that the agent visits the exporter and vice versa to discuss in detail, everything connected with the agreement, i.e., production, marketing, sales promotion, customers – old and new, products and prices, etc.; that the agent should be satisfied about the capability of the exporter to fulfill the supply of goods and maintain the desired quality; that the exporter, on the other hand, should be satisfied that the agent is capable of delivering the services to the satisfaction of the exporter; that the exporter, thus, utilizes the information, data and know how, as gathered by the agent, to further his business activities; that it was, thus, presumed that there is an element of consultancy, technical and managerial services, for which the commission in question was paid for services rendered regarding the nature of products and inspection, timing and prices of products and detailed technical and other formalities; that thus, the provisions of Section 9 of the Act would come into play as soon as any export commission was paid or became due; that as per Section 195(1) of the Act, TDS is to be deducted on any interest or any some chargeable under the Act, which is payable to the non-resident; that according to Section 195(2) of the Act; when the payer considers that the whole of such sum would not be income chargeable in the case of the recipient, then, the issue is to be decided by the Assessing Officer on an application by the assessee/payer; that a similar application of making the obligation on the payee is cast pay Section 195(3) of the Act, for non-deduction of TDS, or lesser deduction of TDS; that as such, there is no provision in the Act for making the payment to non-residents without deduction of TDS, in the absence of any decision/no objection certificate from the assessing authority u/s 195(2) of the Act; that hence, the commission paid by the assessee company to the non-resident was income due to accrue or arise in India within the meaning of Section 9 of the Act; that the assessee was liable to deduct TDS on expenditure of export commission paid by it to the non-resident; that CBDT Circular No. 7 dated 22.10.2009 was clarificatory in nature and would operate retrospectively, being applicable for Assessment Year 2008-09; that further, the assessee had not furnished any explanation regarding the increase in turnover due to the payment of the commission in question; that the assessee had failed to produce any agreement entered into with the non-resident agents, to whom, the commission had been paid; and that for Assessment Year 2008-09, the decision of the CIT (A) in favour of the assessee had not been accepted by the department and the matter had been carried out in appeal before the ITAT.
3. The Ld. CIT (A), following the first appellate order for Assessment Year 2008-09 in favour of the assessee, deleted the addition of Rs. 37,87,26,158/- made by the Assessing Officer.
4. The Ld. DR, challenging the aforesaid order of the Ld. CIT (A), has contended that the Ld. CIT (A) is erred in deleting the addition correctly made by the Assessing Officer on account of non-deduction of TDS by the assessee company on payment of export commission. It has been contended that while doing so, the Ld. CIT (A) has failed to consider the finding recorded by the Assessing Officer that the commission paid by the assessee was income due to accrue or arise, in India, as defined in Section 9 of the IT Act; that the Ld. CIT (A) has wrongly ignored the liability of the assessee to deduct tax on the payment of export commission; that the Ld. CIT (A) has further failed to appreciate that the assessee remained unable to produce any agreement with the payees of the commission and that the assessee had not been able to furnish any explanation regarding the increase in its turnover due to the payment of commission.
5. The ld. counsel of the assessee, on the other hand, has placed strong reliance on the impugned order in this regard. It has been contended that the payments in question were made to export agents operating in their own countries, due to which fact no income arose in India; that the commission was remitted directly to the agents; that the foreign agents of the assessee company did not have any permanent establishment in India and they rendered the services to the assessee outside India, in respect of projects carried out by the assessee company outside India; that as such, the export commission paid by the assessee can, in no manner, be treated as income deemed to accrue or arise in India within the meaning of Section 9(1)(vii)(b) of the Act; that further, the payments in question represented export commission paid to the assessee’s foreign agents for procuring export orders and they cannot be termed as fees for technical services; that the Ld. CIT (A) has correctly taken into consideration all these facts while correctly deciding the matter in favour of the assessee, as was done by the Ld. CIT (A) for Assessment Year 2008-09. The ld. counsel for the assessee has placed reliance on the following case laws:-
(i) CIT v. EON Technology (P.) Ltd. [2012] 343 ITR 366/[2011] 203 Taxman 266/15 taxmann.com 391 (Delhi) (copy is placed on record)
(ii) Dy. CIT v. Divi’s Laboratories Ltd. [2011] 131 ITD 271/12 taxmann.com 103 (Hyd.) (copy is placed on record)
6. We have heard the parties on this issue and have perused the material on record with regard thereto. The Ld. CIT (A), while deciding this matter in favour of the assessee, has followed the first appellate order for Assessment Year 2008-09, wherein, it was held as follows:-
“7. I have gone through the order of the Ld. AO and the submissions made by the Ld. AR of the assessee. There is no dispute that commission has been paid to agents outside India for sales outside the country. There is also no material on record which would suggest that the foreign agents had Permanent Establishment in India. It is also not in dispute that the assessee has not deducted tax at source. The Ld. AO felt that under the provisions of Section 9(1) (vii), the assessee should have deducted tax and in the absence of the same, he proceeded to make an addition u/s 40(a)(ia). The assessee has disputed this.
8. At this juncture, it may be gainful for me to go through the relevant provisions of Section 195 and 9(1)(vii) and the relevant provisions of Section 195(1) states under:
Section 9(1) states as follows:
“The following incomes shall be deemed to accrue or arise in India :-
