Bengal Tea & Fabrics Ltd. Vs Dy. CIT (ITAT Kolkata)
ITAT held that when no business operations of commission agent were carried on in India, commission earned by them would be outside the ambit of income ‘deemed to accrue or arise in India’ for the purpose of section 5(2)(b) read with section 9(1)(i) of Income tax act, 1961, therefore, question of deducting tax under section 195 did not arise and disallowance in question was not justified.
FULL TEXT OF THE ITAT JUDGMENT
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-6, Kolkata dated 20.05.2016. Assessment was framed by DCIT, Circle-4, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 22.10.2014 for assessment year 2012-13 and assessee has raised following grounds:-
“1. For that in view of the facts and circumstances of the case the Ld. CIT is wholly wrong and unjustified in confirming the arbitrary disallowance of Rs. 15,42,693/- made in the assessment u/s. 40(a)(ia) of the I. Tax Act on a/c of the payment of export commission made by the assessee company to two non-resident agents for services rendered outside India, in relation to export of cotton yarn, without deduction of tax at source u/s. 195 of the Act.
2. For that in view of the facts and circumstances of the case the Ld. CIT is wholly wrong and unjustified in confirming the said disallowance of commission payment without considering the facts and the explanation of the assessee company that (i) the non-resident agents had procured the export orders for the assessee outside India and rendered the requisite services also outside India to earn the said commission and (ii) those agents had no business place / establishment / connection in India and (iii) the commission payable / paid to them cannot be deemed to have accrued and arisen in India through or from any business connection in India.
3. For that in view of the facts and circumstances of the case the Ld. CIT is wholly wrong and unjustified in confirming the said disallowance of commission payment on a wrong impression based on mere assumption and presumption that the export orders procured by the non-resident agents were executed by the assessee company in India and as such the Commission amount payable by the assessee to the non-resident agents shall be deemed to have accrued and arisen to them only in India.
4. For that your petitioner craves the right to put additional grounds and / or to alter / amend / modify the present grounds before or at the time of hearing.”
Shri S. Jhajharia, Ld. Authorized Representative appeared on behalf of assessee and Shri Arindam Bhatttacherjee, Ld. Departmental Representative appeared on behalf of Revenue.
2. The interconnected issue raised by the assessee is that Ld. CIT(A) erred in confirming the order of Assessing Officer by sustaining the disallowance of ₹15,42,693/- on account of non-deduction of Tax Deducted at Source (TDS) u/s 195 r.w.s 40(a)(ia) of the Act.
3. Briefly, stated facts are that assessee in the present case is a limited company and engaged in manufacturing tea, cloth and yarn. The assessee during the year inter alia has paid Commission to the parties based on Hong Kong as detailed under:-
