ACIT Vs Alnoor Exports (ITAT Delhi)
ITAT Delhi held that commission paid to foreign agents for procurement of orders do not fall under Technical, Managerial or consultancy services. Accordingly, TDS not deductible on commission paid to such foreign agents.
Facts- The Assessing Officer while completing the assessment noticed that the assessee debited commission expenses of Rs.80,32,863/- in P & L account of export sales. AO disallowed commission expenses to foreign agents for non-deduction of TDS u/s. 195 of the Act. CIT(A) deleted the disallowance.
Conclusion- Held that the assessee was not liable to deduct TDS at source on commission paid to agents located outside India for procuring orders from buyers were all located outside India and not having permanent establishment in India. The provisions of section 195 of the Act were not applicable on the commission paid by the assessee as the same was not taxable in India as per the provisions of section 9(1) of the Act.
Hon’ble Delhi High Court in the case of DIT (International Taxation) Vs. Panalfa Autoelektrik Ltd. has held that the commission paid to foreign agents for procurement of orders do not fall under Technical, Managerial or consultancy services so as to attract the provisions of section 9(1)(vii) of the Act read with section 195 of the Act.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. This appeal is filed by the Revenue against the order of the ld. Commissioner of Income Tax (Appeals)-11, New Delhi [hereinafter referred to CIT (Appeals)] dated 22.04.2015 for assessment year 2011-12.
2. The Revenue has raised the following grounds:-
“1. On the facts and in the circumstances of the case the Ld. CIT (Appeals) has erred in deleting the addition of Rs.80,32,863/- made on account of commission expenses in view of provisions of Section 195 of the Income Tax Act and CBDT’s circular No.7/2009 withdrawing the immunity available for such foreign remittances without TDS.
2. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting the addition of Rs.13.94.5474, out of Rs.14,90,5474, made by AO on account of export promotion expenses since the assessee was under legal obligation to follow the provisions of TDS prescribed under Income Tax Act, 1961 before the credit or remittance of export promotion expenses
3. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting the addition of Rs13,91,753/-made by Assessing Officer on account of interest expenses since the assessee was under legal obligation to follow the provisions of TDS prescribed under Income Tax Act 1961 before the credit or remittance of export promotion expenses
4. On the facts and in the circumstances of the case the Ld. CIT (A) has erred in deleting the addition of Rs.72 lacs made by Assessing Officer on account of preservation charges as it was clear from comparative chart given by the assessee that quantity of production has gone down from 1.72 lacs kg. in the year relevant to A.Y. 2010-11 to 1.68 lacs kg. in A.Y.2011-12 and the assessee was failed to established that there was any additional requirement of space for preservation of goods during the year. Further, the marginal increase in sales/turnover in sales/turnover from Rs.213.14 crore in A.Y. 2010-11 to Rs.217.34 crore in A.Y. 2011-12 was only due to marginal increase in the rate of realization/selling price.”
3. Ground No. 1 of grounds of appeal of the Revenue is in respect of deletion of disallowance of commission paid to foreign agents for non-deduction of TDS under section 195 of the Income Tax Act, 1961 (the Act).
4. Briefly stated the facts are that the Assessing Officer while completing the assessment noticed that the assessee debited commission expenses of Rs.80,32,863/- in P & L account of export sales. The assessee was required to furnish copies of agreements, details and evidences of services provided by the foreign agents and evidence of TDS made u/s 195 of the Act. Assessee furnished the details. The assessee submitted that it had paid commission on export sales, provided bill details of commission paid to the parties. The assessee explained that overseas commission agents took the orders to delegates and the amount of commission is duly mentioned on the shipping bills itself as per the guide-lines of the Reserve Bank of India (RBI). It was explained that after the order is executed and the payment is realized the commission was paid to foreign agents in due course. All the payments are through banking channels. It was explained that the remittance was made outside India for the services rendered outside India. Not convinced with the submissions the Assessing Officer disallowed commission expenses to foreign agents for non-deduction of TDS under section 195 of the Act. On appeal the ld. CIT (Appeals) deleted the disallowance.
5. The ld. DR strongly placed reliance on the order of the Assessing Officer.
6. The ld. Counsel for the assessee relied on the order of the ld. CIT (Appeals). He also placed reliance on the decision of the Delhi Bench of the Tribunal in the case of Welspring Universal Vs. JCIT reported in [(2015) 153 ITD 496] wherein it has been held that commission paid by the assessee to non-resident agents for procuring export orders was not chargeable to tax in the hands of the assessee. Assessee was not liable to deduct tax at source. The ld. Counsel also placed reliance on the decision of the Hon’ble Delhi High Court in the case of DIT (International Taxation) Vs. Panalfa Autoelektrik Ltd. [(2014) 49 com 412 (Del.)] wherein the Hon’ble Delhi High Court held that commission paid by the assessee to its foreign agents for arranging of export sales and recovery of payments could not be regarded as fees for technical services under section 9(1)(vii) of the Act. Reliance was also placed on the decision of the Hon’ble Delhi High Court in the case of CIT Vs. Grup ISM P. Ltd. [(2015) 378 ITR 205 (Del)] wherein the Hon’ble Delhi High Court held that where overseas enterprise acts as a liaison agent for an assessee and receives remuneration from each client successfully solicited for assessee such services cannot be said to be included within the meaning of consultancy services and would not come within the purview of the technical services under section 9 of the Act.
7. Heard rival submissions perused the orders of the authorities below. The ld. CIT (Appeals) deleted the disallowance of commission paid to foreign agents holding that the assessee was not liable to deduct TDS at source on commission paid to agents located outside India for procuring orders from buyers were all located outside India and not having permanent establishment in India. The provisions of section 195 of the Act were not applicable on the commission paid by the assessee as the same was not taxable in India as per the provisions of section 9(1) of the Act and, therefore, deleted the disallowance which was disallowed applying the provisions of section 40 of the Act for non-deduction of TDS while deleting the disallowance. The ld. CIT (Appeals) held as under:-
“4.1.3 I have considered the facts of the case, written submissions of the appellant and the findings of the Assessing Officer. The Assessing Officer made the impugned addition basis that the Commission Paid to Overseas Agents was covered u/s 195 and disallowed the expenditure u/s 40(a)(i) of the IT Act 1961. The appellant during the assessment proceedings filed a detailed reply that the payment of Commission to Overseas Agents are not covered u/s 195. The appellant also filed the documentary evidence in the form of Export Bills & Bill of Lading showing the commission to be paid, applications to bank for the payment mentioning the details of the party to which the payments were made and bank statements showing the actual amount paid. The assessing officer did not accept the contention of the appellant and made the addition.
4.1.4. Considering the above facts, the win minions and documentary evidence filed, I am of the view that the genuineness of the expenditure is fully substantiated. Also in view of the finding of the able Madras High Court in the ce of “The Commissioner of Income Tex Chennai vs. Faisan Shoes Pvt. Lad (MAD) TC. (A) No. 789 of 2013, the any of the fall judgment has been filed by the appellant during the proceedings, I am of the view that the payments of Commission to overseas agents is not covered u/s 9 of the Act and guilty Section 195 of the Act does not come into play as it is not a Fee the Technical Service. “The decision of the Supreme Court in Transmission Corporation of AP. Lad me referred by the assessing officer is not applicable so the facts of the present case. Accordingly, addition of Rs.80,32,863/- made by the Assessing Officer is deleted.”
8. We observe that the issue as to whether commission paid to foreign agents for procurement of orders is liable for TDS under section 195 read with section 9(1)(vii) of the Act is now settled by the decision of the Hon’ble Delhi High Court in the case of DIT (International Taxation) Vs. Panalfa Autoelektrik Ltd. [(2014) 49 com 412 (Del.)] wherein it has been held that the commission paid to foreign agents for procurement of orders do not fall under Technical, Managerial or consultancy services so as to attract the provisions of section 9(1)(vii) of the Act read with section 195 of the Act. Following the decision of the Hon’ble Delhi High Court in the case of DIT (International Taxation) Vs. Panalfa Autoelektrik Ltd. (supra) the co-ordinate bench of Delhi Tribunal had taken a similar view in the case of ACIT Vs. Kapoor Industries Ltd. [187 ITD 603]. Therefore, on careful perusal of the order of the ld. CIT (Appeals) we do not find any good reason to interfere with the findings of the ld. CIT (Appeals). The order of the ld. CIT (Appeals) on this issue is sustained. Ground No. 1 of grounds of appeal is rejected.
9. Ground No. 2 of grounds of appeal of the Revenue is in respect of deleting the disallowance of Rs.13,94,547/- out of Rs.14,90,547/- on account of export promotion expenses. disallowance of export promotion expenses for non-deduction of TDS. The Assessing Officer while completing the assessment noticed that the assessee claimed export promotion expenses of Rs.44,00,261/- as deduction. Out of Rs.44,00,261/- an amount of Rs.14,90,547/- pertained to participation charges in fair/ exhibitions. The assessee was required to furnish details of expenses with evidence for deduction of tax at source. The assessee furnished all the details and explained that the expenditure on foreign travel by the partners and staff, also expenditure incurred on export charges on their visit to India. Expenses also include various trade fairs/exhibitions of which assessee firm display its products for marketing. It was explained that all the expenses were incurred for the business of the assessee. However, since the assessee has not deducted TDS on export promotion expenses of Rs.14,90,547/- the Assessing Officer disallowed the same. On appeal the ld. CIT (Appeals) deleted the disallowance to the extent of Rs.13,94,547/- out of Rs.14,90,547/-.
10. The ld. DR strongly placed reliance on the order of the Assessing Officer whereas the ld. Counsel placed reliance on the order of the ld. CIT (Appeals).
11. Heard rival submissions perused the orders of the authorities below. The ld. CIT (Appeals) deleted the disallowance observing as under:-
“4.2 Ground No. 2 relates to addition of Rs. 14,90,547/- made by the assessing officer u/s 195/40(a)(i) on payments made to organizations located outside India as participation charges for trade fairs/exhibitions held outside India and not having any permanent establishment in India. As already discussed in Ground No.1, payments to organizations located outside India and not having permanent establishment in India are not covered u/s 9 of the Act and consequently Section 195 of the Act does not come into play as it is not a “Fee for Technical Service”. In respect to payment to one party namely M/s Comnet Exhibitions Pvt. Ltd. as agents of the organizers in Dubai, 20% of the amount paid may be treated as Income liable to be taxed in India as per Circular No. 3/2015 dated 12-02-2015 issued by the Central Board of Direct Taxes. The balance payment to persons located outside India is thus allowed. The appellant thus gets the relief as under:-
