DCIT Vs Shamrock Pharmachemi Pvt.Ltd. (ITAT Mumbai)
We find that assessee is engaged in the business of trading activity of import and export of pharmaceutical ingredients, chemicals and intermediates. We find that the assessee debited a sum of Rs. 4,18,50,792/- in its profit and loss account towards export commission paid to overseas agents, who arrange for exports and procure export orders for the assesse. The assessee pleaded that these overseas agents are not having any permanent establishment (PE) in India and are residents of the respective foreign countries. The Ld. AO did not heed to this contention of the assessee and proceeded to invoke the provisions of Sec. 40(a)(i) r.w.s 195 of the Act stating that the said payment required to be subjected to deduction of tax at source, in the absence of which, the said expenditure would be liable for disallowance u/s 40(a)(i) of the Act. The Ld. CIT(A) appreciated the contentions of the assessee, that in the instant case, the commission was paid to non-residents situated abroad, who do not have any PE in India and they are covered by Double Taxation Avoidance Agreement (DTAA) entered by the respective countries with India. The Ld.CIT(A) also held that the payment of commission made to non-resident agents is not chargeable to tax in India in terms of section 195 of the Act and hence, there is no requirement to deduct tax at source as no part of income arises in India in the hands of the said non-resident agent. The Ld.CIT(A) also placed reliance on the CBDT circular No. 786, dated 07/02/2000 and on various decisions in support of his contentions.
The Ld. CIT(A) categorically held that since the sum is not chargeable to tax in India u/s 195(1) of the Act in the hands of the non-resident agents. Hence there is no liability to deduct tax at source in the hands of the assesee payer. The Ld.CIT(A) also held that once the sum paid is not chargeable to tax under the provisions of the Act, there cannot be any liability to deduct tax at source and consequentially, there is no requirement for the assessee to make an application u/s 195(2) of the Act seeking either for lower deduction certificate or nil deduction certificate from the ld. AO. The Ld. CIT(A) also placed reliance on the decision of Hon’ble Supreme Court in the case of GE India Technology Center Pvt.Ltd. vs CIT reported in 327 ITR 456(SC) in support of his contentions.
It is not in dispute that the non-resident agents to whom commission was paid by the assessee have rendered services outside India for sale of the goods of the assessee outside India. It is not in dispute that the said non-resident agents do not have any PE in India and that they are domiciled in U.K and USA. In view of these facts, it could be safely concluded that there is no income chargeable to tax in India in terms of section 195(1) of the Act in the hands of the non-resident agents and accordingly, the provisions of section 195(2) of the Act would not come into operation at all.
FULL TEXT OF THE ITAT JUDGEMENT
These two appeals filed by revenue in ITA Nos. 862 & 863/Mum/2018 for Assessment Years (AY) 2013-14 & 2014-15 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-14, Mumbai in appeals No.CIT(A)-14/IT-170/15-16 & CIT(A)-14/IT-119/16-17, dated 27/11/2017 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 31/08/2016 by the ld. Deputy Commissioner of Income Tax-8(2)(1), Mumbai (hereinafter referred to as ld. AO).
2. Since, the identical issues are involved in both these appeals, they are taken up together and disposed-off by this common order for the sake of convenience. With the consent of both the parties, the appeal for the AY 2013-14 is taken as the lead case and the decision rendered thereon would apply with equal force for AY 201415 also, except with variance in figures.
3. The first identical issue to be decided in this appeal is as to whether the Ld.CIT(A) was justified in deleting the disallowance made u/s 40(a)(i) of the Act in the sum of Rs. 4,18,50,792/- u/s 195 of the Act in the facts and circumstances of the case.
4. We have heard the rival submissions and perused the materials available on record. We find that assessee is engaged in the business of trading activity of import and export of pharmaceutical ingredients, chemicals and intermediates. We find that the assessee debited a sum of Rs. 4,18,50,792/- in its profit and loss account towards export commission paid to overseas agents, who arrange for exports and procure export orders for the assesse. The assessee pleaded that these overseas agents are not having any permanent establishment (PE) in India and are residents of the respective foreign countries. The Ld. AO did not heed to this contention of the assessee and proceeded to invoke the provisions of Sec. 40(a)(i) r.w.s 195 of the Act stating that the said payment required to be subjected to deduction of tax at source, in the absence of which, the said expenditure would be liable for disallowance u/s 40(a)(i) of the Act. The Ld. CIT(A) appreciated the contentions of the assessee, that in the instant case, the commission was paid to non-residents situated abroad, who do not have any PE in India and they are covered by Double Taxation Avoidance Agreement (DTAA) entered by the respective countries with India. The Ld.CIT(A) also held that the payment of commission made to non-resident agents is not chargeable to tax in India in terms of section 195 of the Act and hence, there is no requirement to deduct tax at source as no part of income arises in India in the hands of the said non-resident agent. The Ld.CIT(A) also placed reliance on the CBDT circular No. 786, dated 07/02/2000 and on various decisions in support of his contentions.
5. We find that the details of parties to whom commission has been paid to non-resident agents are as under:-
