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Case Law Details

Case Name : Commissioner of Income Tax-10 Vs Gujarat Reclaim & Rubber Products (Bombay High Court)
Appeal Number : Income Tax Appeal No. 2116 Of 2013 with 169 of 2014
Date of Judgement/Order : 08/12/2015
Related Assessment Year :
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Issue- (a) Whether on the facts and in the circumstance of the case and  in  law, the Tribunal  was justified in holding that commission payments made to non­resident sales agents on which no tax was deducted is not dis allowable u/s. 40(a)(i)?

Facts of the Case and Decision of Bombay High Court

(a) For the subject Assessment Year, the Respondent ­Assessee  had  during two Assessment Years made payment of commission to non­ resident agent in respect of sales made out side India. The Assessing Officer in both the Assessment Years passed an order disallowing the payments made to non­resident agent under Section 40(a) (i) of the Act for failure to deduct tax at source. The basis of both the Assessment Order  disallowing the expenditure is in view  of the   fact that the Circular No. 23 of 1969 and 786 of 2000 issued by the CBDT which had clarified that commission paid to non­resident  agent for sale does not give it rise to income had been withdrawn by Circular No. 7 dated 22nd  October, 2009;

(b) In appeal, so far as Assessment Year 2007­- 08 was concerned, the CIT(A) upheld  the order of the Assessing Officer on the same ground i.e. withdrawal of the earlier Circular Nos. 23/1969 and 786/2000 by Circular No. 7 of 2009. So far as Assessment Year  2008­- 09 is concerned, the CIT(A) by order dated 10th October, 2009 allowed Respondent ­Assessee’s appeal. The CIT(A) while allowing Respondent ­Assessee’s Appeal  for the Assessment Year 2008­- 09, inter alia held that the commission agent did not have any business connection in India as they had no permanent establishment in India and in fact neither  any income arose or accrued to non­resident agent in India. The CIT(A), inter alia relied upon the decision of the Tribunal In DeIT v/s. Ardeshi B. Cursetjee & Sons Ltd. 115 TTJ 916 which held that the commission paid to non­resident agent outside India for the services rendered were not chargeable to tax in India. In these circumstances, the CIT(A) held that there was no occasion to deduct tax at source in respect of the payment made to the non­resident agent;

(c)  Moreover, the order of CIT(A) also holds that the Circular No. 7 of 2009 withdrawing the earlier Circulars will not have retrospective effect so as to render Circular No. 23 of 1965 and 786 of 2000   inoperative for the Assessment Years;

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