N. Madhavan for the Appellant. K. Balasubramanian for the Respondent.

ORDER

A. Mohan Alankamony, Accountant Member - This appeal is filed by the Revenue, aggrieved by the order of the Learned Commissioner of Income Tax (Central)-V, Chennai dated 19.08.2013 in ITA.No.47/13-14(A)-V passed under section 143(3) read with section 250 of the Act.

2. The Revenue has raised three grounds in its appeal; however the crux of the issue is that the Ld.CIT (A) erred in deleting the disallowance of commission by Ld. AO for Rs. 37,90,073/-, which was paid by the assessee to non-resident agents outside India for the services rendered by them outside India.

3. The brief facts of the case are that the assessee is a firm, filed its return of income on 12.10.2010 admitting total income of Rs. 14,56,840/-. Subsequently the case was taken for scrutiny and assessment U/s.143(3) of the Act was completed on 05.11.2012 wherein Ld. Assessing Officer disallowed an amount of Rs. 37,96,073/- invoking section 40(a)(i) of the Act for non-deduction of tax for the commission paid to foreign agents. The assessee's arguments were that:—

4. However, the Ld. A.O invoked the provisions of Sec.40(a)(i) because of the following reasons:—

5. Before the Ld.CIT (A), Ld. A.R had made the following submissions:—

6. Ld. Ld. CIT (A) after examining the issue allowed the appeal of the assessee by observing as under:—

"8. On anyalyzing the ground of appeal as well as the assessment order as well as case laws cited by the AR of the appellant in support of the appellant's case, the only issue pertains to the disallowance of commission payments made to foreign agents claimed by the Rs.37,96,073/-. The AO has not doubted the genuineness of the payments made to the Commission agents located in Foreign Countries based on the confirmation letter as well as letter received from the foreign agents who had no PE or place of business in India. The Foreign Agents had done the services in their Countries such as France and Germany and received commission payments for the services rendered by them in their countries forgetting orders to the appellant. The operation of the Sec.195 of the IT Act comes into force for deducting TDS on foreign payments paid by the resident assessee to non-resident agents only when the payment made to the non-residents if their income chargeable under Indian Income Tax Law. In the instant case, the TDS liability does not arise on such commission payments which are an offshoot from its chargeability to income tax U/s. 5(2) of the IT Act. Various courts decisions have held that in such type of situations, the provisions of deducting tax will not arise as the Overseas commission income of a foreign agent is not taxable in India in the absence of 'business connection'. A commission payment working outside India for obtaining export orders does not carry out any business operation in India and therefore no income is stated to accrue or arise in India. The CBDT Circulars clarifying this provision have been withdrawn but it has not changed the fundamental principles. If the commission agents acting as a selling agent outside India who is not chargeable to tax in India and the receipt in India of the sale proceeds remitted by the purchasers from abroad did not amount to an operation carried out by the non-resident commission agent in India has contemplated by clause (a) of the Explanation to 9(1) of the Act. The Apex Court in the case of CIT v. Toshoku Ltd [1980] 125 ITR 525 has categorically held that the commission amounts which were earned by the non-resident for services rendered outside India could not be deemed to be income which had either accrued or arisen in India. Similarly various case laws such as Wheels India Ltd Jurisdictional ITAT had held that the TDS provisions do not apply to commission payments made to overseas agents. A similar view was held in by Hon'ble Allahabad High Court in the case Schreiner Airway BV 1990 that commission earned by foreign agents was not taxable in India even in cases where the nonresident was a regular agent. In the case of Indopel Garments (P.) Ltd. v. Dy. CIT [2003] 86 ITD 102 (Mad.) wherein it was held that commission payable to a non-resident for services rendered outside India shall not be liable to taxable in India.

Considering the various judicial precedents has mentioned above, the AO is not justified in disallowing the commission payments made abroad on the ground that no TDS was deducted and therefore keeping in view of the various case laws mentioned supra and respectfully following them, the AO is directed to delete the addition made at Rs.37,96,073/-"

7. Before us, Ld. D.R. argued in support of the order of Ld.A.O and Ld. A.R relied on the order of the Ld.CIT (A). Further the Ld. A.R relied on the decisions of the case Asstt. CIT v. Farida Shoes (P.) Ltd. [2013] 143 ITD 400/34 taxmann.com 268 (Chennai), Prakash Impex v. Asstt. CIT [IT Appeal No. 8(Mds.) of 2012, vide order dt.30.03.2012] & CIT v. Model Exims [2013] 358 ITR 72/219 Taxman 289/38 taxmann.com 319 (All.).

8. We have heard both the parties and carefully perused the materials available on record. From the facts of the case, it is evident that the assessee had made payments to commission agents located in foreign countries. These foreign agents have rendered services in their respective countries and had received the commission. It is also evident that the foreign agents did not have any PE in India and there was nothing brought on record to show that the agreements between the assessee & the commission agents were entered in India. In these circumstance the decision rendered in the case of Toshoku Ltd. (supra) is squarely applicable considering the facts of the case before us. In this case, the Hon'ble Apex Court held that the commission agents, who are engaged in the services executed outside India, cannot be considered to carry on any business operations in India and therefore, provisions of section 9(1)(i) of the Act and Explanation-1A will not be applicable. Similarly, the Hon'ble Apex Court, in the case of GE India Technology Cen. (P.) Ltd (supra) has held that the expression "chargeable under the provisions of the Act in Sec.195(1)" shows that the remittance has to be of trading receipt, the whole or part of which, is liable to tax in India. If tax is not so assessable, there is no question of tax at source being deducted. Considering the facts and circumstances of the case and the decisions rendered by the Hon'ble Apex Court, we are of the considered view that the Ld. Ld. CIT (A) had decided the issue in accordance with law. Therefore, we hereby confirmed the order of the Ld.CIT (A).

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