DCIT vs. Sesa Resources Ltd (ITAT Panaji)

DATE: April 27, 2016 (Date of pronouncement)
DATE: May 5, 2016 (Date of publication)
AY: 2009-10
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S. 195/ 40(a)(ia): Commission paid to non-resident agents for services rendered outside India is not liable for TDS u/s 195. The retrospective amendment to s. 195 to provide that s. 195 applies whether or not the non-resident person has a residence or place of business or business connection in India makes no difference to the legal position

The Assessing Officer disallowed commission paid to foreign agents of Rs. 10,86,92,826/- on account of non-deduction of TDS and that the expenditure has not been paid for the purpose of business of the assessee. The Tribunal held that the commission payment to the foreign agents was for the purpose of business and commercial expediency, however regarding non-deduction of TDS, applicability of the provisions of sec. 40(a)(ia), the Tribunal held that the provisions of sec. 195 has been amended by the introduction of Explanation-II to the said section by the Finance Act, 2012 with retrospective effect from 01/04/1992, whereby it is clarified that “the obligation to comply with sub-sec. (1) and to make deduction there under applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has (i) a residence or place of business or business connection in India; or (ii) any other presence in any manner whatsoever in India”. Therefore, as the assessee has not deducted TDS under sec. 195, the disallowance made by the Assessing Officer by invoking the provisions of sec. 40(a)(ia) are restored. Being aggrieved by the said order of the Tribunal, the assessee filed appeal before the Hon’ble High Court and the Hon’ble High Court restored the issue to the file of the Tribunal for adjudication afresh. The Hon’ble High Court at para 8 of its order has given finding that the judgment of the Division Bench of Bombay High Court in the case of CIT Vs. Gujarat Reclaim & Rubber Products Ltd. in Income Tax Appeal No. 169/2014 dated 08/12/2015, it has been, inter alia, held that before effecting deduction at source one of the aspects to be examined is whether such income is taxable in terms of the Income Tax Act. This aspect has not been considered by the Tribunal while concluding that the appellant has committed a default in not deducting the tax at source. HELD by the Tribunal on remand from the High Court:

(i) The Commissioner of Income Tax (Appeals) has given a finding that the services of non-resident sales agents namely Mitsui & Co. Ltd. and Allied Ore Inc, Japan, are performed outside India and the same are not taxable in India, hence, TDS is not deductable from the payments made to them. This finding of fact by the Commissioner of Income Tax (Appeals) is not disputed by the Revenue before us. Therefore, this issue stands covered by the decision of the Hon’ble Bombay High Court in the case of Gujarat Reclaim & Rubber Products Ltd

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