Madras High Court
The Principal Commissioner Of ... vs Gopakumaran Nair on 28 June, 2021
T.C.A.Nos.332 & 333 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATE: 28.06.2021
CORAM:
THE HON'BLE MR. JUSTICE M.DURAISWAMY
AND
THE HON'BLE MRS.JUSTICE R.HEMALATHA
T.C.A.Nos.332 & 333 of 2021
The Principal Commissioner of Income Tax,
Non-Corporate Circle-7(1),
Chennai. ... Appellant in both TCAs
Vs.
Gopakumaran Nair ... Respondent in both TCAs
Appeals preferred under Section 260A of the Income Tax Act,
1961, against the order of the Income Tax Appellate Tribunal, Madras,
"B" Bench, dated 01.07.2019 in I.TA.No.2892/Chny/2018 for
Assessment Year 2013-14 and I.T.A.No.2893/Chny/2018 for the
assessment year 2014-15.
For Appellant : Mr.R.Karthik,
(in both TCAs) Senior Standing Counsel
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COMMON JUDGMENT
(Judgment was delivered by M.DURAISWAMY, J.)
Challenging the orders passed in I.T.A.Nos.2892 & 2893/
Chny/2018 on the file of the Income Tax Appellate Tribunal, “B” Bench,
Chennai, the Revenue has filed the above appeals.
2.The assessee is an individual, engaged in the business of trading
and export of leathers, filed its return of income for the Assessment Year
2013-14 and 2014-15. The case was selected for scrutiny under CASS.
The Assessing Officer, during the course of the assessment proceeding
noticed that the assessee had claimed Rs.1,28,34,756/- for the
Assessment Year 2013-14 and Rs.26,23,59,611/- for the Assessment
Year 2014-15 as selling expenses overseas. However, no TDS under
Section 195 of the Income Tax Act, 1961 was made towards the
payments made to parties. Hence, the Assessing Officer felt that these
activities tantamount to managerial and technical services as envisaged
under Section 9(1)(vii) of the Act. Hence, the above payments claimed as
selling expenses has been disallowed under Section 40(a)(i) of the Act
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and added to the income of the assessee. Aggrieved over the order of the
Assessing Officer, the assessee filed appeals before the Commissioner of
Income Tax (Appeals) and the Appellate Authority allowed both the
appeals. Aggrieved over the orders of the Commissioner of Income Tax
(Appeals), the Revenue filed appeals before the Income Tax Appellate
Tribunal and the Income Tax Appellate Tribunal dismissed the appeals
and confirmed the order of the Commissioner of Income Tax (Appeals).
Aggrieved over the orders passed by the Income Tax Appellate Tribunal
in the two appeals, the Revenue has filed the above appeals.
3.The appellant-Revenue has raised the following substantial
question of law in the above appeals:
“Whether on the facts and circumstances of the Tribunal
was correct in holding that no TDS is liable to be made on
the payments made by the assessee to M/s.Impact Fashion
International when the service rendered by the non-resident
is classified under Technical/managerial/professional
services, which is deemed to accrue or arise in India under
Section 9(i)(vii) of the Act and TDS has to be deducted
under Section 195 of the Act?”
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4.When the appeals are taken up for hearing, Mr.Karthik
Ranganathan, learned senior standing counsel appearing for the
appellant-Revenue fairly submitted that the question of law that has been
raised in the above appeals has already been decided against the Revenue
and in favour of the assessee by the Hon'ble Division Bench of this Court
in the judgment reported in [2018] 94 taxmann.com 449 (Madras)
[Evolv Clothing Co. (P) Ltd. Vs. Assistant Commissioner of Income-
tax, Company Circle-ii(1), Chennai], wherein the Hon'ble Division
Bench held as follows:
“...
31. Section 195 of the IT Act attracts tax only on
chargeable income, if any, paid to a non-resident. Where
there is no liability, the question of tax deduction does not
arise. Where no part of the income is chargeable in India,
even clearance under Section 195(2) or 195(3) of the IT Act
is not necessary. The decision of the Karnataka High Court
in CIT (International Taxation) v. Samsung Electronics Co.
Ltd., [2010] 320 ITR 209/[2009] 185 Taxman 313 (Kar),
has been overruled by the Supreme Court in GE India
Technology Centre (P.) Ltd. v. CIT [2010] 327 ITR 456/193
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Taxman 234/7 taxmann.com 18. The Supreme Court held as
under:
"This reasoning flows from the words 'sum chargeable
under the provisions of the Act' in Section 195(1). The
fact that the Revenue had not obtained any information
per se cannot be a ground to construe Section 195
widely so as to require deduction of TAS even in a case
where an amount paid is not chargeable to tax in India
at all. We cannot read Section 195, as suggested by the
Department, namely, that the moment there is remittance
the obligation to deduct TAS arises. If we were to accept
such a contention it would mean that on mere payment
income would be said to arise or accrue in India.
Therefore, as stated earlier, if the contention of the
Department was accepted it would mean obliteration of
the expression "sum chargeable under the provisions of
the Act" from Section 195(1)."
32.Where there is no liability in India, there can be no
question of disallowance under Section 40(a)(i) or Section
40(a)(ia) of the IT Act on the ground of non-deduction of
tax at source. Moreover, where a non-resident has no
permanent establishment in India, there can be no liability
either under the domestic law or under Double Taxation
Avoidance Agreement. In any case, even if a non-resident
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Indian did have a permanent establishment, but income was
earned without availing of such permanent establishment,
the income for services rendered abroad could not have been
liable for tax deduction at source.
33.Under Section 9(1)(vii)(b), income by way of fees
for technical services payable by a person, who is a resident,
is taxable income except where the fees are payable in
respect of services utilised in a business or profession
carried on by such person outside India or for the purposes
of making or earning any income from any source outside
India. In view of Explanation (2) to Section 9(1)(vii),
technical services means any consideration, including
lumpsum consideration, for rendering of any managerial,
technical or consultancy services, including the provision of
services of technical or other personnel, but does not include
consideration for any construction, assembly, mining or like
project undertaken by the recipient. Service of market
survey only to ascertain the demand for the product in the
market is incidental to the function of a commission agent of
procuring orders and is, in any case, not managerial,
technical or consultancy service.
34.In GE India Technology Centre P. Ltd., supra, the
Supreme Court clearly held that no tax is deductible under
Section 195 of the IT Act on commission payments and
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consequently the expenditure on export commission payable
to non-residents for services rendered outside India becomes
allowable expenditure. In Toshoku Ltd., supra, the Supreme
Court held that payments to agents for performance of
services outside India are not liable to be taxed in India.
35.In CIT v. EON Technology (P.) Ltd. [2011] 15
Taxmann.com 391/203 Taxman 266/[2012] 343 ITR 366
(Delhi), the High Court of Delhi held that payment of sales
commission to non-resident who operates outside the
country would not attract tax, if payment was remitted
abroad directly. Merely because an entry had been made in
the books of accounts of the appellant/assessee, that would
not mean that the non-resident agent had received payment
in India and, therefore, disallowance under Section 40(a)(i)
of the IT Act was found uncalled for.
36.The expression "fees for technical services" has
been defined in Explanation (2) of Section 9(1)(vii) of the
Income Tax Act to mean any consideration (including any
lumpsum consideration) for the rendering of any managerial,
technical or consultancy services (including the provision of
services of technical or other personal) but does not include
consideration for any construction, assembly, mining or like
project undertaken by the recipient or consideration, which
would be income of the recipient chargeable under the head
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salaries. Explanation (B) to Section 40(a)(i) provides that
the expression "fees for technical services" in Section
40(a)(i) shall have the same meaning as in Explanation 2 to
Clause (vii) of sub-section (1) of Section 9.
37.On a reading of Explanation (2) to Section
9(1)(vii), fees for technical services means consideration,
including lumpsum consideration for rendering any
managerial, technical or consultancy services.
38.In the instant case, the Assessing Officer has, in
the assessment order, accepted that the appellant assessee
has paid commission charges to overseas agents. It is not the
case of the Assessing Officer that any lumpsum
consideration has been made for any specific managerial,
technical or consultancy services.
39.On a overall reading of the Explanation, it is
apparent that fees for technical services does not
contemplate commission which is order specific and
computable at a small percentage of the order value. Section
40(a)(i) does not contemplate order wise commission based
on the order value.
40.For the reasons discussed above, the appeal is
allowed and the questions framed are answered in favour of
the assessee against the Revenue. No costs. Consequently,
connected miscellaneous petition is closed.”
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5.Having regard to the submissions made by the learned Senior
Standing Counsel for the appellant-Revenue and following the ratio laid
down by the Hon'ble Division Bench of this Court in the judgment
reported in [2018] 94 taxmann.com 449 (Madras) [Evolv Clothing Co.
(P) Ltd. Vs. Assistant Commissioner of Income-tax, Company Circle-
ii(1), Chennai], the question of law is decided against the Revenue and
in favour of the assessee. Accordingly, the Tax Case Appeals are
dismissed. No costs.
Index : Yes/No [M.D., J.] [R.H., J.]
Internet : Yes 28.06.2021
va (2/2)
To
The Income Tax Appellate Tribunal, Chennai, "B" Bench
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T.C.A.Nos.332 & 333 of 2021
M.DURAISWAMY, J.
and
R.HEMALATHA, J.
va
T.C.A.Nos.332 & 333 of 2021
(2/2)
28.06.2021
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