Payment of commission to non resident overseas do not attracts the provision of section 194H

IN THE INCOME TAX APPELLATE TRIBUNAL

(DELHI BENCH `E’: NEW DELHI)

BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND

SHRI B.C. MEENA, ACCOUNTANT MEMBER

ITA No.626/Del./2012

(Assessment Year: 2008-09)

ACIT, circle 29(1),

New Delhi.

(Appellant)

Vs.

Nidhi Exports,

2751/2, Hamilton Road,  Morigate,

New Delhi.

(PAN/GIR No.AACFN0462H)

 (Respondent)

Assessee by: Shri B.N. Goswamy, Adv.

Revenue by: Shri Aroop Kr. Singh, Sr.DR

ORDER

PER U.B.S. BEDI, J.M.

This appeal of the department is directed against the order passed by the CIT(A)-XXV, New Delhi dated 16.11.2011, relevant to assessment year 2008-09, whereby deletion of addition of Rs.29,06,352/- made by the Assessing Officer on account of commission payment without deducting TDS u/s 40(a)(ia) of the I.T. Act, 1961 has been challenged.

2. Facts indicate that the assessee is a partnership firm of two partners and doing the business of export of hardware items. The assessee purchases raw material and after assembling and doing the job work, the same are exported to foreign countries and mainly to New Zealand. During the course of assessment proceedings, the Assessing Officer found that the assessee has claimed the commission payment of Rs.29,06,352/- to a foreign party, namely, M/s AV International, New Zealand for the sale of exported goods in that country. The assessee did not make the TDS u/s 194H on the ground that no TDS is required to be made to a foreign party as no services have been rendered in India. The Assessing Officer did not accept the explanation of the assessee and has disallowed the commission payment u/s 40(a)(ia) of the Act for non-deduction of TDS.

3. Assessee took up the mater in appeal and submitted before first appellate authority that assessee is in this business for a long time and has been making commission payment to foreign party as the business is secured for the foreign agents. The assessee also submitted that foreign agent is non-resident overseas agent and has no PE or business activity in India and as such no TDS is deductible u/s 194H or u/s 195 to warrant the disallowance u/s 40(a)(ia) of the Act. The assessee also relied on case of DCIT vs. Divi’s Laboratories Ltd., (2011) 10 ITR (Trib.)(Hyd.) in

support of the claim that the payment of commission to a non-resident does not attract the provision of TDS and warrant disallowance u/s 40(a)(ia) of the Act. It was also submitted that the payment of commission has been made to the non-resident overseas agent over the years and no such disallowance has been made in the past and also submitted before CIT(A), the details of

the commission payments from assessment years 2002-03 to 2007-08 and CIT(A) while considering such plea of the assessee has concluded to delete the impugned addition as per paras.

4.4 and 4.5 of his order as under:

“4.4 I have considered the order of the Assessing Officer and the submission for the assessee and I find considerable merit in the submission of the assessee that he payment of commission are made to non-resident overseas agent, who has no PE or business activities in India and the services are also rendered outside India and as such no income is arising to the non-resident commission agent in India and as such no TDS is deductible u/s 194H (commission) which is applicable for resident Indians only. Even the provisions of section 195 is not applicable as the payments are made to a non-resident overseas agent for the services rendered outside India and as such the mischief of section 40(a0(ia) for the disallowance is not warranted. A perusal of the case law submitted by the assessee in DCIT vs. Divi’s Laboratories Ltd. (supra) also supports the claim of the assessee.

4.5 After considering all the facts and circumstances of the case, I am of the view that there is considerable merit in the submission of the assessee that the provisions of section 40(a)(ia) is not attracted and I also find that the Assessing Officer has passed a very vague order and has not made out a clear case of disallowance u/s 40(a)(ia) and as such it is not possible to sustain such disallowance and accordingly the addition made by the Assessing Officer is deleted.”

4. Aggrieved by this order of the CIT(A), department ahs come up in appeal and Ld.DR while relying upon Assessing Officer’s order has pleaded for reversal of the order of the CIT(A) and restoring that of the Assessing Officer whereas Ld.Counsel for the assessee relied upon order of the CIT(A) and pleaded for confirmation of the same. He has also submitted comparative statement of sales, gross profit and commission paid to justify its claim and submitted that IT(A) has taken a correct view of the matter to delete the impugned addition as no TDS was required to be made because payment of commission are made to non-resident overseas agent.

As such no income is arising to the non-resident agent in India. So, no TDS is deductible u/s 194H of the Act, which is applicable for resident Indians only, even the provisions of section 195

is not applicable as payments are made to non-resident overseas agents for the services rendered outside India. So, relying upon CIT(A)’s order, it was pleaded for the dismissal of the appeal of the Revenue.

5. We have heard both the sides, considered the material on record as well as precedent relied upon by the CIT(A) and find that basis and reasoning as given by the CIT(A) in deleting the impugned addition made by the Assessing Officer are sound and convincing in the light of the case law relied upon. Neither any contrary material has been placed nor any infirmity or flaw has

been pointed out or noticed in the order of the CIT(A). As such while concurring with the finding

of the CIT(A), we uphold his order and dismiss the appeal of the Revenue.

6 As a result, the appeal filed by the department is dismissed.

Order pronounced in open court soon after the conclusion of the hearing on 29.08.2012.

                                                    Sd/-                            Sd/-

                                          (B.C. MEENA)            (U.B.S. BEDI)

                               ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: Aug. 29, 2012

SKB

Copy of the order forwarded to:-

1. Appellant

2. Respondent

3. CIT

4. CIT(A)-XXV, New Delhi.

5. CIT(ITAT)

Deputy Registrar, ITAT