ITA Nos. 835 & 836/KOL/2015 Assessment Years: 2010-2011 & 2011-2012 M/s. U.M. Cables Limited IN INCOME TAX APPELLATE TRIBUNAL, KOLKATA C BENCH, KOLKATA Before Shri P.M. Jagtap, Vice-President (KZ) and Shri A.T. Varkey, Judicial Member I.T .A. Nos. 835 & 836/KOL /2015 Assessment Years: 2010-2011 & 2011-2012 Deputy Commission er of Income Tax .Appellant Circle-8( 2), Kolkata, Aayakar Bhawan 4thFloor,P-7,Chowringhee Square, Kolkata-700 069 -Vs.- M/s. U.M. Cables Limited,...Respondent 2A, Shakespeare Sarani, Kolkata-700 071 [PAN: AAACU5578N] Appearances by: Shri Robin Choudhury, Addl. CIT(D.R) , for Department Shri J.P. Kh aitan, Sr. Advocate, for Assessee Date of concluding th e hearing : Ju ly 15, 2019 Date of pronouncing order : Au gust 28, 2019 O R D E R Per Shri P.M. Jagtap, Vice-President (KZ):- These two appeals are preferred by Revenue against two separate orders passed by ld. Commissioner of Income Tax (Appeals)- 3, Kolkata, both dated 27.03.2015 for Assessment Years 2010-11 and 2011-12 and since one of issues involved therein is common, same have been heard together and are being disposed of by single consolidated order. 2. Ground No. 1 raised by Revenue in its appeal for A.Y. 2010-11 being ITA No. 835/KOL/2015 relates to deletion by ld. CIT(Appeals) of addition of Rs.1,45,90,552/- made by Assessing 1 ITA Nos. 835 & 836/KOL/2015 Assessment Years: 2010-2011 & 2011-2012 M/s. U.M. Cables Limited Officer on account of disallowance of commission paid by assessee to non-resident agents. 3. assessee in present case is Company, which is engaged in business of manufacturing and trading of telecommunication cables, optical fibres, etc. return of income for year under consideration was originally filed by assessee on 22.09.2010 declaring total income of Rs.8,09,08,890/-. Thereafter revised return was filed by assessee on 04.01.2012 declaring total income of Rs.7,62,72,079/-. As noticed by Assessing Officer during course of assessment proceedings, commission of Rs.1,45,90,552/- was paid by assessee during year under consideration to non-resident agents. He also noticed that no tax at source was deducted by assessee from payment of said commission as required by provisions of section 195 of Act. Assessing Officer also was of view that submission made by assessee on this issue did not make it very clear as to what specific services were rendered by commission agents. According to him, there was also failure on part of assessee to prove that all services were rendered by commission agents exclusively in territory outside India. He held that if assessee had not availed services of said agents, it would have engaged managerial personnel to carry out relevant activities. He held that services rendered by non-resident agents thus were in nature of managerial services and asseessee was required to deduct tax at source from payment made to non-resident commission agents under section 195 of Act. Since there was failure on part of assessee to comply with said requirement, Assessing Officer disallowed commission paid to non-resident agents amounting to Rs.1,45,90,552/- by invoking provisions of section 40(a)(i). 4. disallowance made by Assessing Officer on account of commission paid to non-resident agents was challenged by 2 ITA Nos. 835 & 836/KOL/2015 Assessment Years: 2010-2011 & 2011-2012 M/s. U.M. Cables Limited assessee in appeal filed before ld. CIT(Appeals) and after considering submissions made by assessee as well as material available on record, ld. CIT(Appeals) deleted said disallowance made by Assessing Officer for following reasons given in his impugned order:- appell ant was engaged in manufacture and sale of cables. It had appointed number of agents on commission basis to render services in procuring o rders and effecting sale outside India. Since expo rt o rders were procured outside India, very nature of work done by th e export agent , involving marketing and procurement of o rders, indicates that it was carried out outside India. It has been informed, th at details regarding nature of service and count ries in which such services were rendered had been placed befo re th e assessing officer during assessment proceedings. Copy of submission made before assessing officer in this regard was also furnished. It would not be out of place to mention here, that in assessment for immediately succeeding year, i.e. A.Y. 2011-12 al so, similar disallowance of export commission has been made by invoking pro visio ns of section 40(a)(i). However, in th e assessment order fo r that year, there is no allegation that details of services rendered were not pro duced. It has been submitted by appellant that rol e of agents and nature of services rendered etc. were pract ically i dent ical in both said years. In order to, understand nature of services rendered by t he agents, 'commercial agency and dist ributio n agreements' signed by appellant with th em have been gone th rough. It is seen, that th e agents h ad been appointed for specific territory outside India and agent was required to make effort s to promote, advertise, develop and increase trade in pro ducts manufactured by appellant. Based o n sale carried o ut, agent got commission. Thus, there appears to be fo rce in contention of appellant th at services rende red by th e appellant were wholly outside India. 3.3. legal position in this regard h as been carefully examined. As per clause (i) of sect ion 9(1), following inco me is deemed to have accrued o r arisen in India:- "all income accruing/arisen whether directly or indirectly th rough or from any business connection in India orth rough o r fro m abroad in India or th rough or fro m any asset source of income in India o r through transfer of capit al asset sit uat ed in India" Explanation-1 to th e said sectio n pro vides t hat:- 3 ITA Nos. 835 & 836/KOL/2015 Assessment Years: 2010-2011 & 2011-2012 M/s. U.M. Cables Limited "(a) in case of business of which all operations are not carried out in India, income of business deemed under this clause accrued o r arisen in India shall be only such part of income as reasonably attributed to operations carried out in India. (b) In case of non-resident , no inco me sh all be deemed to accrue or arise in India t o him through or from operations which are confined to purchase of goods in India fo r purpose of expo rt. " 3.4. Th us, it follows from explanat ion 1 t o section 9(1)(i) that in business where none of operatio ns is carried out in India, no part of its income is deemed to accrue o r arise in India. As per undisputed facts in appell ant's case, no operation was carried out by non-resident commission agent in India. Therefo re, it would be e rroneous to hold that their ent ire co mmissio n income had acc rued o r arisen in India. In th e appellant's case, entire re ndering of services of agent had t aken place o utside India as such customers were based abroad. commission was also paid to account hel d abroad. Therefo re, there is no operation which is carried out in India fo r which any income can be reasonably att ribut ed. This principle has been upheld by Apex court in cases of M/s. Ish ikawajma-Harima Heavy Indust ries Ltd Vs DIT (288 IT R 408) and CIT Vs M/s. H yundal Heavy Indust ries Co Ltd (291 ITR 482). On th e issue of commission to fo reign based agent , similar view h as been taken by Apex court in case of C IT vs M/s.Toshoku Ltd (125 ITR 525) (SC ). Similar view h as been tak en by Delhi High Court in case of CIT Vs M/s. EON Technology (P) Lt d (15 Taxmann.com 3 91). Another notable decision in this regard is th at of Hon'ble Supreme Court in case of GE India Tech nology Centre (P) Ltd. 327 ITR 456. So far as commission payment up to 22.10 .2009 are concerned, they were also covered by Circular No.786 dated 07.02 .2000, which made it clear t hat when no activity is carried out by non-resident commission agent in India, no inco me i s arisen in India. Though th e said circular was withdrawn vide Circular no. 7 dated 22.10.2009, legal posit ion with respect of t axabilit y of export commission remained un- changed, which has to be determined in light of th e pro visions of Act and relevant judicial pro nouncements. Hence, even after withdrawl of Circul ar No .786 date d 07.02.2000, expo rt commission att ributable to services rendered o utside India cannot be considered to be t axable u/s. 9 (1)(i), as discussed earlier. appellant has rightly placed reliance upon decision of ITAT, Mumbai in case of G ujarat Reclaim & Rubber Products Ltd. vs. Addl. C IT 60 SOT 22 in matter. It may al so be mentioned that 4 ITA Nos. 835 & 836/KOL/2015 Assessment Years: 2010-2011 & 2011-2012 M/s. U.M. Cables Limited commission paid to agent does not fall in purview of fees for technical services et c. where explanatio n to sectio n 9 h as pro vided that such income of non-resident sh all be deemed to accrue o r arise in India under clause (v), (vi) and (vii) of sub section (1) wheth er o r not non-resident h as rendered services in India. In this regard, appellant has cited decisio n of ITAT , Jaipur in case of ACIT vs. Modern Insulato rs 140 TTJ 715 where it has been held, th at services of sales agents do not qualify as t echnical services. Bombay High Court has also h eld in t he case of C EAT International S.A. Vs. CIT 237 ITR 859 that export commission attribut able to services rendered o utside India cannot be t axable u/s. 9 (1)(vii). appellant has al so referred to th e decision of ITAT , Mumbai in case of UPS SCS (Asia) Ltd. 50 SOT 268 in matter. T herefo re , payment or co mmissio n is not governed by expl anat ion to sectio n 9 and h ence can be deemed to accrue or arise only i f certain services h ave been rendered in India. In fact, even said expl anation provides for except ion in respect of fee "for technical services paid fo r purpose of making o r earning any income from any source o utside India", which would cover fee for expo rt sales. 3.5. Since th e sales co mmission under consideration was not in nat ure of fee fo r technical services, t he pro visions of Section 9(1)(vii) which stat e that amount would be taxable irrespective of place of rendering services are not attracted. Hence, sales co mmission wo uld be in nat ure of 'business income' in th e hands of t he payees. It is undisputed, that th e agent s are non-residents, h ave no permanent establish ment in India and no part of their activit y was carried out in India. Hence, in light of discussion made earlier, no business income accrues o r arises to them in India. Pro visio ns of Section 195 are, therefo re, not appl icable on such co mmission. As consequence, pro visio n of Sectio n 40(a)(i) would also not be att racted. Considering this, th e disallowance u/s 40(a)(i) is deleted . 5. ld. D.R. submitted that new facts and figures were furnished by assessee before ld. CIT(Appeals) in support of its case on this issue and by relying on same, ld. CIT(Appeals) allowed relief to assessee by deleting disallowance made by Assessing Officer on account of commission paid to non-resident agents without giving any opportunity to Assessing Officer to verify same. He contended that there is thus clear violation of Rule 46A of Income Tax Rules, 1962 on part of ld. CIT(Appeals) and urged that matter should 5 ITA Nos. 835 & 836/KOL/2015 Assessment Years: 2010-2011 & 2011-2012 M/s. U.M. Cables Limited be sent back to Assessing Officer for giving him opportunity to verify new facts and figures furnished on behalf of assessee for first time before ld. CIT(Appeals). 6. ld. Counsel for assessee, on other hand, invited our attention to copy of written submissions filed before Assessing Officer during course of assessment proceedings vide letter dated 09.03.2013 placed at page nos. 2 to 12 of paper book to point out that all relevant facts and figures as furnished by assessee before ld. CIT(Appeals) were also submitted before Assessing Officer during course of assessment proceedings. He also submitted that even all relevant details of commission paid to non-resident agents as required by Assessing Officer were submitted by assessee vide its letter dated 15.03.2013 (copy at page nos. 14 to 17 of paper book) filed during course of assessment proceedings. He contended that there was thus nothing new brought on record by assessee during course of appellate proceedings before ld. CIT(Appeals) and decision having been rendered by ld. CIT(Appeals) giving relief to assessee by relying on same facts and figures as were available before Assessing Officer, there was no violation of Rule 46A of Income Tax Rules, 1962 as alleged by ld. D.R. He also contended that entire commission amount was paid by assessee to non-resident agents for marketing and sales promotion outside India and services rendered by them not being in nature of managerial services, assessee was not required to deduct tax at source from payment of said commission as per provisions of section 9(1)(vii) read with section 195 of Act. In support of this contention, he, inter alia, relied on decision of Delhi Bench of this Tribunal in case of ACIT vs.- Ever Green International Limited [91 taxmann.com 111], wherein it was held that services rendered by non-resident agents for booking export order from foreign buyers cannot be termed as managerial services, which could fall under term fees for technical services as 6 ITA Nos. 835 & 836/KOL/2015 Assessment Years: 2010-2011 & 2011-2012 M/s. U.M. Cables Limited defined in Explanation 2 below section 9(1)(vii) of Act. He also relied on decision of Ahmedabad Bench of this Tribunal in case of DCIT vs.- Welspun Corporation Limited [77 taxmann.com 165], wherein it was held that consideration paid to non-resident agents for securing business from foreign buyers cannot be taxed in India under section 9(1)(vii) of Act. 7. We have considered rival submissions and also perused relevant material available on record. It is observed that disallowance made by Assessing Officer on account of commission paid by assessee to non-resident agents for procuring orders from foreign buyers, inter alia, by invoking section 40(a)(i) was deleted by ld. CIT(Appeals) vide his impugned order and relief allowed by ld. CIT(Appeals) to assessee on this issue is mainly challenged by ld. D.R. at time of hearing before Tribunal on ground that said relief was allowed by ld. CIT(Appeals) by relying on new facts and figures furnished by assesese for first time before him without giving any opportunity to Assessing Officer to verify same, which according to him, is in violation of provision of Rule 46A of Income Tax Rules, 1962. In this regard, ld. Counsel for assessee has invited our attention to copy of letter dated 09.03.2013 submitted by assessee during course of assessment proceedings (copy at page nos. 2 to 12 of paper book), which clearly shows that detailed submission was made on behalf of assessee before Assessing Officer explaining nature of services rendered by non-resident agents and how commission paid for said services was not chargeable to tax in hands of said non-resident agents. said submission was made by assessee in light of relevant provisions of Income Tax Act, 1961 as well as relevant case laws relating to issue. Reliance was also placed by assessee on CBDT Circular No. 23 dated 23.07.1969 and case was also made out to show that provisions of section 9(1)(vii) were not attracted in 7 ITA Nos. 835 & 836/KOL/2015 Assessment Years: 2010-2011 & 2011-2012 M/s. U.M. Cables Limited respect of commission paid to non-resident agents. On basis of this submission, it was contended on behalf of assessee-company that it was not under any obligation to deduct tax at source under section 195 from commission paid to non-resident agents and there was no question of making any disallowance under section 40(a)(i). Thereafter letter dated 15.03.2013 (copy at page nos. 14 to 17 of paper book) was also filed by assessee before Assessing Officer giving all relevant details of export commission paid to non-resident agents as required by Assessing Officer to show that entire commission was paid to non-resident agents for services performed in connection with procurement of orders from foreign customers. It is thus clear that all relevant details were duly furnished by assessee even during course of assessment proceedings in support of its case on issue under consideration and as rightly submitted by ld. Counsel for assessee, ld. CIT(Appeals) having given relief on basis of same facts and figures, which were furnished by assessee during course of assessment proceedings and not on basis of any new facts and figures, there was no violation of Rule 46A of Income Tax Rules, 1962 as alleged by ld. D.R. In our opinion, all these details furnished by assessee during course of assessment proceedings before Assessing Officer as well as during course of appellate proceedings before ld. CIT(Appeals) were sufficient to establish that commission amount in question was paid by assessee-company to non-resident agents for services rendered in connection with procurement of orders from foreign clients and assessee was not required to deduct tax at source from said commission as per provisions of section 195 read with section 9(1)(vii) of Act as rightly held by ld. CIT(Appeals). decision of Delhi Bench of this Tribunal in case of Ever Green International Limited (supra) and Ahmedabad Bench in case of Welspun Corporation Limited (supra) clearly supports assessee s case on this issue. We, therefore, find no infirmity in impugned order of ld. CIT(Appeals) deleting disallowance 8 ITA Nos. 835 & 836/KOL/2015 Assessment Years: 2010-2011 & 2011-2012 M/s. U.M. Cables Limited made by Assessing Officer on account of commission paid by assessee-company to non-resident agents by invoking, inter alia, section 40(a)(i) and upholding same, we dismiss Ground No. 1 of Revenue s appeal for A.Y. 2010-11. 8. issue raised in Ground No. 2 of Revenue s appeal for A.Y. 2010-11 relates to deletion by ld. CIT(Appeals) of addition of Rs.3,17,265/- made by Assessing Officer on account of bad debts written off. 9. In Profit & Loss Account filed along with return of income, sum of Rs.22,88,344/- was debited by assessee on account of bad debts written off. From perusal of relevant details filed by assessee in this regard, Assessing Officer noted that amount of Rs.3,17,265/- written off by assessee as irrecoverable from BSNL actually represented penalty levied on assessee for non-submission of C Form by Sales Tax Department. He held that amount of Rs.3,17,265/- thus was on account of penalty imposed by Assessing Officer for violating statutory norm and accordingly same was disallowed by him. 10. disallowance made by Assessing Officer of Rs.3,17,265/- was challenged by assessee in appeal filed before ld. CIT(Appeals) and after considering submissions made by assessee as well as material available on record, ld.CIT(Appeals) deleted said disallowance for following reasons given in paragraph no. 4.2 of his impugned order:- 4.2. I h ave considered facts of case. As e xpl ained by appellant , BSNL is major customer of appellant to whom it supplies cables. In respect of sale made by it , appellant is required to pay sales t ax. As per th e Sales T ax Rules, if C-fo rm is pro vided by customer is sub mitted to Sale Tax Depart ment, sales t ax on such sale sh all be charged o n reduced rate. However, BSNL failed to pro vide C-Form fo r which appellant h ad to pay additional sales 9 ITA Nos. 835 & 836/KOL/2015 Assessment Years: 2010-2011 & 2011-2012 M/s. U.M. Cables Limited tax. It t ried to recover such additional liability fro m BSNL. However, since BSNL did not mak e good sai d amount and appellant did not consider it prudent to insist upon same fro m o ne of it s l argest customers, it chose to write off th e amount. Thus, it is clear that amount under consideratio n did not represent penalty for violation of any st at ute. It was simply additional t ax charged by Sales T ax depart ment due to non submissio n of C-Form. In fact, responsibilit y of providing C Form lied with BSNL and th ere was no violation of any law by appellant. Hence, I do not agree with assessing officer that amount represent ed penalty for st atuto ry violation. Since sales tax is no rmally recovered from customer, appellant claimed additional outgo fro m customer BSNL and on failure to recover, wrote same off as bad debt . It is clear from afo resaid facts, that amo unt represented expendit ure incurred in normal co urse of business and was revenue in nature. Considering this, same is allowable as deduction. disallowance of Rs.3 ,1 7,265/- is acco rdingly, deleted . 11. We have heard arguments of both sides and also perused relevant material available on record. As rightly held by ld. CIT(Appeals), amount in question did not represent any penalty imposed on assessee by Sales Tax Department for violation of any statutory provision, but same was simply in nature of additional tax charged by Sales Tax Department due to non-submission of C Form by BSNL. There was thus no violation of any law on part of assessee and disallowance made by Assessing Officer on this issue, in our opinion, was rightly deleted by ld. CIT(Appeals). We, therefore, find no merit in Ground No. 2 of Revenue s appeal d dismiss same. 12. As regards appeal of Revenue for A.Y. 2011-12 being ITA No.836/KOL/2015, it is observed that solitary issue raised therein relating to deletion by ld. CIT(Appeals) of disallowance of Rs.78,00,717/- made by Assessing Officer on account of commission paid to non-resident agents is similar to one involved in Ground No. 1 of Revenue s appeal for A.Y. 2010-11, which has already been decided by us. As all material facts relevant to this issue as involved in A.Y. 10 ITA Nos. 835 & 836/KOL/2015 Assessment Years: 2010-2011 & 2011-2012 M/s. U.M. Cables Limited 2011-12 as well as arguments raised by ld. Representatives of both sides are similar to that of A.Y. 2010-11, we follow our conclusion drawn in A.Y. 2010-11 and uphold impugned order of ld. CIT(Appeals) deleting disallowance made by Assessing Officer on account of commission paid to non-resident agents. This appeal of Revenue for A.Y. 2011-12 is accordingly dismissed. 13. In result, both appeals of Revenue are dismissed. Order pronounced in open Court on August 28, 2019. Sd/- Sd/- (A.T. Varkey) (P.M. Jagtap) Judicial Member Vice-President (KZ) Kolkata, 28 t h day of August, 2019 Copies to : (1) Deputy Commission er of Income Tax, Circle-8( 2), Kolkata, Aayakar Bhawan , 4 t h Floor, P-7, Chowringhee Square, K olkata-700 069 (2) M/s. U.M. Cables Limited, 2A, Shakespeare Sarani, K olkata-700 071 (3) Commissioner of Inco me T ax (Appeals)-3, Kolkata, (4) Commissio ner of Income Tax- , (5) Depart ment al Represent ative (6) Guard File By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S. 11 Deputy Commissioner of Income-tax. Circle-8(2), Kolkata v. U.M. Cables Limited