V) Or Clauses (Vi) Of Sub-Section (1) Of Section 9And Shall Be Included In The Total Income Of The Non-Resident Whether Or Not He Is A Resident Or Place Ofbusin v. Assistant Commissioner Ofincome-Tax, Company Circle-Ii(1), Chennai , Wherein, The Hon'bledivision Bench Of This Court Held As Follows

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED :31.03.2021 CORAMTHE HON'BLE MR. JUSTICE M. DURAISWAMYANDTHE HON'BLE MRS. JUSTICE T.V. THAMILSELVI Tax Case Appeal Nos.904 & 905 of 2014 The Commissioner of Income Tax,Chennai. ... Appellant in both TCAsv. M/s. Farida Shoes Private Limited,151/4, Mount Poonamallee,Ramapuram, Chennai - 600 089. ... Respondent in both TCAs Tax Case Appeals in T.C.A.Nos.904 & 905 of 2014 filed underSection 260A of the Income Tax Act, 1961 against the commonorder of the Income Tax Appellate Tribunal, Chennai “A” Bench,dated 11.04.2013, passed in I.T.A.Nos.359/Mds/2013 and360/Mds/2013 for the Assessment Year 2008-2009. TCA.No.904 of 2014: As against the order dated 24.11.2012 by theOffice of the Commissioner of Income Tax (Apepals)-IX, inI.T.A.No.80/11-12/A-IX Assessment year 2008-09 and as agiainstthe order dated 27.10.2011 by the Office of the AdditionalCommissioner of Income Tax-Company Range-II, Assessment year2008-09. TCA.No.905 of 2014: As against the order dated 27.11.2012 by theOffice of the Commissioner of Income Tax (Apepals)-IX, inI.T.A.No.89/11-12/A-IX Assessment year 2008-09 and as agiainstthe order dated 28.12.2010 by the Office of the DeputyCommissioner of Income Tax Circle-II(3), Assessment year 2008-09.For Appellant : Mr. S. Rajeshin both TCAs Standing CounselFor Respondent : Mr. M.P. Senthil Kumar in both TCAs COMMON JUDGMENT (Judgment was delivered by M.DURAISWAMY, J.) Challenging the common order passed inI.T.A.Nos.359/Mds/2013 and 360/Mds/2013 in respect of theAssessment Year 2008-2009 on the file of the Income TaxAppellate Tribunal, Chennai “A” Bench, (for brevity, theTribunal), the Revenue has filed the above appeals. 2.2. The appellant has raised the following substantialquestions of law in the above appeals:- T.C.A. No.904 of 2014 "(i) Whether on the facts and in thecircumstances of the case, the Appellate Tribunal wasright in holding that the disallowance ofRs.5,62,13,826/- being payment made towards overseasagent commission paid to non-resident under section40(a)(i) for non deduction of TDS u/s.195 is to beallowed? "(i) Whether on the facts and in thecircumstances of the case, the Appellate Tribunal wasright in holding that the disallowance ofRs.2.30,48,595/- being payment made towards overseasagent commission paid to non-resident under section40(a)(i) for non deduction of TDS u/s.195 is to beallowed? (ii) Whether the finding of the Tribunal isproper especially when the agent's service istechnical in nature and would fall under the purviewof section 9(1)(vii) and that the explanation to sec.9(2) would apply" (iii) Whether the finding of the Tribunal isproper especially when the commission payment made bythe assessee to the non-resident outside India forthe services rendered under section 9(1)(vii) of theIncome Tax Act is deemed to have arisen in India asper Explanation inserted by Finance Act 2010 withretrospective effect from 01.06.1976 which clearlystates that the income of the non-resident shall bedeemed to have accrued or arises in India under clause https://hcservices.ecourts.gov.in/hcservices/ (v) or clauses (vi) of sub-section (1) of section 9and shall be included in the total income of the non-resident whether or not he is a resident or place ofbusiness of connection in India or has renderedservice in India?" 3. When the appeals were taken up for hearing, Mr.S.Rajesh, learned Standing Counsel appearing for the appellantfairly submitted that the questions of law involved in thepresent appeals were decided against the Revenue in theJudgment reported in [2018] 94 taxmann.com 449 (Madras)[Evolv Clothing Co. (P.) Ltd. v. Assistant Commissioner ofIncome-Tax, Company Circle-II(1), Chennai , wherein, the Hon'bleDivision Bench of this Court held as follows : https://hcservices.ecourts.gov.in/hcservices/ (v) or clauses (vi) of sub-section (1) of section 9and shall be included in the total income of the non-resident whether or not he is a resident or place ofbusiness of connection in India or has renderedservice in India?" 3. When the appeals were taken up for hearing, Mr.S.Rajesh, learned Standing Counsel appearing for the appellantfairly submitted that the questions of law involved in thepresent appeals were decided against the Revenue in theJudgment reported in [2018] 94 taxmann.com 449 (Madras)[Evolv Clothing Co. (P.) Ltd. v. Assistant Commissioner ofIncome-Tax, Company Circle-II(1), Chennai , wherein, the Hon'bleDivision Bench of this Court held as follows : “............ 32. Where there is no liability inIndia, there can be no question of disallowance underSection 40(a)(i) or Section 40(a)(ia) of the IT Act onthe ground of non-deduction of tax at source.Moreover, where a non-resident has no permanentestablishment in India, there can be no liabilityeither under the domestic law or under Double TaxationAvoidance Agreement. In any case, even if a non-resident Indian did have a permanent establishment,but income was earned without availing of suchpermanent establishment, the income for servicesrendered abroad could not have been liable for taxdeduction at source. 33. Under Section 9(1)(vii)(b), income by way offees for technical services payable by a person, whois a resident, is taxable income except where the feesare payable in respect of services utilised in abusiness or profession carried on by such personoutside India or for the purposes of making or earningany income from any source outside India. In view ofExplanation (2) to Section 9(1)(vii), technicalservices means any consideration, including lumpsumconsideration, for rendering of any managerial,technical or consultancy services, including theprovision of services of technical or other personnel,but does not include consideration for anyconstruction, assembly, mining or like projectundertaken by the recipient. Service of market surveyonly to ascertain the demand for the product in themarket is incidental to the function of a commissionagent of procuring orders and is, in any case, notmanagerial, technical or consultancy service. 34. In GE India Technology Centre P. Ltd., supra,the Supreme Court clearly held that no tax isdeductible under Section 195 of the IT Act on commission payments and consequently the expenditureon export commission payable to non-residents forservices rendered outside India becomes allowableexpenditure. In Toshoku Ltd., supra, the Supreme Courtheld that payments to agents for performance ofservices outside India are not liable to be taxed inIndia. 35. In CIT v. EON Technology (P.) Ltd. [2011] 15Taxmann.com 391/203 Taxman 266/[2012] 343 ITR 366(Delhi), the High Court of Delhi held that payment ofsales commission to non-resident who operates outsidethe country would not attract tax, if payment wasremitted abroad directly. Merely because an entry hadbeen made in the books of accounts of theappellant/assessee, that would not mean that the non-resident agent had received payment in India and,therefore, disallowance under Section 40(a)(i) of theIT Act was found uncalled for. 35. In CIT v. EON Technology (P.) Ltd. [2011] 15Taxmann.com 391/203 Taxman 266/[2012] 343 ITR 366(Delhi), the High Court of Delhi held that payment ofsales commission to non-resident who operates outsidethe country would not attract tax, if payment wasremitted abroad directly. Merely because an entry hadbeen made in the books of accounts of theappellant/assessee, that would not mean that the non-resident agent had received payment in India and,therefore, disallowance under Section 40(a)(i) of theIT 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 therendering of any managerial, technical or consultancyservices (including the provision of services oftechnical or other personal) but does not includeconsideration for any construction, assembly, miningor like project undertaken by the recipient orconsideration, which would be income of the recipientchargeable under the head salaries. Explanation (B) toSection 40(a)(i) provides that the expression "feesfor technical services" in Section 40(a)(i) shall havethe 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 meansconsideration, including lumpsum consideration forrendering any managerial, technical or consultancyservices. 38. In the instant case, the Assessing Officer has,in the assessment order, accepted that the appellantassessee has paid commission charges to overseasagents. It is not the case of the Assessing Officerthat any lumpsum consideration has been made for anyspecific managerial, technical or consultancyservices. 39. On a overall reading of the Explanation, it isapparent that fees for technical services does notcontemplate commission which is order specific andcomputable at a small percentage of the order value.Section 40(a)(i) does not contemplate order wisecommission based on the order value. .........." 4. Mr. M.P. Senthil Kumar, learned counsel appearing forthe respondent submitted that in view of the Judgment of theHon'ble Division Bench cited supra the questions of law may bedecided against the revenue and the appeals may be dismissed. 5. In view of the submissions made by the learned counselon either side, following the ratio laid down in by the Hon'bleDivision Bench in the Judgment reported in [2018] 94taxmann.com 449 (Madras) [cited supra] , the questions of laware decided against the Revenue and the Tax Case Appealsare dismissed. No costs. Sd/- Assistant Registrar(CS III) //True Copy// Rj Sub Assistant Registrar To 1. The Income Tax Appellate Tribunal, Chennai “A” Bench. 2. The Commissioner of Income Tax Appeals-IX, Chennai. 3. The Additional Commissioner of Income Tax-Company Range-II, Chennai. 4. The Deputy Commissioner of Income Tax Circle-II(3), Chennai. +1cc to Mr.M.P.Senthilkumar, Advocate, SR.No.20934.Tax Case Appeal Nos.904 & 905 of 2014 SSN(CO)CSR 29.04.2021