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ACIT, Ahmedabad vs. Apex Dye Stuff Industries - (Income Tax Appellate Tribunal) (07 Feb 2024)

Payment of foreign commission is not taxable in India


Direct Taxation

The assessee is a partnership firm engaged in the business of manufacturing and trading of fertilizers, chemical and paints during the year under consideration. The return of income was filed by the assessee for assessment year 2012-13 on 26-07-2012 declaring total income of Rs. 65,14,590. While passing the assessment order under Section 143(3) of the Income Tax Act, 1961 (IT Act) the total income was determined at Rs. 67,46,150 after making the disallowances of expenditure under Section 40(a)(ia) of Rs. 1,19,341 and disallowances of personal expenses of Rs. 1,10,290.

The Assessing Officer made an addition of Rs. 21,22,061 and disallowed the commissions expenses under Section 40(a)(ia) on the ground that, as per clarification made by CBDT vide Circular dated 22-10-2009 for applicability of the provisions of Section 195(2) regarding commission payments to foreign party, the assessee is liable to deduct tax at source on the payment credited in the foreign parties account.Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) allowed the appeal of the assessee.

The contention of the learned Departmental Representative that the assessee is liable to pay/deduct tax at source as per Section 195 appears to be not correct as the CBDT has withdrawn, the circular No. 7 of 2009 dated 22-11-2009.

The CIT(A) has rightly taken the consistent view of the Supreme Court in the light of decision of G. E. India Technology Centre Pvt. Ltd., as the assessee is not liable to deduct tax at source as the payments are not taxable in India. As in the present case, the payment of foreign commission is not taxable in India and therefore Section 195 is not applicable. There is no need to interfere with the findings of the CIT(A). The appeal of the Revenue is dismissed.


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