CIT Vs. SOUTHERN BOREWELLS

JUDGEMENT

(1.) APPEAL is filed by the revenue with reference to the order passed by the Income Tax Appellate Tribunal, Cochin Bench in I.T.A. No. 415/Coch/2011.

(2.) THE issue involved in the above appeal is with reference to non -deduction of tax at the time of making payment to a foreign company as agency commission. The assessee entered into a contract for providing marketing support to win the contract for construction of bore wells in a foreign country. The agent was M/s. Mozambique Holdings Ltd. does not have a permanent establishment in India and the agency commission had to be paid in a foreign country. The assessing officer found that an amount of Rs. 5,02,05,613 is debited as agency commission in the accounts. The agency commission payable as on 31 -3 -2007 is Rs. 4,26,26,195. It is found that the said amount is not fully paid and therefore it is not an allowable deduction. Assessment was therefore completed disallowing the said amount in addition to certain other expenditure.

(3.) THE assessee preferred an appeal before the Commissioner of Income Tax (Appeals). With reference to agency commission, the appellate authority found that the amount paid as agency commission is an income which is needed to have accrued in India and therefore the assessee was liable to deduct tax on such payments in the foreign country. The assessee preferred a further appeal before the Tribunal. The Tribunal found that the agency commission was payable in foreign exchange. Reference was made to Clause III, the responsibilities under the contract which reads as under: "Clause III Responsibilities of the Contractor 3.1 The Contractor agrees to provide the consultant all necessary technical input on the proposal made to the National Directorate of Water and respond to all queries on the project within the time frame. 3.2 The Contractor is committed to provide authorizations for the consultant to represent the Contractor in negotiations related to the contract. 3.3 The Contractor undertakes to fulfil all financial obligations of the agreement within the provisions of the agreement."