The assessee filed TDS return on Form No. 26-C and the same was selected for scrutiny by the AO. During the course of the proceedings. It was seen as per the details and copies of ledger account that the assessee had shown expenses of Rs. 87,27,705 as commission under the head “Salary expenses”. Out of these expenses, a sum of Rs. 62,60,705 was paid to M/s PEC Ltd., Rs. 1,64,000 to M/s Bhura Export Ltd. and Rs. 23,03,000 to M/s Ayusa International. The assessee had submitted documents as far as M/s Bhura Export Ltd. and M/s Ayusa International were concerned but no agency agreement with M/s PEC Ltd. was filed. The assessee explained that commission was paid to M/s PEC Ltd. for export of wheat. The AO asked the assessee to furnish evidence in support of its explanation. The assessee filed copy of agreement dt. 10th Jan., 2001. After examining the agreement, AO came to the conclusion that the payment made by the assessee was covered within the meaning of fee for technical services and it was not a case of payment of commission and as such assessee was liable to deduct tax at source under section 194J of the Act and since the assessee has failed to make the deduction, it was assessee in default within the meaning of section 201(1) of the Act and also liable to pay interest. Commissioner of Income-tax (Appeals) upheld the order of the AO, while the Tribunal agreed with assessee and quashed findings by lower authorities.
The issue before Delhi in Sara International Ltd vs CIT 217 CTR 491 was
Whether Commission on export be termed as payment for technical fee ?
Hon’ble Delhi held vide its order 3/27/2008 as under :
9. A careful reading of the terms of the agreement leaves no doubt that the services rendered by M/s PEC Ltd. does not include any managerial, technical and consultancy services during the course of procurement and supply of goods. Although nowhere it mentions that the assessee is liable to pay commission to M/s PEC but the clause 6 of the agreement clearly shows that the payment made to M/s PEC is commission. A perusal of clauses clarifies that during the financial year, the relationship between M/s PEC and assessee was that of principal and agent. Clause 6 provides that foreign L/C shall be transferred in favour of SIL and M/s PEC’s service charge shall be US$ 1 PMT net of bill of lading quantity. It is clear from the said clause that M/s PEC had transferred its wheat export L/Cs in favour of the assessee for execution of the wheat export and M/s PEC charged commission for the export. Therefore, it can be said that M/s PEC Ltd. transferred foreign buyers’ L/Cs in favour of the assessee against commission charges.
10. Further, perusal of the agreement dt. 10th Jan., 2001 shows that M/s PEC Ltd. had signed a contract with foreign buyer for supply of wheat and the assessee agreed to assist M/s PEC in exporting wheat and the M/s PEC transferred foreign buyers L/C in favour of the assessee against commission charges. As per clause 1 of agreement, M/s PEC was to request to M/s FCI for release of cargo from the identified FCI godowns and the assessee was to make direct payment to FCI towards the purchase price of wheat and bear all other expenses relating to shipment of wheat and managed the entire export.
11. As per clause 4 of agreement, the assessee agreed that the quantity of wheat delivered by FCI for the purpose of export against the export contract shall be exported in full to the foreign buyer and will not be sold in domestic market. All important works are being done by the assessee and M/s PEC had transferred a simple contract of supplies to the assessee against the payment of commission and M/s PEC was not rendering any kind of professional/technical services. Thus, the provision of section 194J of the Act is not applicable.