2015 (12) TMI 1746 - AT - Income Tax

TDS u/s 195 - non deduction of tds on agency commission paid to non resident agent - income deemed to accrue or arise in India - Held that - Argument of the Revenue that for non deduction of TDS obtaining of certificate from the concerned Assessing Officer is mandatory is not acceptable. On a plain reading of the provisions contained in Chapter-XVIIB of the Act more particularly section 195 there is no absolute liability on the part of the assessee to deduct tax at source notwithstanding that the payment is not chargeable to tax under sections 4 5 or 9 of the Act. It is reasonable to conclude that TDS provisions are attracted only when the payment is chargeable to tax in India. The provisions of section 195 are not applicable to the case of the assessee as no income chargeable to tax in India has arisen. The disallowance of payment of commission u/s. 40(a)(ia) of the Act is incorrect. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of agency commission paid to non-resident agent due to non-deduction of tax at source.
2. Applicability of section 40(a)(ia) in the context of non-deduction of tax at source.
3. Confirmation of disallowance of proportionate interest on advances to sister concerns.
4. General grounds regarding the order being against law, equity, and justice.

Issue-wise Detailed Analysis:

1. Disallowance of Agency Commission Paid to Non-Resident Agent:
The primary contention revolves around the disallowance of agency commission paid to a non-resident agent amounting to Rs. 25,28,998/-. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] classified the payment as a composite payment for services including managerial services, thus falling under the purview of section 9(1)(vii) of the Income Tax Act, 1961, which necessitates tax deduction at source (TDS). The assessee argued that the services were purely for canvassing orders outside India, and the non-resident agent had no permanent establishment in India, thus not liable for TDS under section 195. The Tribunal, referencing various judicial precedents, concluded that the services rendered by the non-resident agent were not managerial or technical but were for procurement of export orders, which does not attract TDS under section 195. Hence, the disallowance under section 40(a)(ia) was deemed incorrect.

2. Applicability of Section 40(a)(ia):
The Tribunal addressed the applicability of section 40(a)(ia), which deals with disallowance for non-deduction of TDS. It was argued that section 40(a)(ia) applies only to amounts shown as payable in the balance sheet. The Tribunal, however, focused on the nature of the payment and the applicability of TDS provisions under section 195, ultimately ruling that since the payment to the non-resident agent was not chargeable to tax in India, the provisions of section 195 did not apply, and consequently, section 40(a)(ia) was not attracted.

3. Confirmation of Disallowance of Proportionate Interest:
The assessee contested the disallowance of proportionate interest amounting to Rs. 2,64,786/- on advances to sister concerns, arguing that the advances were made in earlier years and there were sufficient interest-free funds available. However, this ground was not pressed during the hearing and was dismissed as not pressed.

4. General Grounds:
The general grounds stating that the order was against law, equity, and justice were not specifically adjudicated upon as they were considered general in nature and disposed of accordingly.

Conclusion:
The appeal was partly allowed, with the Tribunal ruling in favor of the assessee on the primary issue of disallowance of agency commission, thereby negating the applicability of section 40(a)(ia) due to non-deduction of TDS. The disallowance of proportionate interest was dismissed as not pressed, and general grounds were disposed of without specific adjudication.