2014 (7) TMI 761 - AT - Income Tax

Non-deduction of TDS on overseas payment of agency commission Disallowance u/s 40(a)(ia) of the Act Held that - Assessee is availing the services of non-resident agents for procuring export orders for which commission is paid - nonresident agents have no business connection nor they have any permanent establishment (PE) in India - non-resident agents are procuring orders for the assessee and are thus operating outside the Indian territory The decision in Assistant Commissioner of Income-tax, Company Circle- II(1) Versus Farida Shoes (P.) Ltd. 2013 (11) TMI 907 - ITAT CHENNAI - payments to non-residents for procuring export orders are not assessable to tax in India also in GE Technology Cen. P. Ltd., Vs. CIT 2010 (9) TMI 7 - SUPREME COURT OF INDIA it has been held that if any sum is paid to the non-resident which is not chargeable to tax under the Act, the assessee is under no obligation to deduct tax at source u/s.195 in respect of payments - The obligation to deduct tax at source arises only where the sum is chargeable to tax in India thus, there was no infirmity in the order passed by CIT(A) Decided against Revenue.

Summary

Issues:
1. Disallowance made under section 40(a)(ia) for non-deduction of tax on overseas payment of agency commission.

Analysis:
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-II, Chennai, for the Assessment Year 2009-10, regarding the deletion of disallowance under section 40(a)(ia) of the Income Tax Act, 1961, for non-deduction of tax on overseas payment of agency commission. The assessee, engaged in exporting leather goods, had filed its return of income declaring total income. The Assessing Officer disallowed payments towards agency commission for non-deduction of tax, which the CIT(Appeals) later deleted after considering relevant case laws. The Department, represented by Shri Guru Bhashyam, challenged the CIT(Appeals) order, citing pending appeals in similar cases. Despite notice, no one appeared for the assessee during the proceedings.

The Tribunal noted that the non-resident agents procuring export orders for the assessee had no business connection or permanent establishment in India, operating outside Indian territory. Citing a previous case, the Tribunal found that payments to non-residents for procuring export orders were not assessable to tax in India. Referring to the Supreme Court's decision in GE Technology Cen. P. Ltd. Vs. CIT, the Tribunal emphasized that tax deduction obligations arise only when the sum is chargeable to tax in India. As the payments were not taxable, the Tribunal upheld the CIT(Appeals) decision, dismissing the Revenue's appeal for lacking merit. The order was pronounced on June 10, 2014, in Chennai.