2014 (9) TMI 96 - HC - Income Tax

TDS not deducted on export commission paid - Whether the Tribunal was correct in deleting the disallowance made by the AO towards export commission paid by the assessee to the non- resident on which it failed to deduct tax at source Held that - The assessee paid amount by way of commission to foreign agents for services rendered outside India following the decision in The Commissioner of Income Tax v. Faizan Shoes Private Limited 2014 (8) TMI 170 - MADRAS HIGH COURT - the assessee is not liable to deduct tax at source when the non-resident agent provides services outside India on payment of commission - the services rendered by the non-resident agent can at best be called as a service for completion of the export commitment and would not fall within the definition of fees for technical services - Section 9 of the Act is not applicable to the case, Section 195 of the Act does not come into play - The services rendered by the non-resident agent can at best be called as a service for completion of the export commitment and would not fall within the definition of fees for technical services and, Section 9 of the Act is not applicable and Section 195 of the Act does not come into play Decided against Revenue.

Summary

Issues:
Challenge to the order of the Income Tax Appellate Tribunal regarding deduction of foreign agency commission paid to non-resident foreign companies without tax deduction at source.

Analysis:
The appeal was filed by the Revenue challenging the order of the Income Tax Appellate Tribunal regarding the deduction of foreign agency commission paid to non-resident foreign companies without tax deduction at source. The Commissioner of Income Tax-I issued a show cause notice under Section 263 of the Income Tax Act, setting aside the assessment order and directing the Assessing Officer to re-do assessment considering the disallowance of foreign agency commission paid without tax deduction at source. The Tribunal allowed the appeal filed by the assessee, stating that the provisions of Sections 195 and 9 of the Act are not applicable to the case, as the foreign agents were only appointed on a sales commission basis in various countries. The Revenue appealed this decision.

The main substantial question of law raised was whether the Tribunal was correct in deleting the disallowance made by the assessing officer towards export commission paid by the assessee to the non-resident without deducting tax at source. The Tribunal's decision was based on the fact that the services rendered by the non-resident agent were for the completion of the export commitment and did not fall within the definition of fees for technical services. The Tribunal found that Section 9 of the Act was not applicable to the case, and consequently, Section 195 of the Act did not come into play.

The court considered a similar issue in a previous case and cited the decision of the Supreme Court in Commissioner of Income Tax v. Toshoku Limited. The court held that the commission amounts earned by non-resident assesses for services rendered outside India cannot be deemed as incomes accrued or arisen in India. The court found no infirmity in the Tribunal's order confirming the decision of the Commissioner of Income Tax (Appeals). Therefore, the court answered the substantial question of law against the Revenue and dismissed the appeal without costs.