2015 (6) TMI 548 - AT - Income Tax

Disallowance under section 40 (a)(i) - CIT(A) deleted disallowance - whether foreign agency commission paid by the assessee to the non residents/payee attracts disallowance under section 40 (a)(i) for non deduction of TDS? - Held that - It transpires from the case file the assessee has paid foreign exchange commission to its non-resident agent who do not have any permanent establishment in India. There is no material to prove that these payment have arisen out of an agreement executed in India. Nor there is any evidence to conclude that the non-resident/payee has rendered any technical service to the assessee. The Revenue also fails to prove the payments to have been accrued, arisen or paid in India so as to make it taxable under provision of the Act. Thus we hold that the assessee was not liable to deduct TDS qua abovestated commission paid to its non resident payees. Accordingly, the CIT(A) s findings stand affirmed. - Decided in favour of assessee.

Summary

Issues:
Disallowance under section 40(a)(i) for non-deduction of TDS on commission paid to non-residents.

Analysis:

1. Issue of Disallowance under Section 40(a)(i):
- The Revenue's appeal was based on the disallowance under section 40(a)(i) for non-deduction of TDS on commission paid to non-residents. The Assessing Officer disallowed the sum of &8377; 58,80,824/- as the commission amount accrued to a non-resident payee on account of business activity in India without TDS deduction. The CIT(A) accepted the assessee's contentions, highlighting that the commission was for procuring orders abroad and was not taxable in India under section 9 of the Income Tax Act, 1961.

2. Contentions and Legal Interpretations:
- The CIT(A) considered various arguments presented by the appellant, emphasizing that the services rendered outside India did not attract taxation in India under section 5. The appellant relied on judicial pronouncements and circulars to support their position, asserting that the commission income did not accrue to non-residents in India. The CIT(A) referenced decisions by ITAT Hyderabad and Delhi High Court to support the appellant's stance.

3. Judicial Precedents and Rulings:
- The CIT(A) referred to the Supreme Court's ruling in GE India Technology Centre (P) Ltd. v. CIT, emphasizing that if the amount is not taxable under the Act, no deduction of tax is warranted. Additionally, the CIT(A) cited ITAT decisions in favor of the appellant in similar cases, indicating that the commission received by the non-resident agent did not arise in India, thus absolving the appellant from TDS obligations.

4. Final Decision and Dismissal of Appeal:
- After reviewing the case file and considering the lack of evidence supporting the Revenue's claim, the Tribunal affirmed the CIT(A)'s findings. The Tribunal concluded that the commission paid to non-resident payees did not attract TDS liability as it did not accrue, arise, or get paid in India, aligning with the legal principles and precedents cited. Consequently, the Revenue's appeal was dismissed, upholding the decision in favor of the appellant.

This detailed analysis showcases the legal arguments, interpretations, precedents, and final decision made in the judgment related to the disallowance under section 40(a)(i) for non-deduction of TDS on commission paid to non-residents.