2015 (2) TMI 1281 - AT - Income Tax

TDS u/s 195 - Non-deduction of TDS on payment of commission to Foreign Agent - income accrued in India - Held that - As decided in INCOME-TAX OFFICER, CO. WARD-II(1) VERSUS FAIZAN SHOES (P.) LTD. 2014 (1) TMI 440 - ITAT CHENNAI Non-residents were only procuring orders for the assessee and following up payments and apart from that, no other services were being rendered. That since non-residents were not providing any technical services to assessee, payments made to them did not fall under category of royalty or fee for technical services u/s 9(1)(vii. Even otherwise, since commission paid to non-resident was not taxable in India, the assessee was not required to deduct tax at source while making said payments. The facts in the present case are identical because in the present case also, commission was paid to non-resident for procuring orders without deducting tax. Considering Circular No.7/2009 dated 22/10/2009 as per which Circular No. 786 dated 07/02/2000 was withdrawn, it comes out that in the facts of the present case, no TDS was required to be deducted because as per this circular in the case of payment of commission to foreign agents, nothing was required to be seen and examined and it could be concluded that no TDS was required to be deducted. Since, in the present case, this is not a case of the revenue that the services were rendered in India or the payment was made in India and the incomes in the hands of the non resident agent can be considered as deemed to accrue or arise in India by way of operation of section 9 (1), no disallowance can be made u/s 40(a)(i) - Also considered the explanation to section 9(2) and have seen that this explanation also has no relevance in the present case and therefore, we decline to interfere in the order of CIT(A). - Decided in favour of assessee.

Summary

Issues Involved:
Revenue's appeal against deletion of addition for non-deduction of TDS on commission to Foreign Agent for technical services; Interpretation of Income Tax Act provisions on Fee for Technical Services (FTS); Applicability of Finance Act, 2010 explanation on income of non-residents; Impact of Board's Circular No. 7/2009 on TDS requirements; Analysis of relevant case laws on taxation of commission payments to non-residents.

Analysis:
The Revenue appealed against the deletion of an addition for non-deduction of TDS on commission paid to a Foreign Agent for technical services. The Revenue contended that the services provided by the agent fell under the narrow definition of Fee for Technical Services (FTS) as per the Income Tax Act. However, the Tribunal examined the nature of services rendered by the foreign agents and cited a judgment of the Bombay High Court, which stated that income received by a non-resident for services rendered outside India is not taxable in India. The Tribunal concluded that since the services were provided outside India, no TDS was required to be deducted, and the addition was deleted.

Regarding the applicability of the Finance Act, 2010 explanation on income of non-residents, the Tribunal clarified that the clauses pertaining to royalty and FTS were not relevant in the case of commission payments. Therefore, the explanation had no bearing on the issue at hand. Additionally, the impact of Board's Circular No. 7/2009 was discussed, highlighting that the withdrawal of Circular No. 786 necessitated a case-by-case examination of tax liability for non-resident agents. Since the foreign commission agents did not render services in India or receive payments in India, no TDS was required, and the disallowance under section 40(a)(i) was unwarranted.

The CIT(A) decision was supported by various judgments, including the Delhi High Court and Tribunal decisions, emphasizing that commission payments to non-residents for procuring orders did not constitute FTS under the Act. The Tribunal concurred with the CIT(A) and dismissed the Revenue's appeal, noting that no TDS was required based on the specific circumstances of the case. In conclusion, the Tribunal upheld the deletion of the addition and ruled in favor of the assessee, emphasizing the non-taxability of the commission payments to non-residents for services rendered outside India.