2016 (3) TMI 1308 - AT - Income Tax

TDS u/s 195 - disallowance u/s. 40(a)(ia) - commission paid to non-resident agent for his services rendered outside India - Held that - In the present case, there is no dispute that the payment of commission by assessee is not in the nature of fee for technical service. The commission was paid to foreign agent for procuring order. Thus, in view all we hold that the assessee was not liable to deduct tax on the commission paid to non-resident agent for his services rendered outside India. Accordingly, no disallowance u/s. 40(a)(i) could have been made in the case of the assessee. - Decided in favour of assessee

Summary

Issues Involved:
Disallowance under section 40(a)(i) of the Income Tax Act for non-deduction of tax at source on commission paid to a foreign agent.

Detailed Analysis:

1. Background and Facts:
The assessee, engaged in manufacturing precision instruments, filed a return for the assessment year 2010-11 declaring an income of Rs. 1,95,25,727/-. During scrutiny, the Assessing Officer (AO) noted a payment of Rs. 8,17,740/- as commission to Mod-en Italy without tax deduction at source (TDS) under section 195 of the Income Tax Act. Consequently, the AO disallowed the commission under section 40(a)(i).

2. Assessee's Appeal:
The assessee contested this disallowance before the Commissioner of Income Tax (Appeals) [CIT(A)], who upheld the AO's decision. The assessee then appealed to the Tribunal, arguing that the commission was paid to a foreign agent for services rendered outside India, which should not attract TDS under section 195.

3. Assessee's Arguments:
The assessee's representative argued that:
- The commission was paid to Mod-en Italy for procuring orders from Fiat Automobiles Pvt. Ltd., Pune, a subsidiary of Fiat, Italy.
- The foreign agent conducted all activities outside India and had no permanent establishment in India.
- Payments were remitted abroad through banking channels.
- The services were not technical, hence outside the purview of section 195.
- The assessee relied on CBDT Circular No. 23 of 1969 and Circular No. 786 dated 07-02-2000, which clarify that no TDS is required for commission payments to non-residents for services rendered outside India.
- The assessee also cited judicial precedents supporting their stance.

4. Revenue's Arguments:
The Revenue's representative argued that:
- The commission was for procuring orders from an Indian entity, implying services were rendered in India.
- The assessee was thus liable to deduct TDS under section 195.
- The Revenue relied on the decision in Commissioner of Income Tax Vs. Havells India Ltd. and noted that Circular No. 23 of 1969 was withdrawn.

5. Tribunal's Findings:
The Tribunal analyzed the submissions and found:
- The services were rendered by the foreign agent outside India, and the agent had no permanent establishment in India.
- The commission was not for technical services.
- The CBDT Circular No. 786 of 2000 clarified that no TDS is required for export commission payable to non-residents for services rendered outside India.
- The case of Commissioner of Income Tax Vs. Faizan Shoes Pvt. Ltd. (Madras High Court) supported the assessee's position that commission paid to non-resident agents for procuring orders is not chargeable to tax in India.
- The Supreme Court in GE India Technology Centre Vs. Commissioner of Income Tax held that TDS under section 195 applies only if the payment is chargeable to tax in India.

6. Conclusion:
The Tribunal concluded that the assessee was not liable to deduct TDS on the commission paid to the non-resident agent for services rendered outside India. Consequently, no disallowance under section 40(a)(i) was warranted.

7. Decision:
The appeal of the assessee was allowed, and the findings of the Assessing Officer were set aside.

Order Pronouncement:
The order was pronounced on Monday, the 14th day of March, 2016.