2018 (11) TMI 1644 - AT - Income Tax

TDS u/s 195 - disallowance of commission to foreign agents for non deduction of TDS - taxability in India - as per AO in terms of the provision of Section 9(1)(vii) such payments are chargeable to tax and therefore assessee is required to deduct TDS on such remittances - HELD THAT - We do not hesitate to conclude that the commission income in the hands of the foreign agents is not chargeable tax in India in the present facts and circumstances of the case and therefore the assessee is not liable to deduct TDS. The observation made by the Learned CIT(A) does not call for any interference in view of the above conclusion made by us respectfully following the judgments passed by the Co-ordinate Bench as well as judgment passed by the Apex Court we are therefore find no merit in the appeal preferred by the Revenue. Hence, same is dismissed.

Issues Involved:
1. Deletion of disallowance of commission to foreign agents.
2. Applicability of Section 40(a)(ia) of the Income Tax Act.
3. Requirement to deduct TDS under Section 195 of the Income Tax Act.
4. Taxability of payments under Section 9(1)(vii) of the Income Tax Act.
5. Proof of services rendered by foreign agents.

Detailed Analysis:

1. Deletion of Disallowance of Commission to Foreign Agents:
The revenue challenged the deletion of disallowance of commission to foreign agents amounting to ?2,93,56,350/- by the Commissioner of Income Tax (Appeals). The revenue argued that there was insufficient evidence to prove that services were rendered by the foreign agents, and thus, the disallowance under Section 40(a)(ia) of the Income Tax Act was justified.

2. Applicability of Section 40(a)(ia) of the Income Tax Act:
The Assessing Officer (AO) disallowed the commission expenses under Section 37(1) of the Act and added back the amount to the income of the assessee under Section 40(a)(ia) due to non-deduction of TDS as required under Section 195. The CIT(A) deleted this addition, concluding that the commission payments were genuine, paid through banking channels, and for business purposes.

3. Requirement to Deduct TDS Under Section 195 of the Income Tax Act:
The revenue argued that the assessee was required to deduct TDS on commission payments to non-resident agents as per Section 195. The CIT(A) and the ITAT found that the non-resident agents did not have any permanent establishment in India, and their services were rendered outside India. Therefore, the commission payments were not taxable in India, and the assessee was not required to deduct TDS.

4. Taxability of Payments Under Section 9(1)(vii) of the Income Tax Act:
The AO held that the commission payments were taxable in India under Section 9(1)(vii) of the Act. However, the CIT(A) and the ITAT concluded that the services were rendered outside India, and the agents did not have any business connection or permanent establishment in India. Hence, the payments were not deemed to accrue or arise in India, and the provisions of Section 9(1)(vii) were not applicable.

5. Proof of Services Rendered by Foreign Agents:
The AO disallowed the commission expenses due to the lack of documentary evidence proving the services rendered by the foreign agents. The assessee submitted various documents, including agreements, invoices, and bank payment details, to prove the genuineness of the commission payments. The CIT(A) and the ITAT found these documents satisfactory, establishing that the services were rendered by the foreign agents, and the payments were genuine.

Conclusion:
The ITAT upheld the CIT(A)'s order, concluding that the commission payments to foreign agents were not taxable in India, and the assessee was not required to deduct TDS under Section 195. The disallowance under Section 40(a)(ia) was deleted, and the appeal filed by the revenue was dismissed. The judgment emphasized that the commission income in the hands of foreign agents is not chargeable to tax in India, following precedents set by higher courts and previous ITAT rulings.

← Previous Next →