2017 (11) TMI 1844 - AT - Income Tax

Income accrued in India - payment of commission to non-resident is taxable in India in view of the provisions of Sec. 9(1)(i) - income of the non-resident by way of payment of commission - HELD THAT - Respectfully following the decisions of the co-ordinate bench of this Tribunal in the cases of Exotic Fruits (P) Ltd 2013 (10) TMI 826 - ITAT BANGALORE ; and Puma Sports India Pvt. Ltd. (supra); we also hold that the income of the non-resident A V Sons by way of payment of commission in the case on hand cannot be considered as being accrued or arisen or deemed to accrue or arise in India as the services were rendered outside India and the commission was also paid outside India. We also hold that in the absence of permanent establishment of A V Sons in India the income of the said agent is not exigible to tax in India. Therefore the assessee was not obliged to effect any deduction of tax on the commission payment to the agent A V Sons who is stationed outside India. We therefore reverse the findings of the authorities below in this regard and allow the grounds raised in the appeal by the assessee.

Summary

Issues Involved:
Taxability of commission payment to non-resident entity under Section 40(a)(i) of the Income Tax Act for non-deduction of tax at source.

Analysis:
The case involved an appeal by the assessee against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2010-11. The assessee, engaged in manufacturing, trading, servicing, and maintenance of food processing machines, filed its return of income initially declaring total income of ?28,83,00,988, which was later revised to ?28,15,14,861. The issue arose from a payment of ?23,04,348 made to a non-resident company for services in Pakistan, which the Assessing Officer disallowed under Section 40(a)(i) for non-deduction of tax at source. The assessment was concluded under Section 143(3) of the Act, determining the assessee's income at ?28,38,19,248, including the disallowed commission payment.

The assessee contended that the commission payments to the non-resident entity were not taxable in India as the services were rendered in Pakistan, and the payments were made outside India. The assessee relied on previous tribunal decisions to support this argument. In contrast, the Departmental Representative argued that the withdrawal of certain circulars implied taxability in India under Section 9(1)(i) of the Act. The assessee's representative countered this by stating that taxability should be evaluated independently of circulars based on the Act and judicial pronouncements.

After considering the arguments and relevant judicial decisions, the Tribunal found that the commission payment to the non-resident entity could not be considered as accrued or arisen in India, as the services were rendered and utilized outside India, and the payment was made abroad. Citing precedents, the Tribunal held that in the absence of a permanent establishment in India, the income of the non-resident entity was not liable to tax in India. Consequently, the Tribunal reversed the findings of the lower authorities, allowing the assessee's appeal for the Assessment Year 2010-11.

In conclusion, the Tribunal ruled in favor of the assessee, holding that the commission payment to the non-resident entity was not taxable in India due to the services being rendered outside India and the absence of a permanent establishment in India. The decision was based on previous tribunal judgments and the interpretation of relevant tax provisions.