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2017 (12) TMI 1730 - AT - Income TaxTDS u/s 195 - payment of commission was made to NRI - addition u/s 40(a)(ia) - lower authorities has sustained the disallowance of payment of sales commission to an NRI without deducting TDS by taking a view that circular has been withdrawn and treating the sales commission as fee for technical services - HELD THAT - It is pertinent to note that this commission was given for procuring the export orders from outside India. Sourcing orders abroad for which payment had been made directly to the nonresident does not fall in the category of technical services and transactions do not partakes the character of fee for technical services as explained in Section 9(ii)(vii) of the Act. Thus the commission has been paid for the services rendered outside the India. The person to whom the commission paid was not having any business connection in the India and commission so earned by him is not taxable in the India. Therefore, the provisions of Section 195 of the Act are not applicable. See M/S. FARIDA LEATHER COMPANY 2016 (2) TMI 798 - MADRAS HIGH COURT - Decided in favour of assessee.
Issues Involved:
1. Sustaining the disallowance of ?37,09,646/- under Section 40(a)(ia) of the Income Tax Act, 1961. 2. Determining whether the payment of commission to an NRI is taxable in India and subject to TDS under Section 195 of the Income Tax Act, 1961. Issue-Wise Detailed Analysis: Issue 1: Sustaining the Disallowance of ?37,09,646/- Under Section 40(a)(ia) of the Income Tax Act, 1961 The assessee, engaged in manufacturing and trading granites and other stones, filed a return declaring a total income of ?26,64,780/-. The case was selected for scrutiny, and the assessment was completed under Section 143(3) of the Income Tax Act, 1961, determining the income at ?63,74,430/- by making various additions, including the disallowance of ?37,09,646/- under Section 40(a)(ia). The CIT(A) confirmed the addition, asserting that the payment of commission was made to an NRI without deducting TDS, which was in violation of Section 195 of the Act. Issue 2: Determining Whether the Payment of Commission to an NRI is Taxable in India and Subject to TDS Under Section 195 of the Income Tax Act, 1961 The assessee contended that the commission payment to Salwa Mohammad Abdul Rehman, an NRI based in Jeddah, Saudi Arabia, was not taxable in India, and hence, no TDS was required. The assessee argued that the services were rendered outside India, and the commission was paid outside India. The lower authorities, however, treated the commission as fees for technical services (FTS) under Section 9(1)(vii) of the Act, which necessitated TDS under Section 195. The Tribunal examined the factual matrix and legal provisions, including Section 9(1)(vii) and Section 195 of the Act. It was noted that the commission was paid for procuring export orders from outside India, and the services did not qualify as technical services. The Tribunal referred to several judicial precedents, including the Hon'ble Madras High Court's decision in the case of CIT Chennai v/s Farida Leather Company, which held that sourcing orders abroad does not involve technical services and thus does not attract TDS obligations under Section 195. The Tribunal also considered the Supreme Court's ruling in G.E. India Technology Centre Pvt. Ltd. v. CIT, which clarified that TDS obligations under Section 195 arise only if the payment is chargeable to tax in the hands of the non-resident recipient. Since the commission was paid for services rendered outside India and the recipient had no tax liability in India, the provisions of Section 195 were not applicable. Conclusion: The Tribunal concluded that the commission paid to the NRI for procuring export orders did not fall under the category of technical services and was not taxable in India. Consequently, the provisions of Section 195 were not applicable, and the disallowance of ?37,09,646/- under Section 40(a)(ia) was not justified. The appeal of the assessee was allowed, and the order pronounced in the open court on 26/12/2017.
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