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2015 (10) TMI 2786 - AT - Income TaxTDS u/s 195 - payment made for rendering of any managerial or consultancy service rendered by non resident agent without TDS - Addition u/s. 40(a)(ia) - whether or not the payments in question can be treated as managerial or consultancy service rendered by non-resident? - HELD THAT - The facts of the present case are akin to the facts of the decision in Toshoku Ltd.'s case 1980 (8) TMI 2 - SUPREME COURT . In the instant case also the assessee engaged the services of non-resident agent to procure export orders and paid commission. The assessee is not liable to deduct tax at source when the non-resident agent provides services outside India on payment of commission. Services rendered by the non-resident agent can at best be called as a service for completion of the export commitment and would not fall within the definition of fees for technical services, we are the firm view that section 9 of the Act is not applicable to the case on hand and, consequently, section 195 of the Act does not come into play. In view of the above finding, the decision of the Supreme Court in Transmission Corporation of A.P. Ltd.'s 1999 (8) TMI 2 - SUPREME COURT relied upon by the learned standing counsel for the Revenue is not applicable to the facts of the present case. We find no infirmity in the order of the Tribunal in confirming the order of the Commissioner of Income-tax (Appeals).' - Decided against revenue.
Issues Involved:
1. Applicability of Section 40(a)(i) of the Income Tax Act, 1961 regarding disallowance of commission payments to non-resident agents without TDS. 2. Interpretation of "managerial or consultancy services" under Section 9(1)(vii) of the Income Tax Act. 3. Taxability of income accruing or arising outside India for non-resident agents. Issue-wise Detailed Analysis: 1. Applicability of Section 40(a)(i) of the Income Tax Act, 1961: The primary issue addressed in the judgment is whether the CIT(A) erred in deleting the addition of Rs. 54,32,213/- made under Section 40(a)(i) of the Act for payments to non-resident agents without TDS. The Assessing Officer had disallowed the commission payments on the grounds that they were for managerial services, thus requiring TDS under Section 195 of the Act. The CIT(A) held that the provisions of Section 40(a)(i) and Section 195 did not apply as the non-resident agents did not have any permanent establishment in India and did not render services in India. The Tribunal upheld the CIT(A)'s view, emphasizing that the payments were not for managerial or consultancy services, and thus, TDS was not required. 2. Interpretation of "Managerial or Consultancy Services" under Section 9(1)(vii): The Tribunal examined whether the commission payments to non-resident agents could be classified as "fees for technical services" under Section 9(1)(vii) of the Act. Citing the Madras High Court's decision in CIT vs. Orient Express, the Tribunal noted that the non-resident agents were paid commission for procuring orders, which did not constitute managerial or consultancy services. The court observed that the services provided by the non-resident agents were incidental to the export business and did not involve any technical or managerial expertise. Consequently, the payments did not fall under the definition of "fees for technical services," and Section 195 did not apply. 3. Taxability of Income Accruing or Arising Outside India for Non-Resident Agents: The Tribunal also considered whether the income earned by non-resident agents from commission payments was taxable in India. Referring to the Supreme Court's decision in CIT v. Toshoku Ltd., the Tribunal noted that the non-resident agents did not carry out any business operations in India. The commission earned was for services rendered outside India, and thus, the income could not be deemed to accrue or arise in India. The Tribunal concluded that since the income was not taxable in India, the provisions of Section 195 requiring TDS did not apply. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the disallowance of Rs. 54,32,213/- under Section 40(a)(i) of the Act. The Tribunal affirmed that the commission payments to non-resident agents did not constitute managerial or consultancy services and were not taxable in India. Therefore, the requirement to deduct tax at source under Section 195 did not arise. The judgment reiterates the principle that commission payments for services rendered outside India by non-resident agents are not subject to TDS under Indian tax laws.
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