2019 (3) TMI 1926 - AT - Income Tax

TDS u/s 195 - payments abroad of export commission to non-resident the foreign agent for the procurement of export orders - disallowance u/s 40(a)(i) - CIT-A said commission paid to foreign agent for procurement of export orders is in the nature of business income of the foreign agent and not FTS, thus not liable to TDS and deleted the addition - HELD THAT - Issue is covered in favour of the assessee in case of DIT Vs. Panalfa Autoelektrik Ltd. 2014 (9) TMI 706 - DELHI HIGH COURT wherein it is held that commission paid by the assessee to its foreign agent for arranging of export sales and recovery of payments could not be regarded as Fee for Technical Services u/s 9(1)(vii). In the present case, the commission was paid to ACE Trading, a non-resident agent (payee) who is a tax resident of France. The payee was simply assisting inprocuring export orders for the Assessee in his ordinary course of business in France. The commission was paid for activities of the payee outside India and the amount is received by the payee outside India through normal banking channels. Section 5(2) states that total income of a person, who is a non-resident, includes income from all sources which (a) is received or deemed to be received in India; (b) accrues or arises in India; or (c) is deemed to accrue or arise in India. In the present case, the commission income paid to the foreign agent neither accrued in India nor deemed to be accrued in India as per deeming provisions of section 9 and nor the same was received nor deemed to be received in India. Thus, there is no need to interfere with the findings of the CIT(A). The Appeal of the Revenue is dismissed.

Summary

Issues:
Applicability of TDS u/s 195 on payments abroad of export commission to non-resident foreign agent and disallowance u/s 40(a)(i) of the Income Tax Act, 1961.

Analysis:

1. Applicability of TDS u/s 195:
The case involved a dispute regarding the treatment of commission paid on export sales as fee for technical services u/s 9(1)(vii). The assessee, a Hindu Undivided Family engaged in the business of exporting leather footwear, appointed a non-resident agent in France for assistance in procuring export orders. The commission paid to the foreign agent was for activities conducted outside India and was received by the agent in France through normal banking channels. The Assessing Officer disallowed the commission payment, citing it as liable to TDS u/s 195. However, the CIT(A) held that the commission paid to the foreign agent for procurement of export orders constituted business income and not fee for technical services, thus not subject to TDS. This decision was supported by legal precedents and documents submitted by the assessee.

2. Disallowance u/s 40(a)(i):
The Assessing Officer disallowed the commission payment under section 40(a)(i) for failure to deduct TDS. The CIT(A), after considering the submissions and legal position, concluded that the commission payment was not subject to TDS u/s 195. The Revenue challenged the CIT(A)'s order, arguing that it lacked an independent finding and merely echoed the assessee's contentions. However, the CIT(A) had considered relevant factors and legal precedents in reaching the decision. The Tribunal upheld the CIT(A)'s decision, citing precedents where similar commission payments were not treated as fee for technical services under section 9(1)(vii).

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision that the commission paid to the non-resident agent for procurement of export orders did not fall under the purview of fee for technical services u/s 9(1)(vii) and was not subject to TDS u/s 195. The Tribunal found no grounds to interfere with the findings of the CIT(A) based on the facts presented, legal provisions, and precedents. Therefore, the appeal of the Revenue was dismissed, and the decision was pronounced in open court on 27th March 2019.