2021 (1) TMI 1283 - AT - Income Tax

TDS u/s 195 - Non deduction of TDS - commission expenses on export sales - expenses incurred are in the nature of fee for technical services and thus falls within the sweep of Section 9(1)(vii) r.w. Explanation (2) thereto as against the claim of the assessee that commission payments are business expenses without involvement of any managerial, technical or consultancy services - HELD THAT - It is the case of the assessee that the remittance have been made towards commission payments almost to the same parties as in the earlier years for which favourable view has been taken by the Tribunal on facts. It is the case of the assessee that the commission agents have rendered the services abroad and the situs of accrual or receipt of their commission income is outside India. It is further claimed that services rendered by agents have been utilized by the assessee outside India in procuring the export orders. The issue is squarely covered in favour of the assessee by the decision of co-ordinate bench for AY 2010-11 as rightly acknowledged by the CIT(A). The commission payments are seen to be made to the similar set of parties as in AY 2010-11. The allegation on behalf of the Revenue that expenses incurred are covered in the wider definition of fees for technical services as defined in Explanation (2) to Section 9(1)(vii) of the Act is devoid of any rationale. Except for bald allegation of the services being akin to managerial or consultancy services, the AO has not brought any material on record to discard the stand of assessee. The co-ordinate Bench of Tribunal has duly analyzed this aspect in length 2017 (11) TMI 562 - ITAT AHMEDABAD in the case of assessee itself and has delivered a speaking order in favour of the assessee on all aspects of subject matter on facts. The services in respect of commission expenses are stated to be rendered outside India as well as utilized outside India and therefore the income arising by way of commission against rendition of agency services cannot be deemed to accrue or arise in India in the hands of the recipients of such commission payments. In the circumstances, where the income arising to non-resident commission agents is not found to be chargeable in India under S.4 r.w.s. 5(2) of the Act, the obligation u/s 195 of the Act for deduction of tax at source cannot be fastened upon the remitter assessee. In the absence of statutory obligation arising u/s 195 for deduction of tax in the absence of chargeability of remittances, the corresponding disallowance u/s 40(a)(i) is without any merit and thus uncalled for. We thus see no error in the action of the CIT(A) who has rightly applied the decision of the Tribunal in the facts of the case. Appeal of the Revenue is dismissed.

Summary

Issues:
1. Disallowance of claim towards commission expenses due to non-deduction of TDS.
2. Nature of expenses incurred: commission payments vs. fee for technical services.
3. Interpretation of Section 40(a)(i) and Section 9(1)(vii) of the Income Tax Act, 1961.
4. Applicability of the decision of the Tribunal in AY 2010-11 to the current case.

Issue 1: Disallowance of claim towards commission expenses due to non-deduction of TDS:
The Assessing Officer (AO) disallowed a claim towards commission expenses on export sales due to the non-deduction of tax at source under Section 195(1) of the Income Tax Act. This disallowance was based on invoking Section 40(a)(i) of the Act, resulting in the disallowance of 30% of the expenses claimed. The AO considered the expenses to be in the nature of 'fee for technical services,' falling under Section 9(1)(vii) of the Act.

Issue 2: Nature of expenses incurred - commission payments vs. fee for technical services:
The primary dispute revolved around whether the expenses incurred by the assessee were commission payments or fee for technical services. The Revenue argued that the expenses were akin to fee for technical services, making them taxable under Section 9(1)(vii) of the Act. On the other hand, the assessee contended that the payments were commission expenses for pure agency services, not falling under the purview of Section 9(1)(vii).

Issue 3: Interpretation of Section 40(a)(i) and Section 9(1)(vii) of the Income Tax Act, 1961:
The case involved a detailed analysis of Section 40(a)(i) and Section 9(1)(vii) of the Act. The Revenue argued for the application of Section 40(a)(i) due to non-deduction of TDS, while the assessee relied on the interpretation of Section 9(1)(vii) to support their claim that the payments were commission expenses not subject to tax deduction at source.

Issue 4: Applicability of the decision of the Tribunal in AY 2010-11 to the current case:
The decision of the Tribunal in the assessee's case for AY 2010-11 played a crucial role in the current dispute. The CIT(A) referred to the Tribunal's decision in AY 2010-11, where it was held that commission payments made to non-resident agents did not have tax implications in India. The Tribunal's decision in AY 2010-11 was deemed binding, supporting the assessee's contention that the commission payments were not taxable in India.

In the final judgment, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition made by the AO. The Tribunal found that the commission payments made to non-resident agents were not chargeable to tax in India, as established by the decision of the co-ordinate bench for AY 2010-11. The Tribunal concluded that the expenses were commission payments for agency services rendered outside India, not falling under the scope of fee for technical services under Section 9(1)(vii) of the Act. Therefore, the disallowance under Section 40(a)(i) was deemed unjustified, and the CIT(A) was correct in applying the Tribunal's decision to the current case.