2018 (10) TMI 2004 - AT - Income Tax

TDS u/s 195 - Non-deduction of TDS u/s 40(a)(ia) on commission to foreign entities - scope for taxing any payments whose genesis was outside India - HELD THAT - As decided in own case 2018 (7) TMI 1620 - ITAT DELHI as relying on Kikani Exports Pvt. Ltd 2014 (9) TMI 96 - MADRAS HIGH COURT non-resident commission agents based outside India rendering services of procuring orders cannot be said to have a business connection in India and the commission payments to them cannot be said to have been either accrued or arisen in India - we are of the considered opinion that the assessee is not liable to deduct tax under the provisions of section 195 on account of foreign agency commission paid outside India for promotion of export sales outside India. Accordingly, the order of the CIT(A) is set-aside and the grounds raised by the assessee are allowed.

Summary

Issues:
Appeal against deletion of addition on account of non-deduction of TDS under section 40(a)(ia) of the Income Tax Act.

Analysis:
1. The assessee, engaged in exporting and importing sanitary wares, tiles, and wholesale trading, faced scrutiny regarding a commission payment to a Dubai resident. The Assessing Officer disallowed the commission due to non-deduction of TDS.

2. The CIT(A) allowed the claim, stating that payments with origins outside India are not taxable under sections 5 and 9 of the Act. The decision referenced RBI guidelines and a withdrawn CBDT Circular, highlighting that income accrual in India is crucial for taxation.

3. The revenue appealed, but the Tribunal noted a previous decision favoring the assessee in a similar case. The Tribunal emphasized the importance of income source and cited relevant case laws, including the Supreme Court's stance on non-resident agent commissions not being taxable in India.

4. Considering the precedent and legal interpretations, the Tribunal dismissed the revenue's appeal, upholding the decision to delete the addition. The judgment aligns with the principle that foreign agency commissions for services rendered outside India are not subject to TDS under section 195 of the IT Act.

This comprehensive analysis delves into the legal intricacies, precedents, and interpretations that led to the dismissal of the revenue's appeal regarding TDS deduction on foreign commissions.