2018 (1) TMI 884 - AT - Income Tax

Disallowance u/s 40(a)(i) - commission paid to non-resident commission agents by the assessee - non deduction of tds - PE in India existence - income accrued in India - Held that - Commission was paid for services provided to the assessee out of India which was remitted directly outside India and was not received by them or on their behalf by any third party. It is also a matter of record that the assessee has furnished Form 15CA in terms of Rule 37(BB) of the Income Tax Rules which is on record. Income of non-resident agents cannot be considered to accrue or arise or deemed to be received in India when the services rendered by the non-residents and the agents were outside India and the commission was also payable or paid to them outside India. In absence of Permanent Establishment in India, there is no liability to withhold deduction of payment of commission to the foreign agents. Therefore, in as the assessee had duly discharged its duty in filing the required Form 15CA with respect to the foreign remittances, we find no reason to interfere with the findings of the Ld. CIT (A) and we dismiss the grounds raised by the department.

Summary

Issues:
1. Disallowance made under section 40(a)(i) of the Income Tax Act, 1961.
2. Disallowance under section 14A of the Act.

Analysis:

Issue 1: Disallowance under section 40(a)(i) of the Income Tax Act, 1961
The appeal was filed by the revenue against the order of the Ld. Commissioner of Income Tax (A)-IX, New Delhi, where disallowance made by the Assessing Officer under section 40(a)(i) of the Act regarding commission paid to non-resident agents was deleted. The assessee, engaged in manufacturing and trading, had filed a return of income declaring a certain amount, but the assessment was completed at a different income after disallowances. The Ld. CIT(A) allowed both grounds of the assessee, leading to the revenue's appeal. The department raised grounds questioning the deletion of the disallowance, emphasizing the liability for withholding tax on commission paid to non-resident agents accruing or arising in India. The Departmental Representative argued that the commission accrued in India and was liable for tax deduction before payment to non-residents.

Issue 2: Disallowance under section 14A of the Act
Additionally, a disallowance under section 14A of the Act was made by the Assessing Officer, which was also a subject of appeal. However, detailed arguments or discussions regarding this specific disallowance were not provided in the judgment.

The Ld. AR contended that the assessee was not required to deduct tax at source under section 195 of the Act as the services were provided outside India by non-resident agents, and the commission paid was not chargeable in India as per section 9 of the Act. The AR highlighted that the payments were for procuring export orders and were made in foreign currency to non-residents without business connections in India. The AR also mentioned the submission of Form 15CA and 15CB to the bank as per the Act's requirements. The Tribunal noted the undisputed facts that the non-resident agents operated outside India, the commission was for services provided abroad, and the remittances were made outside India. It was established that the income of non-resident agents did not accrue or arise in India, especially in the absence of a Permanent Establishment in India. The Tribunal upheld the Ld. CIT(A)'s decision, stating that the assessee had fulfilled its obligations by submitting Form 15CA and dismissed the department's appeal.

In conclusion, the Tribunal dismissed the department's appeal, upholding the decision of the Ld. CIT(A) regarding the disallowance under section 40(a)(i) of the Act, based on the non-resident agents' services provided outside India and the absence of a Permanent Establishment in India. The judgment did not provide detailed analysis or resolution regarding the disallowance under section 14A of the Act.