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2018 (2) TMI 968 - AT - Income TaxTDS u/s 195 - payment made to non-residents towards the services rendered by them - non deduction of tds - existence of PE in India - income accrual in India - Held that - The provision of section 5(2)(b) r.w.s. 9(1)(i) of I.T. Act are not applicable as the payee has not earned any income in India as the services by the foreign agents have been rendered outside India without having any PE or business connection in India.The Hon ble Apex Court in the case of Toshoku (1980 (8) TMI 2 - SUPREME Court) held that commissions earned by the non-resident acting as selling agent for the Indian exporter wherein such non-resident was rendering services from outside India doses not accrue in India. Further the decision of the Hon ble Supreme Court in the case of G.E. India Technology Centre P. Ltd. Vs. CIT ( 2010 (9) TMI 7 - SUPREME COURT OF INDIA ) has rightly supported the case of the assessee that tax is not deductible in the case of the assessee. Thus the non-resident commission agents had rendered services outside India and they were not having P E in India therefore, we uphold the decision of the ld. CIT(A) that the assessee was not liable to deduct tax on the commission paid to foreign agents - Decided in favour of assessee
Issues Involved:
1. Taxability of commission paid to foreign agents under sections 5(2)(b) and 9(1)(i) of the Income Tax Act. 2. Applicability of section 195(2) regarding deduction of tax at source. 3. Genuineness of the commission payments and services rendered by foreign agents. Issue-Wise Detailed Analysis: 1. Taxability of Commission Paid to Foreign Agents: The primary issue was whether the commission paid to foreign agents is taxable in India under sections 5(2)(b) and 9(1)(i) of the Income Tax Act. The Assessing Officer (AO) argued that the income arising from the commission payable to overseas agents is deemed to accrue or arise in India and is taxable under these provisions. However, the CIT(A) concluded that the commission was for services rendered outside India, with no activities performed in India. The CIT(A) relied on the Supreme Court judgment in the case of Toshoku, which held that commission earned by non-residents for acting as selling agents for Indian exporters, where services were rendered from outside India, does not accrue in India. The Tribunal upheld this view, noting that the AO failed to establish any business connection or permanent establishment (PE) of the foreign agents in India. 2. Applicability of Section 195(2): The second issue was whether the provisions of section 195(2) were applicable, requiring the assessee to deduct tax at source or obtain a no deduction certificate. The CIT(A) observed that for section 195 to apply, the sum must be chargeable under the Income Tax Act. Since the income was not received in India nor accrued or arisen in India, there was no liability to deduct tax. The Tribunal supported this view, referencing the Supreme Court decision in GE India Technology Centre Pvt. Ltd., which clarified that tax is not deductible if the income is not chargeable to tax in India. 3. Genuineness of Commission Payments and Services Rendered: The third issue was whether the commission payments were genuine and whether the services were rendered. The AO briefly questioned the genuineness of the payments, but the assessee provided detailed evidence during the appellate proceedings, including correspondences, invoices, debit notes, and bank transaction details. The CIT(A) found these evidences sufficient to prove the genuineness of the commission payments and the services rendered. The Tribunal also reviewed the evidence and confirmed that the assessee had adequately demonstrated the authenticity of the transactions. Conclusion: The Tribunal concluded that the commission paid to foreign agents was not taxable in India as the services were rendered outside India, with no PE or business connection in India. Consequently, there was no obligation to deduct tax under section 195. The Tribunal upheld the CIT(A)'s decision to delete the disallowance of Rs. 51,99,991/- under section 40(a)(ia) and dismissed the Revenue's appeal. The judgment reaffirmed the principles laid down in the Supreme Court decisions of Toshoku and GE India Technology Centre Pvt. Ltd., emphasizing that income not chargeable to tax in India does not attract TDS provisions.
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