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2018 (3) TMI 294 - AT - Income TaxTDS u/s 195 - payment of export commission made by the assessee company to two non-resident agents for services rendered outside India - non deduction of tds - addition u/s. 40(a)(ia) - Income deemed to accrue or arise in India - Held that - It is beyond doubt the payment for the commission was not received by the foreign agents in India. Therefore, the same cannot be taxed in India as per clause (a) of sub-section (2) of section 5 of the Act. Similarly, we further note that the income was received by the foreign agents on account of services rendered by then in their respective countries. Therefore, we conclude that such income has not accrued or arisen in India and consequential not chargeable to tax in India. Assessee paid Commission to foreign agent is not the income chargeable to tax in India. Once an income is not chargeable to tax in India then the question of deducting TDS under the provision u/s 195 of the Act does not arise. - Decided in favour of assessee
Issues Involved:
1. Disallowance of ?15,42,693/- under Section 40(a)(ia) for non-deduction of TDS on export commission paid to non-resident agents under Section 195 of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Disallowance under Section 40(a)(ia) for Non-deduction of TDS: The assessee, a limited company engaged in manufacturing tea, cloth, and yarn, paid commission to two non-resident agents based in Hong Kong for services rendered outside India. The Assessing Officer (AO) disallowed the commission payment of ?15,42,693/- under Section 40(a)(ia) for non-deduction of TDS under Section 195, citing that the income was taxable in India as there was no Double Taxation Avoidance Agreement (DTAA) with Hong Kong. Arguments by the Assessee: - The commission was paid for services rendered outside India. - The agents had no business connection or establishment in India. - The commission income cannot be deemed to have accrued or arisen in India. - Reliance on Circulars 786 and 23, which were later withdrawn by CBDT. Arguments by the Revenue: - The AO relied on the decision of the Authority for Advance Rulings (AAR) in the case of SKF Boilers and Driers Pvt. Ltd., which held that the commission income is deemed to accrue in India when the orders are executed in India. - The CIT(A) upheld the AO's decision, emphasizing that the commission income arose in India upon execution of orders and there was no DTAA with Hong Kong. Tribunal’s Analysis and Decision: - The Tribunal examined Section 195, which mandates TDS deduction on sums chargeable under the Act. - The Tribunal referred to Section 5(2), which includes income received or deemed to be received in India or accruing or arising in India. - It was noted that the commission was paid for services rendered outside India, and the income did not accrue or arise in India. - The Tribunal cited Section 9, which deems income to accrue in India if it arises through a business connection, property, or asset in India. The Tribunal found that the assessee’s case did not fall under these categories. - The Tribunal relied on the judgment of the Hon'ble Madras High Court in CIT vs. Farida Leather Co., which held that the tax withholding liability of the payer is vicarious and arises only if the recipient has a primary tax liability in India. - The Tribunal also referred to the ITAT Ahmedabad Bench’s decision in DCIT vs. Welspun Corporation Ltd., which held that no part of the commission income can be taxed in India if no operations are carried out in India. Conclusion: The Tribunal concluded that the commission paid to the foreign agents was not chargeable to tax in India, and thus, the assessee was not liable to deduct TDS under Section 195. Consequently, the disallowance under Section 40(a)(ia) was not justified. The Tribunal set aside the order of the CIT(A) and allowed the appeal of the assessee. Order: The appeal by the assessee was allowed, and the disallowance of ?15,42,693/- was set aside. The order was pronounced in the open court on 28/02/2018.
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