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2018 (5) TMI 1601 - AT - Income TaxTDS u/s 195 r.w.s 40(a)(i) - commission expenses for the services rendered by the foreign commission agents in connection with its business - non deduction of tds - identification of the parties, details of payment & services rendered not furnished - Income accrued in India - Held that - It is not the case of Revenue that payment was made by assessee on account of technical services rendered by the foreign agents - Commission income in the hands of foreign agent is not chargeable to tax in India - income shall be not deemed to accrue or arise in India as there in no business connection in India - CIT vs. Farida Leather Co 2016 (2) TMI 798 - MADRAS HIGH COURT . Once an income is not chargeable to tax in India then the question of deducting TDS under the provision of section 195 of the Act does not arise. Accordingly, we do not find any reason to interfere in the order of ld. CIT-A. - Decided in favour of assessee.
Issues Involved:
1. Deletion of disallowance made by the AO on account of export commission paid to overseas agents under Section 40(a)(i) of the Income Tax Act, 1961. 2. Non-deduction of TDS under Section 195 of the Income Tax Act, 1961. 3. Taxability of commission paid to foreign agents in India under Section 5(2)(b) read with Section 9(1)(i) of the Income Tax Act, 1961. 4. Applicability of Section 195(2) regarding the requirement to obtain a no-deduction certificate. 5. Genuineness of the commission payment and the services rendered by the foreign agents. Issue-wise Detailed Analysis: 1. Deletion of Disallowance: The Revenue contended that the CIT(A) erred in deleting the disallowance made by the AO on account of export commission paid to overseas agents under Section 40(a)(i) without proper appreciation of the facts and material on record. The AO had disallowed the commission expenses claimed by the assessee, asserting that the payment was subject to TDS under Section 195 of the Act. 2. Non-deduction of TDS: The AO argued that the commission paid to foreign agents was subject to TDS under Section 195, as the income accrued in India. The assessee countered that the commission paid to foreign agents was not chargeable to tax in India, as the services were rendered outside India, and therefore, there was no liability to deduct TDS. The CIT(A) supported the assessee's stance, noting that the foreign agents did not have a permanent establishment in India and that the income did not accrue or arise in India. 3. Taxability of Commission: The CIT(A) examined whether the commission paid to foreign agents was taxable in India under Section 5(2)(b) read with Section 9(1)(i). It was concluded that since the services were rendered outside India and the agents did not have any business connection or permanent establishment in India, the income did not accrue or arise in India. The CIT(A) relied on the Supreme Court judgment in CIT vs. Toshoku Limited, which held that commission earned by non-residents for services rendered outside India does not accrue in India. 4. Applicability of Section 195(2): The AO's observation that the assessee should have obtained a no-deduction certificate was dismissed by the CIT(A), stating that there was no necessity to obtain such a certificate since the payments to non-resident agents were not liable for TDS. 5. Genuineness of Commission Payment: The CIT(A) found the commission payments to be genuine, noting that the services were rendered by the agents, payments were made through banking channels, and were duly documented. The AO had also acknowledged that services were rendered abroad, but argued that the right to receive the commission arose in India. The CIT(A) disagreed, stating that the commission arose from soliciting orders in foreign countries. Conclusion: The ITAT upheld the CIT(A)'s decision, concluding that the commission income by foreign agents was not chargeable to tax in India, and therefore, the assessee was not liable to deduct TDS under Section 195. The ITAT relied on various judgments, including those of the Supreme Court and High Courts, which supported the view that commission paid to non-residents for services rendered outside India is not taxable in India. Consequently, the Revenue's appeal was dismissed.
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