2018 (7) TMI 116 - AT - Income Tax

TDS u/s 195 - tax payer s failure in deducting TDS on export commission paid to various UAE based payees, involving proceedings u/s 201(1)/201(1A) - Held that - The assessee s commission expenditure in question is not taxable in the hands of its payees so as to attract TDS liability in its case as held in hon ble apex court s decision in GE India Technology Centre s case 2010 (9) TMI 7 - SUPREME COURT OF INDIA . The Revenue s sole substantive ground fails accordingly. Sole issue herein pertains to the very kind of payments made to Dubai based entities as involved in preceding assessment year 2012-13. We appreciate this fair stand of the parties towards the bench to affirm the CIT(A) s findings in the impugned latter assessment year as well.

Summary

Issues Involved:
1. Tax Deducted at Source (TDS) on export commission paid to non-resident agents.
2. Taxability of income under Section 9(1) of the Income Tax Act, 1961.
3. Applicability of Double Taxation Avoidance Agreement (DTAA) between India and UAE.

Issue-wise Detailed Analysis:

1. Tax Deducted at Source (TDS) on Export Commission Paid to Non-Resident Agents:
The Revenue's appeals for the assessment years 2012-13 and 2013-14 challenged the CIT(A)'s orders that reversed the Assessing Officer's (AO) action of raising principal and interest demands due to the taxpayer's failure to deduct TDS on export commission paid to UAE-based payees. The taxpayer argued that the non-resident agents did not render any services in India, nor did they have a permanent establishment in India, thus not attracting Section 9(1)(vii) of the Income Tax Act, 1961. The AO, however, held that the commission income was received in India since the sale price was received in Indian territory and quoted AAR’s decisions to support his stance. The CIT(A) accepted the taxpayer's grievance, emphasizing that the agents had no permanent establishment in India, services were rendered outside India, and payments were made outside India. Therefore, no TDS was required under Section 195 of the Act.

2. Taxability of Income Under Section 9(1) of the Income Tax Act, 1961:
The CIT(A) concluded that the income accruing to the agents was arising in foreign territory since the services were rendered outside India. The CIT(A) also noted that the terms of payment (commission payable only after receipt of sales proceeds by the appellant in India) did not alter the character of the income. The Tribunal upheld this view, referencing the case of Welspun Corp Ltd., which established that no part of the operations of the recipient non-residents was carried out in India, thus no income accrued to these non-residents in India. The Tribunal also discussed the deeming provisions of Section 9, noting that the income from business connection in India is only taxable to the extent attributable to operations carried out in India. Since no operations were carried out in India, the income was not taxable under Section 9(1)(i).

3. Applicability of Double Taxation Avoidance Agreement (DTAA) Between India and UAE:
The CIT(A) also agreed with the taxpayer's alternative argument that even if the income was deemed to accrue or arise in India, it was not taxable due to the DTAA between India and UAE. The Tribunal affirmed this view, noting that the income was not taxable in India under the DTAA provisions. The Tribunal referenced several judicial precedents, including the Supreme Court's decision in GE India Technology Centre, which held that tax withholding obligations arise only if the payment is chargeable to tax in the hands of the non-resident recipient.

Conclusion:
The Tribunal dismissed the Revenue's appeals, holding that the commission payments to non-resident agents were not liable to be taxed in India, and thus, no TDS was required under Section 195. The Tribunal's decision was based on the facts that the agents had no permanent establishment in India, services were rendered outside India, and payments were made outside India, in line with the provisions of the Income Tax Act and the DTAA between India and UAE. The Tribunal's order was pronounced on 27.06.2018.