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2018 (7) TMI 210 - AT - Income TaxTDS u/s 195 - Disallowance u/s.40(a)(ia) - taxability of non-resident where services are rendered outside India and non-resident has no permanent establishment in India - Held that - In the present case, we find that the Revenue has not controverted the submissions of the assessee that Mohd. Iqbal of Oman has rendered services to the assessee outside India and that he has no permanent establishment in India. The commission has been paid to him for the services rendered to assessee outside India. Commission paid to Mohd. Iqbal was not chargeable to tax in India. Therefore, there was no question of deducting tax at source on the payments made to him by assessee. We find merit in the submissions of the assessee. Accordingly, ground raised in appeal by assessee is allowed.
Issues Involved:
Disallowance under section 40(a)(ia) for non-deduction of TDS on commission paid to non-resident. Detailed Analysis: 1. Issue of Disallowance under Section 40(a)(ia): - The assessee appealed against the order of the Commissioner of Income Tax (Appeals) confirming the disallowance under section 40(a)(ia) for not deducting TDS on commission paid to a non-resident. - The assessee contended that the commission paid to the non-resident was for services rendered outside India, and since the non-resident had no permanent establishment in India, the payment was not taxable in India, hence TDS was not deducted. - The Assessing Officer disallowed the commission amount under section 40(a)(ia) during scrutiny assessment proceedings. - The First Appellate Authority upheld the disallowance, leading to the assessee filing a second appeal before the Tribunal. 2. Arguments and Decisions: - The assessee argued that various tribunal decisions supported the non-deduction of TDS on payments made to non-residents for services rendered abroad when they have no permanent establishment in India. - The Lucknow Bench of Tribunal and other decisions highlighted that TDS is not required when non-residents are paid for procuring orders from customers outside the country. - The Tribunal referred to the withdrawal of Circular No. 786 dated 07/02/2000 and Circular No. 23 dated 23/07/69, emphasizing that non-residents are not taxable in India if services are rendered outside India and they lack a permanent establishment in India. - The Tribunal also cited the case of GE India Technology Centre (P) Ltd. vs. CIT, emphasizing that tax deduction at source is only necessary when remittances are wholly or partially taxable in India. 3. Final Decision: - After considering the arguments and legal precedents, the Tribunal concluded that the commission paid to the non-resident was not chargeable to tax in India due to services being rendered outside India and the absence of a permanent establishment in India. - Consequently, the Tribunal allowed the appeal of the assessee, stating that there was no requirement to deduct TDS on the payments made to the non-resident for the services rendered abroad. - Grounds No. 1 and 3 were dismissed as not pressed by the assessee, and Ground No. 4 was deemed general in nature, requiring no adjudication. 4. Conclusion: - The Tribunal's decision highlighted the importance of considering the taxability of payments made to non-residents for services rendered outside India and the necessity of TDS deduction based on the tax implications in India. - The judgment provided clarity on the applicability of section 40(a)(ia) in cases where non-residents receive payments for services rendered abroad without a permanent establishment in India, emphasizing the non-taxability of such payments in India.
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