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2018 (10) TMI 582 - AT - Income TaxTDS u/s 195 - non deduction of tds on commission paid to the various commission agents outside India - According to AO this expenditure is disallowable as income of foreign agents is chargeable to tax the agents have the business connection in India and tax should have been deducted under section 195 - Held that - The commission is paid to the two parties for export sales. The foreign agents are non-resident and the services have been rendered undisputedly by them outside India. The commission payment was also supported by the copy of the agreement and confirmation of commission paid. The copy of the passport of the commission agents were also submitted along with the party wise and invoice wise details resulting into payment of commission. Therefore it is not the case that the payment has been made to on identified parties. Further, The revenue has not brought any material on record to show that either of these commission agents has rendered any of their services in India and the payments have been made to them in India. In view of the finding of the learned Commissioner appeals, we are of the opinion that the income of the foreign agents is not chargeable to tax in India, as they do not have any business connection as per provisions of section 9 of the income tax act. In absence of any business connection, the income is not chargeable to tax under section 5 of the income tax act of the non-resident foreign agents. Thhe natural consequences is that on such payment assessee is not obliged to deduct tax at source under section 195 of the income tax act. The learned Commissioner of income tax appeals has relied upon the decision of the jurisdictional High Court EON TECHNOLOGY P. LIMITED 2011 (11) TMI 20 - DELHI HIGH COURT wherein it has been held that when a non-resident agent operates outside the country no part of his income arises in India and since payment is remitted directly abroad and merely because an entry in the books of accounts of the assessee is made, it did not mean that non-resident has received any payment in India. Therefore, no business connection is established and income tax was not deductible at source and hence no disallowance is called for. We direct learned assessing officer to delete the disallowance on account of commission paid to foreign agent who did not render any services in India. - Decided against revenue.
Issues Involved:
1. Deletion of disallowance of ?44,140,860 on account of commission paid to foreign agents. 2. Applicability of Section 195 of the Income Tax Act, 1961. 3. Business connection and income deemed to accrue or arise in India. Issue-wise Detailed Analysis: 1. Deletion of Disallowance of ?44,140,860 on Account of Commission Paid to Foreign Agents: The Income Tax Officer (ITO) disallowed the commission expenditure of ?44,140,860 paid to foreign agents, arguing that tax should have been deducted under Section 195 of the Income Tax Act, 1961, as the income was chargeable to tax in India. The Commissioner of Income Tax Appeals (CIT-A) deleted this disallowance, leading to the ITO's appeal. 2. Applicability of Section 195 of the Income Tax Act, 1961: The ITO contended that the commission paid to foreign agents was taxable in India, necessitating tax deduction at source under Section 195. The CIT-A, however, found that the commission paid to non-resident agents for services rendered outside India did not accrue or arise in India and thus was not chargeable to tax under Section 195. The CIT-A relied on various judgments and circulars, including the Supreme Court's decision in CIT v. Toshoku Ltd., which held that commission earned by non-resident agents for services rendered outside India cannot be deemed to accrue or arise in India. 3. Business Connection and Income Deemed to Accrue or Arise in India: The CIT-A analyzed the provisions of Sections 5, 9, and 195 of the Income Tax Act, concluding that the commission paid to foreign agents did not have a business connection in India. The CIT-A noted that the agents operated outside India, and no services were rendered in India. Hence, the income did not accrue or arise in India. The CIT-A also referred to Explanation 2 to Section 9(1)(i), which excludes business activities carried out through an independent agent acting in the ordinary course of business from being deemed as a business connection in India. Supporting Judgments and Circulars: - CIT v. Toshoku Ltd.: The Supreme Court held that commission earned by non-resident agents for services rendered outside India cannot be deemed to accrue or arise in India. - GE India Technology Centre (P) Ltd v. CIT: The Supreme Court clarified that tax is to be deducted under Section 195 only if the payment made to a non-resident is chargeable to tax in India. - Circular No. 23, dated 23 July 1969: Stated that commission paid to foreign agents operating outside India is not liable to income tax in India. Although this circular was withdrawn by Circular No. 7/2009, the CIT-A and various tribunals held that the withdrawal did not change the legal position that such commission is not taxable in India. Conclusion: The tribunal upheld the CIT-A's order, confirming that the commission paid to foreign agents for services rendered outside India is not chargeable to tax in India. Consequently, the assessee was not required to deduct tax at source under Section 195. The tribunal dismissed the revenue's appeal and directed the ITO to delete the disallowance of ?44,140,860.
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