2019 (7) TMI 805 - HC - Income Tax

TDS u/s 195 - payment of commission charges to overseas agents - disallowance u/s 40(a)(i) - HELD THAT - As decided in M/S. EVOLV CLOTHING COMPANY PVT LTD. VERSUS THE ASSISTANT COMMISSIONER OF INCOME TAX 2018 (6) TMI 1324 - MADRAS HIGH COURT on a reading of Explanation (2) to Section 9(1)(vii), fees for technical services means consideration, including lumpsum consideration for rendering any managerial, technical or consultancy services. In the instant case, the AO has, in the assessment order, accepted that the appellant assessee has paid commission charges to overseas agents. It is not the case of the Assessing Officer that any lumpsum consideration has been made for any specific managerial, technical or consultancy services. On a overall reading of the Explanation, it is apparent that fees for technical services does not contemplate commission which is order specific and computable at a small percentage of the order value. Section 40(a)(i) does not contemplate order wise commission based on the order value. - Decided in favour of assessee.

Summary

Issues:
Appeal under Section 260A of the Income Tax Act, 1961 against order regarding overseas commission payment without tax deduction.

Analysis:
The appeal raised substantial questions of law regarding the justification of overseas commission payment without tax deduction under Section 40(a)(i) and Section 195 of the Income Tax Act. The Revenue contended that the Tribunal erred in not considering Explanation 4 to Section 9(1)(i) and Explanation 2 to Section 195(1) introduced by the Finance Act, 2012, which they argued applied to the case. The Standing Counsel for the Revenue referred to a previous case where similar questions were answered against the Revenue. The judgment highlighted that liability to Indian tax for a nonresident with business connections in India arises only in respect of income attributable to operations in India. It emphasized that where there is no liability in India, there can be no disallowance under Section 40(a)(i) or Section 40(a)(ia) of the IT Act for non-deduction of tax at source. The judgment also discussed the definition of fees for technical services under Section 9(1)(vii) and clarified that fees for technical services do not include order-specific commissions. It cited previous cases where payments to non-residents for services rendered outside India were not liable to be taxed in India. Ultimately, the Court dismissed the appeal, following the precedent set by a previous judgment, and answered the substantial questions of law against the Revenue.

This comprehensive analysis of the judgment delves into the key legal issues surrounding the appeal, providing a detailed explanation of the arguments presented by the parties and the reasoning behind the Court's decision.