2019 (8) TMI 1126 - AT - Income Tax

TDS u/s 195 - addition on account of export commission paid to foreign parties u/s 40(a)(ia) - PE in India - HELD THAT - CIT(A) rightly observed that the payment of commission are made to non-resident overseas agents who have no PE or business activities in India and the services are also rendered outside India as such no income is arising to the non-resident commission agent in India and as such no TDS is deductible u/s 194-H which is applicable for resident Indians only. Thus, there is no need to interfere with the findings of the CIT(A). The appeal of the Revenue is dismissed.

Issues Involved:
1. Deletion of addition made by the AO on account of export commission paid to foreign parties under Section 40(a)(ia) of the Income Tax Act, 1961 due to non-deduction of TDS as per provisions of Section 195.
2. Applicability of the cases of SKF Boilers & Driers of AAR and Rajiv Malhotra in the context of the assessee's case.
3. Reliance on decisions in the cases of ACIT, Circle-29(1), New Delhi Vs. Nidhi Exports and Wellspring Universal Vs JCIT.
4. Interpretation of Section 9 concerning income deemed to accrue or arise in India.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made by the AO:
The Revenue's appeal contested the CIT(A)'s deletion of an addition of ?97,41,665/- made by the AO for export commission paid to foreign parties without TDS deduction under Section 195. The AO had disallowed this commission, arguing it was deemed to accrue in India under Section 9 and thus subject to TDS. However, the CIT(A) found that the foreign agents had no permanent establishment (PE) in India, provided services outside India, and the commission paid was not taxable in India under the Double Taxation Avoidance Agreements (DTAA) with France and UAE. Consequently, the CIT(A) concluded that no TDS was required under Section 195.

2. Applicability of SKF Boilers & Driers and Rajiv Malhotra Cases:
The AO had relied on the decisions in SKF Boilers & Driers Pvt. Ltd. and Rajiv Malhotra to justify the disallowance. However, the CIT(A) distinguished these cases, noting that the facts were materially different. In Rajiv Malhotra, the commission was for soliciting participants for an event in India, whereas, in the assessee's case, the commission was for export orders procured by non-resident agents with no business connection or PE in India. The CIT(A) also noted that the ruling in SKF Boilers did not consider the Supreme Court's decision in CIT vs. Toshoku and was thus not binding.

3. Reliance on Decisions in Nidhi Exports and Wellspring Universal:
The CIT(A) relied on the decisions in ACIT, Circle-29(1), New Delhi Vs. Nidhi Exports and Wellspring Universal Vs JCIT, where it was held that commission paid to non-resident agents for services rendered outside India was not taxable in India, and no TDS was required under Section 195. The Tribunal upheld this reliance, noting the similarity in facts and circumstances with the assessee's case.

4. Interpretation of Section 9:
The CIT(A) interpreted Section 9(1)(i) to mean that income arising from a business connection in India is taxable only to the extent attributable to operations carried out in India. Since the foreign agents had no business connection or PE in India and rendered services entirely outside India, their commission was not taxable in India. This interpretation was supported by the Supreme Court's ruling in CIT vs. Toshoku, which established that foreign commission for services rendered outside India is not taxable in India.

Conclusion:
The Tribunal upheld the CIT(A)'s findings, agreeing that the commission paid to non-resident agents for services rendered outside India was not taxable in India, and no TDS was required under Section 195. Consequently, the addition made by the AO was rightly deleted, and the Revenue's appeal was dismissed.

Order Pronounced:
The appeal of the Revenue was dismissed, and the order was pronounced in the open court on 22nd August 2019.

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