2021 (9) TMI 302 - HC - Income Tax

TDS u/s 195 - Disallowance u/s 40(a)(i) - payments of export sales commission and service charges made to non-resident without deduction of tax at source - Indo South Korean DTAA - ITAT deleted the addition as affirming the order passed by the Commissioner of Income CIT(A) - whether in the instant case, the CIT(A) has recorded a finding as to the nature of services availed by the assessee from the non-resident.? - HELD THAT - CIT(A) perused the copies of the agreement and on facts, found that the amounts paid by the assessee were sales commission and marketing services to non-resident agents outside India for their services rendered outside India by way of canvassing sales order and none of the entities to whom payments were made by the assessee have a Permanent Establishment PE in India. Further, taking note of the relevant Articles in the respective DTAA agreements entered into between India and the respective Country, it was held that the income earned is taxable in those Countries. First Appellate Authority and the Tribunal have held that what was paid by the assessee to the non-resident was sales commission and cannot be regarded as if for technical services - no question of law or substantial question of law arises for consideration. - Decided against revenue.

Summary

Issues:
1. Interpretation of Section 40(a)(i) of the Income Tax Act regarding payments made to non-residents without deduction of tax at source.

Analysis:
The High Court of Madras addressed the appeal filed by the Revenue under Section 260A of the Income Tax Act, challenging the order of the Income Tax Appellate Tribunal (ITA) related to the assessment year 2003-2004. The core issue revolved around the disallowance under Section 40(a)(i) of the Act concerning payments of export sales commission and service charges made to non-residents without tax deduction at the source. The Tribunal's decision to delete this disallowance was questioned by the Revenue, leading to a substantial question of law regarding the correctness of the Tribunal's ruling.

The Court examined whether the payments made by the assessee to non-residents necessitated tax deduction at the source under Section 40(a)(i) of the Act. The Assessing Officer contended that the payments were akin to fees for technical services, requiring tax deduction at the source. This view was based on interpreting the nature of services as managerial, referencing the relevant Double Taxation Avoidance Agreement (DTAA) between India and South Korea. The Commissioner of Income Tax (Appeals) (CIT(A)) had previously ruled in favor of the assessee for both the assessment year under consideration and another year, emphasizing the need to determine the nature of services provided by the non-resident.

The CIT(A) examined the agreements and concluded that the payments were for sales commission and marketing services rendered outside India, with no Permanent Establishment in India for the entities receiving the payments. Relying on DTAA agreements and a Supreme Court decision, the CIT(A) upheld that the income earned was taxable in the respective countries of the non-residents. The Court noted that the factual finding regarding the nature of services had been finalized as the Revenue's appeal before the Tribunal was dismissed.

Moreover, the Court referenced previous cases where payments for sourcing orders abroad were not considered technical services, supporting the conclusion that the payments made by the assessee were sales commission and not for technical services. Both the First Appellate Authority and the Tribunal concurred that the payments were for sales commission, leading the Court to dismiss the tax case appeal, as no legal questions arose for consideration.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the factual findings regarding the nature of services provided by the non-resident and the absence of grounds for interference. The appeal was dismissed without costs.