2022 (4) TMI 619 - AT - Income Tax

TDS u/s 195 - non-deduction of TDS on payment of export commission to Foreign entity in Italy - expenses incurred in foreign currency on payments made to parties outside India - HELD THAT - The foreign entity (SPA) does not have a permanent establishment (PE) or business connection (BC) in India. Reliance placed by the Revenue on the judgment of the Hon ble Supreme Court in R.D. Aggarwal Co. 1964 (10) TMI 9 - SUPREME COURT and in Fried Krupp Industries 1980 (5) TMI 17 - MADRAS HIGH COURT and also on CBDT Circular 23/1969 (which stands withdrawn w.e.f. 22.10.2009) is misplaced. In both these cases the Honb le Courts observed that whether there is a business connection or not, must be determined based on facts and circumstances of the particular case. In our opinion there is nothing on record which indicates that SPA is carrying out its business in India owing to which any portion of its income can be attributed to its Indian operations. We firmly hold that there is no change in the facts and circumstances of the assessee s case in the assessment year 2014-15. The facts and circumstances remain the same as in the preceding years. Accordingly, there is no justification to interfere with the order of the Ld. CIT(A). We note that the Revenue is not in appeal against the orders of the coordinate bench in earlier years. Decided cases must be put to rest. In the absence of any change in the factual matrix and the legal position in the assessment year 2014-15, respectfully following the decisions of the coordinate bench in assessee s own case in earlier years 2019 (3) TMI 1969 - ITAT DELHI and 2019 (1) TMI 537 - ITAT DELHI , we reject the appeal of the Revenue.

Issues Involved:
1. Whether the payment made to M/s. Oerlikon Graziano SPA Italy is commission or fee for technical services under section 9(1)(vii) of the Income Tax Act, 1961.
2. Whether the assessee was liable to deduct TDS under section 195 of the Income Tax Act on the payment made to M/s. Oerlikon Graziano SPA Italy.

Detailed Analysis:

1. Nature of Payment: Commission vs. Fee for Technical Services

The Revenue contended that the payment of ?3,07,65,783/- made to M/s. Oerlikon Graziano SPA Italy (SPA) should be treated as fee for technical services (FTS) under section 9(1)(vii) of the Income Tax Act, 1961, rather than commission. The Assessing Officer (AO) argued that SPA provided managerial, technical, and consultancy services, which included assisting in protecting patents, informing about competitors, and other advisory roles.

The assessee, engaged in manufacturing automotive components, had an agreement with SPA for promoting its products and procuring export orders. The assessee paid a commission of 2% on gross sales to SPA. The AO disallowed the expenditure on the grounds that the payment was for technical services and the assessee failed to deduct TDS.

The Commissioner of Income Tax (Appeals) [CIT(A)] disagreed with the AO, stating that the services provided by SPA were purely for procuring export orders and were performed outside India. The CIT(A) emphasized that the commission paid did not qualify as FTS since it did not involve technical, managerial, or consultancy services as per the agreement.

2. Requirement of TDS Deduction under Section 195

The Revenue argued that the assessee was liable to deduct TDS under section 195 of the Act on the payment made to SPA. The AO presumed that the services rendered by SPA included technical and managerial elements, thus necessitating TDS deduction.

The CIT(A) refuted this by highlighting that the income of non-residents is taxable in India only if it is received or deemed to be received in India or if it accrues or arises in India. Since SPA operated outside India and the services were rendered abroad, no part of the income could be said to accrue or arise in India. The CIT(A) cited several judicial precedents, including the Delhi High Court's ruling in PAN Alpha Auto Electric Ltd., which held that export commission payments do not constitute FTS.

The CIT(A) further noted that similar issues in the assessee’s own case for previous assessment years (2010-11, 2011-12, and 2013-14) had been decided in favor of the assessee, where it was consistently held that the services provided by SPA were not technical in nature.

Tribunal's Decision:

The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)’s decision. The ITAT observed that the issue was already settled in the assessee's favor in earlier years by the coordinate bench of the ITAT. The Tribunal noted that there was no change in the facts and circumstances for the assessment year 2014-15 compared to previous years. The Tribunal dismissed the Revenue's appeal, reiterating that SPA's services were limited to procuring export orders and did not involve any technical, managerial, or consultancy services. Consequently, the payments made to SPA were not taxable in India, and there was no obligation on the assessee to deduct TDS under section 195.

The appeal of the Revenue was dismissed, affirming that the payment to SPA was commission and not fee for technical services, and thus not subject to TDS under section 195.

Conclusion:

The Tribunal concluded that the payment made to SPA was purely commission for procuring export orders and did not constitute fee for technical services. Therefore, the assessee was not liable to deduct TDS under section 195 of the Income Tax Act. The appeal by the Revenue was dismissed, and the order of the CIT(A) was upheld.

← Previous Next →