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2006 (7) TMI 123 - AAR - Income TaxNon-resident - agency agreement - Applicant is engaged in organizing 4th India Food and Wine Show appoint agents abroad to furnish information about terms and conditions to foreign participants in respect of their participation in the Food and Wine Show in India and for booking space in the exhibition - payment is receivable by the agent abroad, is not relevant since source of income being situated in India, the agent will be liable to income-tax in India under the Act
Issues Involved:
1. Tax liability of non-resident agents rendering services outside India. 2. Requirement of Tax Deducted at Source (TDS) on payments to non-resident agents. Detailed Analysis: Issue 1: Tax Liability of Non-Resident Agents Rendering Services Outside India The applicant, a proprietor of Lotus Exhibition Marketing Services (LEMS), sought an advance ruling on whether a non-resident agent, who renders services outside India and receives payments outside India, would be liable to income tax in India. The non-resident agent's role included planning, directing sales campaigns, liaising with government departments, distributing contracts and invoices, and ensuring exhibitors adhere to regulations. The applicant argued that since the services are rendered and payments received outside India, the non-resident agent should not be liable to tax in India under Section 5(2) read with Section 9(1) of the Income-tax Act, 1961. However, the jurisdictional commissioner highlighted that the issues in the applicant's case differ from the cited case law and questioned whether the applicant was an agent of the non-resident company. The Authority examined the scope of total income under Section 5(2) and Section 9(1) of the Act, which state that income accruing or arising in India is taxable in India. The commission payable to the agent arises only when the exhibitor participates in the show in India and makes full payment. Therefore, the source of income is the participation in the exhibition held in India, making the income taxable under the Act. The Authority also considered the Double Taxation Avoidance Agreement (DTAA) with France, which does not provide further benefits beyond the Act. Article 23 of the DTAA allows income arising in India to be taxed in India. Hence, the non-resident agent's income is deemed to accrue in India and is taxable under the Act. Issue 2: Requirement of Tax Deducted at Source (TDS) on Payments to Non-Resident Agents The applicant questioned whether TDS should be deducted from payments remitted to the non-resident agent. Section 195(1) of the Act mandates that any person responsible for paying any sum chargeable under the Act to a non-resident must deduct income tax at the rates in force at the time of payment or credit. The Authority referenced the case law and circulars cited by the applicant, including Ind. Telesoft Pvt. Ltd., where no TDS was deducted on commissions paid to non-resident agents. However, the Authority distinguished these cases based on the fact that in the applicant's case, the right to receive commission arises in India, unlike in Ind. Telesoft Pvt. Ltd., where the right arose outside India. The Authority concluded that since the source of income is in India, TDS must be deducted from payments to the non-resident agent as per Section 195(1). Conclusion: 1. Tax Liability: The non-resident agent is liable to income tax in India as the source of income is situated in India. 2. TDS Requirement: Tax must be deducted at source from payments remitted by the resident applicant to the non-resident agent. (Pronounced by the Authority in the open court on this 3rd day of July 2006.)
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