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2024 (10) TMI 354 - AT - Income TaxTDS u/s 195 - commission paid to the foreign agent on account of non-deduction of TDS u/s. 40(a)(i) - HELD THAT - In this case, the non-residents agents have rendered their services outside India in connection with procurement of sale. All the agents have overseas offices, and they were not having any permanent establishment in India. At the time hearing DR has not brought any material on record suggesting that the non-resident agents are having any permanent establishment in India or services were provided within India. In absence of such finding it is held that the commission income earned by the foreign agent cannot be deemed to be accrue or arise in India. Regarding the applicability of section 195 we observe that once the income is not taxable, there is no liability of deduction of tax on the part of the assessee, therefore, it was not applicable for the assessee to deduct tax. There was no violation of the provision of section 195. Accordingly, this ground of appeal of the assessee is allowed.
Issues:
- Appeal against orders of National Faceless Appeal Centre for AYs 2010-11 & 2013-14. - Disallowance of commission paid to foreign agent due to non-deduction of TDS. Analysis: 1. Issue of Disallowance of Commission Paid to Foreign Agent: - The assessee contested the addition made by the AO for non-deduction of TDS on commission paid to a foreign agent under section 195 r.w.s. 40(a)(i) of the Income Tax Act, 1961 for AYs 2010-11 and 2013-14. - The CIT(A) upheld the AO's decision, emphasizing the withdrawal of Circular No. 786, dated February 7, 2000, and referring to the AAR decision of M/s SKF Boiler and Drivers Pvt. Ltd. dated February 22, 2012. The CIT(A) confirmed the addition of Rs. 4,26,849/- as the payment was made after the withdrawal of the circular. - The ITAT bench analyzed the case and found that the income from commission paid to overseas agents did not accrue or arise in India as the agents operated outside India and had no permanent establishment in India. The bench noted that section 195 of the Act was not applicable since the income was not taxable in India, relieving the assessee from the obligation to deduct tax. - Consequently, the ITAT allowed the appeal, stating that in the absence of evidence showing the foreign agents had a permanent establishment in India or provided services within India, the commission income could not be deemed to accrue or arise in India. The bench ruled in favor of the assessee, as there was no violation of section 195 of the Act. 2. General Observations: - The ITAT noted that the assessing officer's disallowance was based on the assumption that the commission income was taxable in India, but the lack of evidence of a permanent establishment or service provision in India by the foreign agents led to a different conclusion. - The ITAT emphasized that the absence of tax liability on the income meant there was no requirement for TDS deduction by the assessee under section 195 of the Act, ultimately resulting in the allowance of the appeal. This judgment highlights the importance of establishing the source of income and the applicability of tax provisions when dealing with international transactions involving foreign entities to determine tax obligations accurately.
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