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2013 (10) TMI 826 - AT - Income TaxTDS to be deducted u/s 195 of the Income tax act Applicability of section 201 and section 201(1A) of the act - Assessee is engaged in the business of processing of fruit products and exporting the same to the various non-resident customers in Saudi Arabia, Bahrain, Dubai, etc., through its non- resident agents - For the purpose of exports, the assessee had entered into an agency agreement with the non-resident agents to whom the commission was being paid as per the terms and conditions - The commission was being remitted to them in pursuance of the performance as per the said agreements - assessee had not deducted tax at source on the payments made to the non-residents as provided u/s 195 of the Act Held that - Payment of market survey fees to a resident of UAE in the present case will fall under Article 7, i.e., business profit , in the absence of an article in the India-UAE treaty dealing with fees for technical services . It is a settled principle that business profit of a resident of a contracting state is not chargeable to tax in the other contracting State unless the non-resident carried out the business through a PE in India. In the case on hand, revenue has not established that the non-resident has a PE in India. Hence in the absence of the PE in India, the business profit of the non-resident is not taxable in India. Even if it is considered that the payments made to non-resident will fall under Article 22 of the Treaty viz. Other Income , then also the payments are not taxable to tax in India since as per Article 22, income of a resident shall be taxable only in that contracting State i.e., UAE and not in India. Payment made to the non-resident was not chargeable to tax in India and, therefore, there was no liability to deduct tax at source in respect of the said payment under section 195 of the Act Reliance has been placed on the various cases, one of case relied upon is Brakes India Ltd v. DCIT (LTU) 2013 (9) TMI 192 - ITAT CHENNAI - Assessee s case doesn t fall within the ambit of s. 201 (1) of the Act for all the assessment years under consideration, the question of charging of interest u/s 201(1A) of the Act does not arise Decided in favor of Assessee.
Issues Involved:
1. Whether the commission paid to non-resident agents is in the nature of managerial services under section 9(1)(vii) of the Income-tax Act and liable for deduction of tax at source under section 195. 2. Whether the levy of interest under section 201(1A) of the Income-tax Act is justified. Issue-Wise Detailed Analysis: 1. Nature of Commission Paid to Non-Resident Agents: The primary issue was whether the commission payments made by the assessee to non-resident agents were in the nature of managerial services under section 9(1)(vii) of the Income-tax Act, thereby necessitating tax deduction at source under section 195. - Facts and Arguments: - The assessee is engaged in processing fruit products and exporting them through non-resident agents. - The commission was paid for services rendered outside India, and the agents had no permanent establishment or business connection in India. - The Assessing Officer (AO) concluded that the payments constituted income chargeable under the Indian Income-tax Act, as the source of income was situated in India. - The CIT (A) upheld the AO's view, stating that the services were managerial in nature and thus fell under section 9(1)(vii). - Tribunal's Findings: - The Tribunal noted that the agents rendered no services in India, had no offices or business establishments in India, and the commissions were paid overseas. - The Tribunal referred to various judicial precedents, including JCIT v. M/s. Wifi Networks Pvt. Ltd, Sri Subbaraman Subramanian v. ACIT, and ITO v. M/s. Faizan Shoes Pvt. Ltd, which supported the view that services rendered outside India do not attract tax under section 195. - The Tribunal concluded that the commissions paid were not managerial services but mere commission payments based on sales turnover. Therefore, the provisions of section 195 were not applicable. 2. Levy of Interest under Section 201(1A): The second issue was whether the CIT (A) was justified in confirming the levy of interest under section 201(1A) of the Income-tax Act. - Facts and Arguments: - The AO had levied interest under section 201(1A) due to the assessee's failure to deduct tax at source. - The CIT (A) confirmed this levy, leading to the assessee's appeal. - Tribunal's Findings: - Since the Tribunal concluded that the assessee was not liable to deduct tax at source under section 195, the question of charging interest under section 201(1A) did not arise. - The Tribunal ordered that the assessee was not liable for the interest levied under section 201(1A). Conclusion: The Tribunal allowed the assessee's appeals for all the assessment years (2008-09, 2009-10, and 2010-11) under sections 201(1) and 201(1A) of the Income-tax Act. The Tribunal concluded that the commission payments made to non-resident agents did not constitute managerial services under section 9(1)(vii) and were not liable for tax deduction at source under section 195. Consequently, the levy of interest under section 201(1A) was also not justified. The order was pronounced in the Open Court on 4th October 2013.
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