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2015 (4) TMI 191 - HC - Income TaxDisallowance u/s 40(a)(ia)- Non deduction of TDS on export commission paid by the assessee to the non-resident - ITAT deleted the disallowance - Held that - The facts of the present case are akin to the facts of the decision in Toshoku Ltd.'s case 1980 (8) TMI 2 - SUPREME Court wherein held that the non-resident assessees did not carry on any business operations in the taxable territories. They acted as selling agents outside India. In the instant case also the assessee engaged the services of non-resident agent to procure export orders and paid commission. That apart, the Commissioner of Income-tax (Appeals) as well as the Tribunal have correctly applied the principle laid down in GE India Technology Centre (P.) Ltd.'s case 2010 (9) TMI 7 - SUPREME COURT OF INDIA to hold that the assessee is not liable to deduct tax at source when the non-resident agent provides services outside India on payment of commission. The services rendered by the non-resident agent can at best be called as a service for completion of the export commitment and would not fall within the definition of fees for technical services, we are the firm view that section 9 of the Act is not applicable to the case on hand and, consequently, section 195 of the Act does not come into play. Also see Faizen Shoes case 2014 (8) TMI 170 - MADRAS HIGH COURT - Decided in favour of assessee.
Issues:
1) Disallowance under Section 40(a)(ia) for non-deduction of TDS on export commission paid to non-resident. 2) Liability to deduct tax at source under Section 195 on payment made to non-resident for export sales commission. 3) Existence of business connection for non-resident receiving export sales commission. 4) Burden of proof on assessee regarding liability to deduct tax at source. Analysis: Issue 1: The appellant challenged the ITAT's deletion of disallowance under Section 40(a)(ia) for non-deduction of TDS on export commission paid to a non-resident. The Commissioner of Income Tax (Appeals) relied on precedents and held that the commission payments were not assessable to tax in India, absolving the assessee from TDS obligations. The Tribunal concurred, emphasizing that since the non-resident agent had no business connection in India and rendered services outside India, there was no taxable income in India. The Tribunal dismissed the appeal, upholding the Commissioner's decision. Issue 2: Regarding the liability to deduct tax at source under Section 195 on payment to a non-resident for export sales commission, the Tribunal found that without a Permanent Establishment or business connection in India, the non-resident agent did not earn taxable income in India. Therefore, there was no obligation for the payer to deduct tax in India. The Tribunal's decision aligned with the Commissioner's ruling, leading to the dismissal of the appeal by the appellant. Issue 3: The ITAT determined that the non-resident agent had no business connection in India for the export sales commission received from the assessee. This finding was crucial in establishing the non-taxable nature of the income in India, thereby relieving the assessee from TDS requirements. The absence of a business connection played a significant role in the Tribunal's decision to dismiss the appeal by the appellant. Issue 4: The Tribunal emphasized that the burden of proof regarding the liability to deduct tax at source rested on the assessee. By demonstrating that the non-resident agent operated outside India and had no business connection within the country, the assessee successfully showed its non-liability for TDS deduction under Section 195. This aspect, along with the lack of taxable income in India, formed the basis for the Tribunal's decision to uphold the Commissioner's ruling and dismiss the appellant's appeal. In conclusion, the High Court confirmed the Tribunal's decision, finding no substantial question of law for consideration. The judgment highlighted the non-taxable nature of the income due to the absence of a business connection in India, leading to the dismissal of the appellant's appeal against the Commissioner's ruling.
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