2015 (8) TMI 910 - AT - Income Tax

Revision u/s 263 - commission paid to non-resident foreign companies without deduction of tax at source as concluded by CIT(A) - Held that - Assessee is engaged in the trading of yarn with various countries. In order to sell its products, the assessee appointed agents on sales commission basis in various countries. The relationship between the assessee and the non-resident agents is alleged to be that of principal and agent. The said non-resident agent is a link between the foreign buyer and the assessee. The overseas agents of the assessee do not have any permanent establishment or place of business in India and they are rendering their services outside India. As such, charging commission on the services rendered outside India is not taxable in India. See ACIT Vs. M/s.Eagle Press (P) Ltd. 2011 (6) TMI 734 - ITAT CHENNAI Commissioner of Income Tax is erroneous. The provisions of section 195 and section 9 of the Act, relating to deduction of tax at source on payments made to foreign parties and levy of tax on payments so made are not applicable in the present facts of the case. - Decided in favour of assessee.

Summary

Issues:
1. Whether the Commissioner of Income Tax was justified in initiating proceedings under section 263 of the Income Tax Act based on non-deduction of tax at source on commission paid to non-resident foreign companies.
2. Whether the assessee was liable for disallowance on payments made to overseas agents without deduction of tax at source.
3. Whether the Tribunal's decision to set aside the assessment order and allow the appeal of the assessee was appropriate.

Analysis:

Issue 1:
The Commissioner of Income Tax initiated proceedings under section 263 of the Income Tax Act on the ground that the assessee had claimed a significant amount towards commission paid to non-resident foreign companies without deduction of tax at source. The Commissioner concluded that the failure to deduct tax at source made the assessee liable for disallowance on the payments. This action led to the appeal by the assessee before the Tribunal challenging the Commissioner's order.

Issue 2:
The assessee, engaged in trading yarn with various countries, appointed non-resident agents on a sales commission basis in foreign countries. The agents did not have any business presence in India and the services were rendered outside India. The Tribunal analyzed previous judgments, including ACIT Vs. M/s.Eagle Press (P) Ltd., and held that payments for services rendered outside India by non-residents do not attract tax liability in India. The Tribunal found that the provisions of section 195 and section 9 of the Act regarding tax deduction at source on payments to foreign parties were not applicable in this case. Therefore, the view taken by the Commissioner of Income Tax was deemed erroneous.

Issue 3:
After considering the submissions from both sides and reviewing the relevant legal precedents, the Tribunal set aside the Commissioner's order and allowed the appeal of the assessee. The Tribunal held that the relationship between the assessee and the non-resident agents was that of principal and agent, and the services were rendered outside India, making the payments non-taxable in India. The Tribunal's decision was based on the principle that tax deduction at source was not required for payments made to foreign parties for services rendered outside India.

In conclusion, the Tribunal's decision to set aside the assessment order and allow the appeal of the assessee was based on the understanding that tax liability did not arise in this case due to the nature of services provided by non-resident agents outside India.