2016 (1) TMI 75 - AT - Income Tax

TDS u/s 195 - disallowance of export sales commission paid to non-resident - non deduction of TDS - disallowance u/s 40(a)(i) - CIT(A) deleted the disallowance - Held that - In the present case, the assessee has not established the facts on record that the non-resident has rendered services at abroad and there is no business connection in India by producing relevant records, viz., either agreement entered into by the assessee with them or correspondence took between the parties. Without examining these details, we are not in a position to decide the nature of services rendered by the non-resident agent. Therefore, it is appropriate to remit the entire issue back to the file of the AO with direction to the assessee to prove that it was sales commission towards procurement of orders from abroad. Accordingly, the entire issue is remitted back to the file of the AO for fresh consideration and the AO is directed to make necessary enquiry regarding the nature of services rendered by the non-resident agent and the payments made thereof. - Decided in favour of revenue for statistical purposes.

Summary

Issues: Disallowance of export sales commission under sec.40(a)(i) of the Act.

1. The main issue in this case was the disallowance of export sales commission paid to non-residents under sec.40(a)(i) of the Act. The Revenue contended that the commission paid to non-residents without TDS deduction should be disallowed as the income accrued in India. On the other hand, the Respondent argued that the income accrued outside India for marketing services and the recipient had no business connection in India, making it not taxable in India.

2. The Revenue argued that the non-resident agent's services fell within the ambit of Explanation (2) of sec. 5 of the I.T. Act, and since the agent earned commission from the business activity of the assessee in India without TDS deduction, it should be disallowed under sec.40(a)(i). The Respondent relied on a judgment of the Madras High Court to support their claim that the commission paid did not fall under "fees for technical services" and hence was not taxable in India.

3. The Tribunal examined the provisions of sec.40(a)(i) and sec.195 of the Act, emphasizing that the disallowance should be made only if the payment is chargeable under the Act. It was noted that the assessee failed to produce the agreement with foreign agents to prove the nature of services rendered abroad. As the nature of services and business connection in India were not established, the Tribunal directed the AO to reexamine the issue and determine if the commission was for procurement of orders from abroad.

4. Ultimately, the Tribunal allowed the appeal for statistical purposes, remitting the issue back to the AO for fresh consideration. The decision highlighted the importance of proving the nature of services rendered by non-resident agents and the necessity to establish the source of income to determine tax liability under the Act.

In conclusion, the judgment delved into the complexities of tax liability concerning payments to non-residents, emphasizing the need to establish the source of income and nature of services to determine taxability under the Act.