2017 (12) TMI 919 - AT - Income Tax

TDS u/s 195 - tds liability on nature of services rendered by the non-resident agent - 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 I am 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 nonresident agent and the payments made thereof. With these observations the appeal of assessee is allowed for statistical purposes.

Summary

Issues:
1. Disallowance of commission paid to foreign agent under section 40(a)(i) of the Income Tax Act.
2. Applicability of section 195 for tax deduction at source on commission payments.
3. Determination of tax liability on services rendered by non-resident agent.
4. Burden of proof on the assessee regarding the nature of services rendered by the non-resident agent.

Analysis:
1. The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of commission paid to a foreign agent under section 40(a)(i) of the Income Tax Act. The Assessing Officer disallowed the commission payment as tax was not deducted at source as required by law.

2. The argument presented by the assessee was that the services rendered by the non-resident agent did not fall under the definition of "fees for technical services," hence section 9 was not applicable, and consequently, section 195 for tax deduction at source did not apply. The assessee contended that no tax deduction was necessary as the income accrued outside India and the recipient had no business connection in India.

3. The Departmental Representative argued that since the non-resident agent received the commission for services rendered to the assessee through a business connection in India, the income should be deemed to accrue or arise in India. It was contended that the non-deduction of tax at source on this income should be disallowed under section 40(a)(i) of the Income Tax Act.

4. The Tribunal noted that the burden of proof was on the assessee to establish the nature of services rendered by the non-resident agent. Without sufficient evidence showing that the services were rendered abroad and there was no business connection in India, the Tribunal remitted the issue back to the Assessing Officer for further investigation. The Tribunal directed the assessee to prove that the commission payment was for procurement of orders from abroad.

In conclusion, the appeal of the assessee was allowed for statistical purposes, and the entire issue was remitted back to the Assessing Officer for fresh consideration to determine the nature of services rendered by the non-resident agent and the tax liability on the commission payments.