2018 (4) TMI 1199 - AT - Income Tax

Non-deduction of TDS payment made under the head Sales Commission to foreign Agents - Held that - When a sales commission has been made by the assessee company on export orders from the buyers abroad and services have not been rendered by the payee in India, no part of the said income has arisen in India and as such, TDS is not required to be deductible at source and disallowance u/s 40(a)(i) of the Act made by the AO is not sustainable in the eyes of law. So, ld. CIT (A) has rightly deleted the addition made by the AO. See case of CIT vs. Eon Technology P. Ltd 2011 (11) TMI 20 - DELHI HIGH COURT and CIT vs. Toshoku Limited 1980 (8) TMI 2 - SUPREME Court Disallowance u/s 14A r.w.r. 8D - Held that - As relying on Indus Valley Investment & Finance Pvt. Ltd. vs. DCIT 2015 (4) TMI 1171 - ITAT DELHI CIT-A correctly restricted the disallowance u/s 14A read with Rule 8D(iii) to the extent of dividend income earned by the assessee company which is in accordance with the settled principles of law applicable - AO is directed to compute the disallowance accordingly. - Appeal of assessee partly allowed.

Summary

Issues:
1. Non-deduction of TDS on sales commission to foreign agents.
2. Disallowance u/s 14A of the I.T. Act, 1961.

Issue 1: Non-deduction of TDS on sales commission to foreign agents:
The Assistant Commissioner of Income-tax disallowed an amount paid by the assessee company as sales commission to foreign agents without Tax Deducted at Source (TDS) citing provisions under section 9(1)(i) and 9(1)(vii) of the Income-tax Act, 1961. Additionally, a disallowance under section 14A read with Rule 8D of the Income-tax Rules, 1962 was made by the AO. The CIT (A) deleted the addition on sales commission and restricted the disallowance under section 14A to the extent of dividend income received by the assessee, partly allowing the appeal. The Tribunal, after hearing the Departmental Representative for the revenue, upheld the CIT (A)'s decision. The High Court's decision in CIT vs. Eon Technology P. Ltd. was cited, emphasizing that when a sales commission is paid for export orders and services are rendered abroad, no part of the income arises in India, thus TDS deduction is not required. The Tribunal found the AO's disallowance not sustainable, ruling in favor of the assessee.

Issue 2: Disallowance u/s 14A of the I.T. Act, 1961:
The assessee company had made investments in mutual funds and received dividend income without making a suo motu disallowance under section 14A proportionate to the exempt income earned. The CIT (A), following precedent cases, restricted the disallowance under section 14A read with Rule 8D(iii) to the extent of dividend income earned by the assessee. The Tribunal found no illegality in the CIT (A)'s decision and directed the AO to compute the disallowance accordingly. Consequently, the appeal filed by the assessee was partly allowed.

In conclusion, the Tribunal upheld the CIT (A)'s decision in both issues, ruling in favor of the assessee regarding the non-deduction of TDS on sales commission to foreign agents and the disallowance under section 14A of the I.T. Act, 1961. The judgment emphasized the applicability of legal precedents and the interpretation of relevant tax provisions to determine the tax liability in the given circumstances.