2019 (7) TMI 613 - HC - Income Tax

TDS u/s 195 - non-deduction of tax on commission payable to foreign agents - income as not chargeable to tax in India - disallowance u/s 40(a)(ia) - HELD THAT - The questions of law as proposed by the revenue has no longer integreta in view of the decision of this Court in the case PR CIT Vs. MGM Exports 2018 (5) TMI 1240 - GUJARAT HIGH COURT which has been applied saying that a person paying interest or any other sum to a non resident is not liable to deduct tax if such sum is not chargeable to tax under the Act. Tribunal had not erred in law and on facts in upholding the order of the CIT(A) deleting the addition - Decided in favour of assessee.

Summary

Issues involved:
1. Interpretation of Section 40(a)(ia) of the Income Tax Act, 1961
2. Disallowance of commission payable to foreign agents
3. Applicability of tax deduction at source (TDS) under Section 195 of the Act

Analysis:

Issue 1: Interpretation of Section 40(a)(ia) of the Income Tax Act, 1961
The tax appeal under Section 260A of the Income Tax Act, 1961 was filed by the revenue against the order of the Income Tax Appellate Tribunal. The primary question raised was whether the Appellate Tribunal erred in upholding the order of the CIT(A) deleting the addition made on account of disallowance of a specific amount under Section 40(a)(ia) of the Act for non-deduction of tax on commission payable to foreign agents.

Issue 2: Disallowance of commission payable to foreign agents
The crux of the matter revolved around the deletion of the addition made on account of disallowance of a substantial sum under Section 40(a)(ia) of the Act for non-deduction of tax on the commission payable to foreign agents. The tribunal relied on a previous decision of the Court in a similar case, where it was established that if the sum paid to a non-resident is not chargeable to tax under the Act, then there is no liability to deduct tax. The tribunal concluded that the commission income in the hands of the foreign agent was not chargeable to tax in India, thus rendering the question of deducting TDS under Section 195 of the Act irrelevant.

Issue 3: Applicability of tax deduction at source (TDS) under Section 195 of the Act
The tribunal, based on the principles laid down in the previous judgment, determined that the commission income of the foreign agent was not taxable in India, and therefore, there was no requirement to deduct TDS under Section 195 of the Act. The Court, after considering the tribunal's findings and the legal precedent, concluded that there was no error of law committed by the tribunal in its decision. As a result, the appeal was dismissed as there were no substantial questions of law involved in the case.

In summary, the judgment focused on the interpretation of Section 40(a)(ia) of the Income Tax Act, 1961, the disallowance of commission payable to foreign agents, and the applicability of tax deduction at source under Section 195 of the Act. The decision highlighted the importance of whether the income was chargeable to tax in India and concluded that no error of law was found in the tribunal's decision, leading to the dismissal of the appeal.