2019 (8) TMI 465 - HC - Income Tax

TDS u/s 195 - addition u/s.40(a)(i) - commission payable to the foreign agent - no certificate for non holding of tax u/s.195(2) - 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 MGM EXPORTS 2018 (5) TMI 1240 - GUJARAT HIGH COURT . The ratio of the decision of this Court, which has been applied by the Tribunal is 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. Having regard to the findings recorded by the tribunal relying on the decision of this Court referred to above, we are of the view that no error much less an error of law could be said to have been committed by the Tribunal in passing the impugned order warranting any interference in the present appeal. There is no substantial question of law in the present appeal. This Tax Appeal, therefore, fails and is hereby dismissed.

Summary

Issues:
1. Interpretation of Section 40(a)(ia) of the Income Tax Act, 1961.
2. Whether the Tribunal erred in upholding the decision of the CIT(A) regarding the deletion of the addition under Section 40(a)(ia) of the Act.
3. Application of the decision in PR CIT vs. MGM Exports to the current case.

Analysis:

1. 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 concerning the assessment year 2010-11. The main issue revolved around Section 40(a)(ia) of the Act, specifically the deletion of an addition of a substantial amount for non-deduction of tax at source on commission payable to a foreign agent.

2. The Revenue contended that the Tribunal erred in law by upholding the decision of the CIT(A) to delete the addition under Section 40(a)(ia) of the Act. The crux of the matter was whether the assessee was required to obtain a certificate for non-deduction of tax under Section 195(2) of the Act. However, the Court referred to a previous judgment in PR CIT vs. MGM Exports, where it was held that if the sum payable to a non-resident is not chargeable to tax, then there is no obligation to deduct tax at source.

3. The Court found that the principles established in the earlier judgment were directly applicable to the current case. It was concluded that the commission income received by the foreign agent was not taxable in India, and therefore, there was no requirement to deduct TDS under Section 195 of the Act. The Tribunal, based on this reasoning, dismissed the appeal raised by the Revenue. Consequently, the Court upheld the Tribunal's decision, stating that no error of law was committed, and there was no substantial question of law to warrant interference. As a result, the Tax Appeal was dismissed.

This comprehensive analysis of the judgment highlights the key legal issues, arguments presented, and the final decision rendered by the Court, providing a detailed understanding of the case.