2020 (3) TMI 346 - HC - Income Tax

TDS u/s 195 - payment of commission to foreign agents where TDS was not deducted u/s. 40(a)(ia) - HELD THAT - The matter is entirely covered by the decision of the Hon'ble Apex Court in the case of GE India Technology Centre (P) Vs. CIT, 2010 (9) TMI 7 - SUPREME COURT In this decision, the Hon'ble Apex Court has held that the duty to deduct tax at source arises only when remittance to non-residents contain wholly or partly taxable income, i.e. income chargeable under Section 195 of the Income Tax Act, 1961. The view taken in GE India Technology (P) Limited (supra) was once again reiterated in another decision of the Hon'ble Apex Court in the case of C.I.T. Vs. Toshoku Ltd. 1980 (8) TMI 2 - SUPREME COURT . Also see assesee's own case 2017 (9) TMI 248 - BOMBAY HIGH COURT

Summary

Issues:
1. Whether ITAT correctly decided on the addition towards payment of commission to foreign agents where TDS was not deducted under section 40(a)(ia)?
2. Whether ITAT correctly decided on the disallowance of commission under Section 37?

Analysis:

Issue 1:
The High Court examined whether the ITAT's decision on the addition towards payment of commission to foreign agents, where TDS was not deducted under section 40(a)(ia), was correct. The Court referred to the decision of the Hon'ble Apex Court in the case of GE India Technology Centre (P) Vs. CIT, where it was held that the duty to deduct tax at source arises only when remittance to non-residents contains taxable income. The Court also cited the decision in C.I.T. Vs. Toshoku Ltd., reinforcing the principles established in GE India Technology case. Furthermore, the Court mentioned judgments in other cases like Commissioner of Income Tax Vs. Gujarat Reclaim & Rubber Products Ltd. and The Principal Commissioner of Income Tax Vs. Sesa Goa Ltd., which supported the position that commission earned by nonresident agents selling Indian goods outside India does not require tax deduction at source under section 195 of the Income Tax Act. Consequently, the Court answered the first substantial question of law against the appellant - Revenue and in favor of the respondent - assessee.

Issue 2:
Regarding the second substantial question of law, the Court evaluated whether the disallowance of commission under Section 37 was correctly decided. The Court noted that both the Commissioners (Appeals) and the ITAT had concurred that the commission was incurred wholly and exclusively for the business of the assessee. No perversity was identified in the business to warrant any substantial question of law. Additionally, the ITAT relied on various rulings of the Apex Court and other Courts to support its decision in favor of the assessee. The Court observed that a similar view was taken for the relevant assessment years, further strengthening the position in favor of the assessee. Consequently, the Court answered the second substantial question of law against the appellant - Revenue and in favor of the respondent - assessee.

In conclusion, the High Court dismissed the appeal, ruling in favor of the respondent - assessee on both substantial questions of law. The Court held that there shall be no order as to costs in this matter.