2023 (8) TMI 295 - HC - Income Tax

TDS u/s 195 - disallowance u/s 40(a)(i) - non-deduction of TDS on expenditure being the commission paid to agent overseas - assessee s case that the commission paid to overseas agents was not chargeable to tax under the Act, therefore, it had no obligation to deduct TDS - ITAT allowed assessee appeal - HELD THAT - It is trite law that a foreign resident who does not carry on any business operations in the taxable territories in India, and has no permanent establishment or business connection, is not liable to pay tax under the Act in respect of any amount remitted by resident assessee. In the present case, there is no material on record to even remotely suggest that the non-resident, who had been paid the export commission had any permanent establishment in India; had carried on any business within the taxable territory in India; or had any business connection in India rendering them liable to pay tax under the Act. There is also no allegation that the payments made were not bona fide expenses. No substantial question of law arises - Decided against revenue.

Summary

Issues Involved:
The judgment involves the dismissal of an appeal by the Revenue under Section 260A of the Income Tax Act, 1961, challenging an order related to the assessment year 2013-2014, concerning the disallowance of expenses due to non-deduction of TDS under Section 40(a)(i) of the Act.

Disallowed Expenses and TDS Obligation:
The controversy revolves around the disallowance of expenses amounting to Rs. 4,13,48,057 under Section 40(a)(i) of the Act by the Assessing Officer due to non-deduction of TDS by the respondent assessee on commission paid to overseas agents. The AO contended that the non-deduction of TDS disentitled the assessee from claiming any deduction. However, the assessee argued that the commission paid to overseas agents was not taxable under the Act, hence no TDS deduction was required.

Tribunal's Decision and Legal Precedents:
The Tribunal, considering the nature of services provided by overseas agents and following a previous decision, dismissed the Revenue's appeal. It found that the commission paid did not accrue in India, as the services were rendered overseas. Citing the Supreme Court's ruling in Commissioner of Income Tax, A.P v. Toshoku Ltd., it was emphasized that non-residents not conducting business operations in India are not liable to pay tax under the Act for amounts remitted by resident assesses. The Tribunal held that no substantial question of law arose in the case, leading to the dismissal of the appeal.

Conclusion:
The High Court upheld the Tribunal's decision, stating that the non-resident recipient of the export commission had no permanent establishment or business connection in India, absolving them from tax liability under the Act. With no evidence suggesting otherwise, and considering the legal precedents, the Court found no merit in the Revenue's appeal, ultimately dismissing it.