2024 (12) TMI 23 - AT - Income Tax

TDS u/s 195 - disallowance u/s 40(a)(i) - commission paid to non-resident parties for services rendered outside India - as argued non resident has no permanent resident or business in India, and they had given services outside India and they have not person in any action in India HELD THAT - The recipients were resident outside India and they have no place of resident or business place in India. The services were rendered outside India by way of sales services for which the commission was paid and income to them also accrued outside India. In view of that no TDS was liable to be made and therefore section 40(a)(i) did not apply. In the present case both the persons to whom the commission has been paid are certainly non-residents. The commission has been paid to them for the services they gave outside India for selling the goods of the appellant outside India. The appellant has made the payment to them by making remittance through regular banking channel from India to overseas in their bank accounts. In view of that recipients of the payments are not liable to tax in India under any provisions of the Income Tax Act, 1961, and therefore, the assessee is not liable to make TDS and Section 195(1) of the Act does not apply. See Nova Techno cast Pvt. Ltd 2018 (5) TMI 1182 - GUJARAT HIGH COURT Both the brokers are non-residents and the assessing officer has not disputed this fact. The non-residents recipient of commission, have no permanent resident or business establishment, in India or any business connection in India and they had given their services outside India, nor they have in any manner whatsoever presence of any kind in India. - Assessee appeal allowed.

Summary

Issues:
1. Condensation of delay in filing appeal.
2. Disallowance of commission payment for non-resident parties under section 40(a)(i) of the Income-tax Act, 1961.

Analysis:
1. Condensation of Delay in Filing Appeal:
The appeal filed by the assessee for the assessment year 2014-15 was delayed by 14 days. The reason cited was the illness of the head accountant handling the appeal papers. The assessee moved a petition for condonation of delay, which was opposed by the Revenue. The Tribunal, after hearing both parties, found the reasons for the delay convincing and constituting reasonable cause. Consequently, the delay was condoned, and the appeal was admitted for hearing.

2. Disallowance of Commission Payment under Section 40(a)(i):
The assessing officer disallowed a commission payment of Rs. 2,94,281 made to non-resident parties for services rendered outside India, citing non-deduction of TDS under section 194H. The assessing officer invoked section 40(a)(i) of the Act to disallow the expenses. The Commissioner of Income Tax (Appeals) upheld this disallowance. The assessee contended that since the services and sales were outside India, TDS deduction was not required. The Tribunal noted that the recipients were non-residents without any business connection in India, and their income was not taxable in India. Relying on a Gujarat High Court judgment, the Tribunal held that section 195(1) did not apply, and the addition was deleted. The Tribunal allowed the appeal based on this analysis.

Conclusion:
The Tribunal condoned the delay in filing the appeal and allowed the appeal of the assessee regarding the disallowance of commission payment to non-resident parties. The decision was based on the non-taxability of the income in India for the non-resident recipients, as supported by a relevant High Court judgment.