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TMI Blog2014 (1) TMI 440X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee's case – Following GE India Technology Cen. (P.) Ltd. v. CIT [2010 (9) TMI 7 - SUPREME COURT OF INDIA] - the assessee is not liable to deduct TDS when non-residents provided service outside India - when the services are provided outside India, the commission payments made to non-residents cannot be treated as income deemed to accrue or arise in India, therefore, the provisions of section 195 has no application - In order to invoke the provisions of section 195 of the Act, the income should be chargeable to tax in India - the commission payments to non-residents are not chargeable to tax in India, thus, the provisions of section 195 are not applicable – order of the CIT(A) upheld – Decided against Revenue. - IT APPEAL NO. 2095 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The Assessing Officer was of the view that the payments to non-residents is the income deemed to accrue or arise in India under clause (vii) of sub-section (1) of Section 9. The Assessing Officer was of the view that in view of the withdrawal of circular No.23 of 1969 by the CBDT, the commission payments to non-residents are liable to be taxed. He was also of the view that in view of the Explanation to sub-section (2) of Section 9, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) of section 9, whether or not the non-resident has a residence or place of business or business connection in India or the non-resident had rendered services in India. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The Departmental Representative vehemently supported the order of the Assessing Officer in disallowing the commission payments to non-residents for non-deduction of TDS. 4. The counsel for the assessee strongly relied on the order of the Commissioner of Income Tax (Appeals) in deleting the disallowance made. 5. Heard both sides. Perused the orders of lower authorities. The Assessing Officer disallowed the commission payments made to non-residents holding that in view of Explanation to sub-section (2) of Section 9, these payments are deemed to accrue or arise in India and whether or not the non-resident has a residence or place of business or business connection in India. The Assessing Officer was of the view that in view of withdra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or technical fees to the agents on contract with the assessee. He has finally concluded that all the conditions bring to a reasonable conclusion that the commission paid in the facts of the present case to the non-resident agents is not taxable in India. In coming to such conclusion, the Commissioner of Income Tax (Appeals) observed as under:- "4.3 As seen from the facts of this case, * Agent is a non-resident. * Agent is operating his business activities outside India. * The commission paid related to services provided outside India. * The agent does not have any permanent establishment or permanent business place in India. * The commission was remitted to the agent directly outside India. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a. The underlying principle is this. Tax withholding liability of the payer is inherently a vicarious liability, on behalf of the recipient, and, therefore, when recipient does not have the primary liability to be taxable in respect of income embedded in the receipt, the vicarious liability of the payer cannot but be ineffectual. This vicarious tax withholding liability cannot be invoked unless primary tax liability of the recipient is established. Just because the payer has not obtained a specific declaration from the revenue authorities to the effect that the recipient is not liable to be taxed in India in respect of income embedded in particular payment, howsoever desirable be that practice, the Assessing Officer cannot proceed on the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of royalty or fee of technical services, therefore the Explanation to sub-section (2) of section 9 has no application to the facts of the assessee's case. We see that this case is squarely covered by the decision of the Supreme Court in the case of GE India Technology Cen. (P.) Ltd. v. CIT 327 ITR 456 wherein the Hon'ble Supreme Court held that the assessee is not liable to deduct TDS when non-residents provided service outside India. It was held that when the services are provided outside India, the commission payments made to non-residents cannot be treated as income deemed to accrue or arise in India, therefore, the provisions of section 195 has no application. In order to invoke the provisions of section 195 of the Act, the income shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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