2014 (2) TMI 1223 - AT - Income Tax

Non-resident agent commission not taxable in India: Appellate Tribunal decision

Income-tax Officer, Business Ward -V (4), Chennai Versus Trident Exports

The Appellate Tribunal upheld the decision of the Learned Commissioner of Income Tax (Central)-V, Chennai, in a case involving the disallowance of ... Disallowance of commission - non deduction of tds - amount paid by the assessee to non-resident agents outside India for the services rendered by them outside India - Held that:- The assessee had made payments to commission agents located in foreign countries. These foreign agents have rendered services in their respective countries and had received the commission. It is also evident that the foreign agents did not have any PE in India and there was nothing brought on record to show that the agreements between the assessee & the commission agents were entered in India. In these circumstance the decision rendered in the case of Toshoku Ltd. (1980 (8) TMI 2 - SUPREME Court ) is squarely applicable wherein held that the commission agents, who are engaged in the services executed outside India, cannot be considered to carry on any business operations in India and therefore, provisions of section 9(1)(i) of the Act and Explanation-1A will not be applicable. Similarly, in the case of GE India Technology Cen. (P.) Ltd (2010 (9) TMI 7 - SUPREME COURT OF INDIA) has held that the expression 'chargeable under the provisions of the Act in Sec.195(1)' shows that the remittance has to be of trading receipt, the whole or part of which, is liable to tax in India. If tax is not so assessable, there is no question of tax at source being deducted. - Decided in favour of assessee Issues:Appeal by Revenue against deletion of disallowance of commission paid to non-resident agents outside India under section 40(a)(i) of the Income Tax Act.Analysis:1. Issue of Disallowance of Commission Payment:- The Revenue challenged the deletion of disallowance of commission paid to non-resident agents outside India by the Learned Commissioner of Income Tax (Central)-V, Chennai.- The Revenue contended that the disallowance was made under section 40(a)(i) for non-deduction of tax on the commission paid.- The assessee argued that TDS provisions do not apply for payments to foreign agents for services rendered outside India as per relevant Board Circulars.- The Assessing Officer invoked section 40(a)(i) due to withdrawal of the circular and income accruing indirectly from business connection in India.- The Ld. CIT (A) allowed the appeal, emphasizing that TDS liability does not arise for commission payments not chargeable under Indian Income Tax Law.- Various judicial precedents were cited to support the decision, including the case of CIT v. Toshoku Ltd [1980] and Wheels India Ltd.2. PE Requirement and Business Connection:- The issue of Permanent Establishment (PE) in India was raised by both parties.- The foreign agents were confirmed not to have a PE in India and had conducted services in their respective countries.- The agreements between the assessee and the commission agents were not entered in India, supporting the absence of business connection in India.- The decision in the case of Toshoku Ltd. was cited to argue that commission agents operating outside India do not carry out business operations in India, thus not falling under section 9(1)(i) of the Act.- The judgment in GE India Technology Cen. (P.) Ltd was referenced to highlight the requirement of trading receipt liable to tax in India for TDS deduction under Sec.195(1).3. Legal Precedents and Authorities:- The Ld. CIT (A) and the Appellate Tribunal relied on various judicial decisions to support the allowance of the appeal.- Cases such as CIT v. Eon Technology (P.) Ltd., CIT v. Toshoku Ltd., and Indopel Garments (P.) Ltd v. Dy. CIT were cited to establish the non-taxability of commission earned by non-residents for services rendered outside India.- The withdrawal of circulars by CBDT did not alter the fundamental principles governing TDS liability on commission payments to foreign agents.4. Decision and Confirmation:- The Appellate Tribunal upheld the decision of the Ld. CIT (A) based on the absence of PE in India for the foreign agents and the non-taxability of commission income in India.- The Tribunal confirmed that the Ld. CIT (A) correctly applied the law based on relevant judicial precedents and dismissed the appeal of the Revenue.In conclusion, the judgment focused on the non-applicability of TDS provisions for commission payments to non-resident agents outside India, emphasizing the absence of business connection in India and the non-taxability of such income under Indian Income Tax Law. The decision was supported by various legal precedents and authorities, leading to the dismissal of the Revenue's appeal.