Non-resident commission for services outside India was not taxable, so no TDS and no disallowance applied.

Commission paid to non-resident agents for services rendered outside India was not chargeable to tax in India because the agents had no business connection or permanent establishment in India. Since tax under section 195 is deductible only from sums chargeable under the Act, there was no obligation to withhold tax on the remittance, and the disallowance under section 40(a)(i) could not stand. The expenditure was therefore allowed.

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Issues: Whether commission and brokerage paid to non-resident agents for services rendered outside India was chargeable to tax in India so as to attract deduction of tax at source under section 195, and consequential disallowance under section 40(a)(i).

Analysis: The payment was made to overseas agents for booking business outside India, the services were rendered outside India, and the agents had no business connection or permanent establishment in India. On the combined reading of section 195 and section 40(a)(i), tax is required to be deducted only from a sum chargeable under the Act. Where the remittance is not chargeable to tax in India, there is no obligation to deduct tax at source and, therefore, no basis to disallow the expenditure under section 40(a)(i).

Conclusion: The commission paid to the non-resident agents was not chargeable to tax in India, no tax was deductible under section 195, and the disallowance under section 40(a)(i) was rightly deleted.

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