Non-resident export commission outside India is not taxable in India, so tax withholding and disallowance do not apply.

Commission paid to a non-resident export agent for procuring orders abroad was not chargeable to tax in India where the agent rendered services wholly outside India, had no permanent establishment in India, and no operations were shown to have been carried out in India. Such export commission was not treated as managerial, consultancy, or technical fees merely because the rate was high. Since the sum was not chargeable to tax in India, the obligation to deduct tax at source under section 195 did not arise, and the resulting disallowance under section 40(a)(ia) was deleted.

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Issues: Whether commission paid to a non-resident export agent for procuring orders abroad was chargeable to tax in India so as to require deduction of tax at source under section 195 of the Income-tax Act, 1961, and attract disallowance under section 40(a)(ia).

Analysis: The non-resident agent rendered services outside India for procurement of export orders, had no permanent establishment in India, and there was no finding that any operations were carried out in India. The payment was for export-order procurement and could not be characterised as managerial, consultancy, or technical services merely because the commission rate was relatively high. In the absence of income accruing or arising in India, the obligation to deduct tax at source under section 195 did not arise. Consequently, the disallowance under section 40(a)(ia) could not be sustained.

Conclusion: The disallowance of export commission was deleted and the issue was decided in favour of the assessee.

Ratio Decidendi: Tax deduction at source under section 195 is required only where the sum paid to a non-resident is chargeable to tax in India, and commission paid for services rendered wholly outside India for procuring export orders does not, by itself, constitute managerial, consultancy, or technical fees chargeable to tax in India.

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