2012 (2) TMI 364 - AAR - Income Tax

Export commission to non-resident agents treated as accruing in India, taxable and subject to withholding under domestic law.

Export commission payable to non-resident agents was held to be deemed to accrue and arise in India because the right to receive commission arises when ... Income deemed to accrue or arise in India - export commission payable to non-resident agents – withholding of tax - Held that:- No doubt the agents rendered services abroad and have solicited orders, but the right to receive the commission arises in India when the order is executed by the applicant in India. We therefore hold such export commission payable to be deemed to accrue and arise in India, and is taxable in view of the specific provision of Section 5(2)(b) r.w.s. 9(1)(i). Applicant has not contended that it is availing benefits under the provision of DTAA with Pakistan nor has it a claim of tax exemption under any provision of the Act. The provision of section 195 would apply. Issues:1. Whether the income of the non-resident agent can be deemed to accrue or arise in IndiaRs.2. Whether tax deduction would be mandatory under section 195 under export commission paid to non-resident agent, if so, at what rateRs.Analysis:Issue 1: The applicant argued that the commission paid to non-resident agents for services rendered abroad should not be taxable in India as the income did not accrue or arise in India. They contended that the right to receive the income came into existence outside India when the services were rendered abroad. However, the Revenue contended that the income accrued in India as per section 5(2)(b) of the Income-tax Act, 1961, when the right to receive the income vested. The Authority held that the income arising from the commission payable to the agents is deemed to accrue and arise in India under Section 5(2)(b) read with section 9(1)(i) of the Act. The ruling cited a previous case to support this decision, emphasizing that the situs of income is determined when the right to receive it comes into existence, regardless of where the services were rendered. Therefore, the income is taxable in India, and the provisions of section 195 for tax withholding apply.Issue 2: The applicant also questioned whether tax deduction under section 195 was mandatory for the export commission paid to non-resident agents and at what rate. The Authority confirmed that the provision of section 195 would apply in this case, and the rate of tax would be as provided under the Finance Act for the relevant year. This decision was based on the finding that the income accrued in India as per the relevant sections of the Income-tax Act, and therefore, tax withholding obligations under section 195 were applicable.Overall, the Authority ruled that the income arising from the commission payable to non-resident agents for services rendered abroad is deemed to accrue and arise in India, making it taxable under the Income-tax Act, with tax withholding obligations under section 195 at the applicable rate specified in the Finance Act for the relevant year.