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 ... Deemed to accrue or arise in India - scope of total income under section 5(2)(b) read with section 9(1)(i) - situs of income - tax deduction at source under section 195Deemed to accrue or arise in India - situs of income - scope of total income under section 5(2)(b) read with section 9(1)(i) - Income of the non-resident agents on account of export commission is deemed to accrue or arise in India. - HELD THAT: - The Authority held that sections 5 and 9 operate on the premise that income has a situs which must be determined by legal principles; the words 'accrue' or 'arise' are satisfied when the right to receive income comes into existence. Although the agents rendered services and solicited orders abroad, the right to receive the commission arose in India upon execution of the export order by the applicant in India. The overseas performance of solicitation and remittance of commission abroad are irrelevant to determining the situs of the income. The Authority followed its earlier ruling in Rajive Malhotra AAR 671 of 2005 and concluded that the commission payable to the two non-resident agents is deemed to accrue and arise in India under section 5(2)(b) read with section 9(1)(i).The commission income of the non-resident agents is deemed to accrue or arise in India and is taxable under the Act.Tax deduction at source under section 195 - Obligation to deduct tax at source under section 195 in respect of the commission payable to the non-resident agents. - HELD THAT: - Having held that the commission income is deemed to accrue or arise in India, the Authority ruled that the withholding provision under section 195 applies. The rate of tax to be deducted is the rate as provided under the Finance Act for the relevant year; no exemption or treaty benefit was claimed by the applicant before the Authority.Tax deduction under section 195 is mandatory and must be at the rate provided by the Finance Act for the relevant year.Final Conclusion: The Authority ruled that the export commission payable to the two non-resident agents is deemed to accrue or arise in India and is taxable here, and that tax must be deducted at source under section 195 at the Finance Act rate for the relevant year. 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.