2013 (11) TMI 907 - AT - Income Tax

Assessee not liable to deduct tax on overseas commission payments to non-residents

The Tribunal upheld the Commissioner of Income Tax (Appeals)' decision, ruling that the assessee was not required to deduct tax at source on overseas ... Disallowance u/s 40(a)(i) - Application of S.195 - Non deduction of TDS on overseas commission payments made to the non-resident under section 195(2) - CIT deleted disallowance - Held that:- assessee has made certain payments to overseas agents as commission and no TDS was deducted. According to the Assessing Officer, the assessee's business is situated in India and the payments were also made from India and according to section 195, the assessee is under obligation to deduct TDS. Therefore, by invoking section 40(a)(i), he has disallowed an amount of ₹ 5,62,13,826/-. On appeal, the CIT(Appeals) deleted the disallowance on the ground that the commission was paid to non-resident agent and it cannot be said to have been accrued in India and section 195 have no application. The only issue for our consideration is as to whether the assessee is under obligation to deduct the TDS under section 195 or not. The CIT(Appeals), by considering the entire facts and circumstances of the case passed a detailed order by observing that section 195 have no application to assessee's case - In the present case, the assessee paid certain amounts to overseas agents for procurement of export orders. The agents have not provided any managerial/technical services. The payments received by the non-resident Indian are not taxable in India - section 195 have no application to assessee's case - Following decision of The Commissioner of Income Tax Delhi-IV, New Delhi Versus EON Technology P. Limited [2011 (11) TMI 20 - DELHI HIGH COURT] - Decided against Revenue. Issues Involved:1. Deletion of disallowance under section 40(a)(i) of the Income Tax Act, 1961.2. Obligation to deduct tax at source under section 195 of the Income Tax Act, 1961.Issue-Wise Detailed Analysis:1. Deletion of Disallowance under Section 40(a)(i):The Revenue contested the deletion of disallowance amounting to Rs. 5.61 crores by the Commissioner of Income Tax (Appeals) [CIT(A)], who held that the assessee was not liable to deduct tax at source on overseas commission payments made to non-residents under section 195(2) of the Income Tax Act, 1961. The CIT(A) relied on the decision of the Hon'ble Apex Court in the case of Transmission Corpn. of Andhra Pradesh [239 ITR 589].2. Obligation to Deduct Tax at Source under Section 195:The Assessing Officer (AO) observed that the assessee, engaged in the manufacture and export of shoes, made payments totaling Rs. 5,62,13,826/- as overseas agency commission without deducting TDS under section 195. The AO argued that since the payments were made from India, they were subject to TDS. The assessee contended that the commission was for services rendered outside India, hence not taxable in India, citing various case laws including CIT v. Toshoku Ltd. [125 ITR 525 (SC)] and GE India Technology Centre P. Ltd. v. CIT [327 ITR 456 (SC)].The CIT(A) held that the commission received by the non-resident agents did not accrue in India and thus, the assessee was not obligated to withhold tax under section 195. The CIT(A) reasoned that the services were rendered outside India, and the payments were directly remitted to the agents abroad. The CIT(A) referenced decisions such as DCIT v. Divi's Laboratories (12 Taxman 103) and CIT v. EON Technology Pvt. Ltd. (15 Taxman 391), which supported the assessee's stance.Tribunal's Analysis and Conclusion:Upon appeal, the Tribunal examined whether the assessee was required to deduct TDS under section 195. The Tribunal noted that the CIT(A) had provided a detailed analysis and concluded that section 195 did not apply to the assessee's case. The Tribunal cited the decision in Prakash Impex v. Asstt. CIT [IT Appeal No. 8 (Mds.) of 2012], which held that commission paid to non-resident agents for services rendered outside India is not taxable in India, thus not requiring TDS deduction under section 195.The Tribunal also referenced the Hon'ble Delhi High Court's decision in EON Technology (P) Ltd., which concluded that commission income to a non-resident for services rendered outside India is not taxable in India, and therefore, no TDS is required. Additionally, the Tribunal cited the ITAT Mumbai's decision in Armayesh Global v. ACIT, which held that commission payments for procuring export orders by non-residents without a permanent establishment in India are not subject to TDS under section 195.Final Judgment:The Tribunal upheld the CIT(A)'s decision, confirming that the assessee was not obligated to deduct TDS on the overseas commission payments, and dismissed the Revenue's appeals in both ITA No. 359/Mds/2013 and ITA No. 360/Mds/2013.Order Pronouncement:The order was pronounced in the open court on 11/04/2013 at Chennai, dismissing both appeals filed by the Revenue.