Tribunal rules non-resident agents not taxable in India for agency commission

The Tribunal upheld the CIT(Appeals) decision to delete the disallowance under section 40(a)(ia) for non-deduction of tax on overseas payment of agency commission. The Tribunal ruled that payments to non-resident agents procuring export orders for the assessee were not taxable in India as they had no business connection or permanent establishment in the country. Therefore, the Revenue's appeal was dismissed for lacking merit, in line with the Supreme Court's decision that tax deduction obligations only arise when the sum is chargeable to tax in India.

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Issues:
1. Disallowance made under section 40(a)(ia) for non-deduction of tax on overseas payment of agency commission.

Analysis:
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-II, Chennai, for the Assessment Year 2009-10, regarding the deletion of disallowance under section 40(a)(ia) of the Income Tax Act, 1961, for non-deduction of tax on overseas payment of agency commission. The assessee, engaged in exporting leather goods, had filed its return of income declaring total income. The Assessing Officer disallowed payments towards agency commission for non-deduction of tax, which the CIT(Appeals) later deleted after considering relevant case laws. The Department, represented by Shri Guru Bhashyam, challenged the CIT(Appeals) order, citing pending appeals in similar cases. Despite notice, no one appeared for the assessee during the proceedings.

The Tribunal noted that the non-resident agents procuring export orders for the assessee had no business connection or permanent establishment in India, operating outside Indian territory. Citing a previous case, the Tribunal found that payments to non-residents for procuring export orders were not assessable to tax in India. Referring to the Supreme Court's decision in GE Technology Cen. P. Ltd. Vs. CIT, the Tribunal emphasized that tax deduction obligations arise only when the sum is chargeable to tax in India. As the payments were not taxable, the Tribunal upheld the CIT(Appeals) decision, dismissing the Revenue's appeal for lacking merit. The order was pronounced on June 10, 2014, in Chennai.

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