Non-resident commission for services abroad is not subject to TDS when no income arises in India

Commission paid to a non-resident for services rendered outside India was not chargeable to tax in India because no income arose or accrued in India and the recipient had no permanent establishment in India under the applicable DTAA. As section 195 applies only to sums chargeable under the Act, no tax was deductible at source on the remittance abroad. On that basis, disallowance under section 40(a)(i) was held unsustainable and was deleted, and the revenue appeal failed.

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Issues: Whether commission paid to a non-resident for services rendered outside India, with remittance made abroad and no income arising in India, attracted deduction of tax at source and consequent disallowance under section 40(a)(i).

Analysis: The payment was made to a non-resident agent for services rendered outside India, and no part of the commission arose in India. Relying on the settled position that income of a non-resident from services rendered abroad is not deemed to accrue or arise in India, and that section 195 applies only to sums chargeable under the Act, the Tribunal held that no tax was deductible at source. The Tribunal also noted that the absence of a permanent establishment in India under the applicable DTAA supported the view that the commission was not taxable in India.

Conclusion: The disallowance under section 40(a)(i) was not sustainable and was rightly deleted; the appeal was against the assessee.

Final Conclusion: Commission paid to a non-resident for services rendered abroad, where the income did not accrue or arise in India and was not chargeable to tax in India, did not require deduction of tax at source, and the revenue appeal failed.

Ratio Decidendi: Section 195 applies only to payments that are chargeable to tax in India, and commission paid abroad to a non-resident for services rendered outside India is not subject to TDS or disallowance under section 40(a)(i) when no income arises in India.

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