2018 (5) TMI 1742 - AT - Income Tax

Tribunal Rules Export Commission to Non-Resident Agent Not Taxable in India

Income Tax Officer, Ward - 2 (1) (1), Ahmedabad Versus Excel Chemicals India Pvt. Ltd.

The Tribunal upheld the CIT(A)'s decision to delete the disallowance of export commission paid to overseas agents under section 40(a)(i) of the Income Tax ... TDS u/s 195 - disallowance made on account of export commission paid to overseas agents u/s.40(a)(i) - Held that:- As decided in assessee's own case [2016 (9) TMI 107 - ITAT AHMEDABAD] For application of Section 195, it is sine qua non that the payment to no- resident must have an element of income liable to be taxed under the Indian Income Tax Act, 1961. On the facts of this case, as we have already concluded, no part of the remittance to the commission agent was taxable in India. The assessee was, therefore, not under any obligation, on the facts of this case, to deduct any tax at source from the commission payments to the non-residents. Since there was no obligation to deduct tax at source, the very foundation of impugned disallowance under section 40(a)(i) ceases to hold good in law. - Decided in favour of assessee Issues Involved:Appeal challenging correctness of CIT(A)'s order on disallowance of export commission paid to overseas agents under section 40(a)(i) of the Income Tax Act, 1961 for assessment year 2013-14.Detailed Analysis:1. Issue of Disallowance of Export Commission:The appeal filed by the Assessing Officer contested the deletion of disallowance made on account of export commission paid to overseas agents under section 40(a)(i) of the Income Tax Act, 1961. The contention was that income arising from the business connection in India of a non-resident commission agent should be taxable in India. However, the Tribunal noted that Explanation 1 to Section 9(1)(i) specifies that only income reasonably attributable to operations carried out in India shall be taxable. As no operations of the non-resident commission agent were conducted in India, the commission income was held not taxable in India. The Tribunal disagreed with the revenue's reliance on certain rulings, emphasizing that the commission agent's right to receive commission in India was irrelevant for taxability under Section 9(1)(i).2. Application of Section 195 for Tax Deduction at Source:The Tribunal also discussed the application of Section 195, emphasizing that tax deduction at source is required only when the payment to a non-resident has an element of income liable to be taxed in India. Citing a Supreme Court judgment, it clarified that if no part of the remittance to the commission agent was taxable in India, there was no obligation to deduct tax at source. Consequently, the disallowance under section 40(a)(i) was deemed invalid, and the CIT(A)'s decision to delete the disallowance was upheld.3. Judgment and Dismissal of Appeal:The Tribunal upheld the CIT(A)'s decision based on the legal provisions and precedents cited. It dismissed the appeal filed by the Revenue and the Cross Objection filed by the assessee, as they supported the CIT(A)'s order and did not require further adjudication. The judgment was pronounced on May 15, 2018, confirming the dismissal of both the appeal and the cross-objection.In conclusion, the Tribunal's detailed analysis and interpretation of legal provisions, including Section 9(1)(i) and Section 195 of the Income Tax Act, led to the dismissal of the appeal challenging the disallowance of export commission paid to overseas agents. The judgment emphasized the importance of considering the specific circumstances and legal framework to determine the taxability of income in such cases.