2018 (6) TMI 1724 - AT - Income Tax

Tribunal affirms non-deduction of TDS on commission payments to non-resident agents

The Tribunal upheld the decision of the Ld. CIT(A) to delete the disallowed expenses under section 40(a)(i) for non-deduction of TDS. The Tribunal found ... TDS u/s 195 - disallowance u/s. 40(a)(i) for non-deduction of TDS - payment made by the assessee to a non- resident as agency commission - CIT(A) deleted the addition - HELD THAT:- CIT(A) has rightly deleted the addition in dispute by following the various case laws as well as following the Ld. CIT(A)-XII, New Delhi Order passed in assessment year 2009-10 in assessee’s own case wherein relying WELSPUN CORPORATION LIMITED AND VICE-VERSA [2017 (1) TMI 1084 - ITAT AHMEDABAD] held that on payments made by assessee for services rendered by non-resident agents could not be held to be fees for payment for technical services, these payments were in nature of commission earned from services rendered outside India which had no tax implications in India. Decision of Hon’ble Madras High Court in the case of CIT vs. Kikani Exports Pvt. Ltd. [2014 (9) TMI 96 - MADRAS HIGH COURT]wherein it was held that the services rendered by the non-resident agent could at best be called as a service for completion of the export commitment and would not fall within the definition of “fees for technical services” and, therefore, section 9 was not applicable and, consequently, section 195 did not come into play. Therefore, the disallowance made by the AO towards export commission paid by the assessee to the non-resident was rightly deleted. - Decided against revenue. Issues:Disallowance of expenses under section 40(a)(i) for non-deduction of TDS.Analysis:The case involved an appeal by the Revenue against the Order of the Ld. Commissioner of Income Tax (Appeals)-XII, New Delhi, regarding the disallowance of expenses amounting to Rs. 50,63,797 under section 40(a)(i) for non-deduction of TDS. The assessee, engaged in the business of manufacturing and exporting jewelry, had claimed this expense on account of foreign agency commission. The Assessing Officer (AO) disallowed the expense under section 40(a)(i) as the payment to a non-resident fell under the purview of Section 195 of the Income Tax Act, necessitating tax deduction at source. The AO held that the commission payment to a non-resident was not taxable under the Act, and thus, tax should have been deducted at the time of payment. The AO added the disallowed amount to the total income of the assessee. The Ld. CIT(A) allowed the appeal of the assessee, deleting the addition in dispute, citing various case laws and a precedent from the assessment year 2009-10.In the appeal before the Tribunal, the Revenue contended that the AO's order should be upheld, while the Assessee's Counsel argued in favor of the Ld. CIT(A)'s decision. The Counsel highlighted undisputed facts related to the agreements with non-resident agents, emphasizing that the commission payments did not require tax withholding. The Counsel cited multiple case laws supporting the non-deduction of tax at source for such payments. The Tribunal reviewed the relevant records, including the case laws cited by the Assessee's Counsel, and noted that the Ld. CIT(A) had rightly deleted the addition in dispute based on previous judgments and the order from the assessment year 2009-10. The Tribunal reproduced relevant findings from the Ld. CIT(A)'s order for the assessment year 2009-10, which supported the non-requirement of tax deduction for commission payments to non-residents for services rendered outside India.The Tribunal upheld the Ld. CIT(A)'s decision, citing various precedents and case laws that established the non-liability of the assessee to deduct tax at source for such payments. The Tribunal dismissed the Revenue's appeal, concluding that the assessee was not required to deduct tax at source for the commission payments to non-resident agents. The decision was based on the facts of the case, previous judgments, and the legal provisions governing tax deduction at source for payments to non-residents.