2019 (10) TMI 1430 - AT - Income Tax

Foreign Commission Payments Not Taxable in India, Tribunal Decision Affirmed

The Assistant Commissioner of Income Tax Versus M & B Engineering Limited

The Tribunal upheld the decision that the commission paid to foreign agents was not taxable in India under Section 5(2)(b) read with Section 9(1)(i) of ... TDS u/s 195 - Disallowance of commission to foreign agents - Commission income in the hands of foreign agent as chargeable to tax in India or not? - HELD THAT:- As relying on own case [2018 (11) TMI 1644 - ITAT AHMEDABAD] we do not hesitate to conclude that the commission income in the hands of the foreign agents is not chargeable tax in India in the present facts and circumstances of the case and therefore the assessee is not liable to deduct TDS. The observation made by the Learned CIT(A) does not call for any interference therefore find no merit in the appeal preferred by the Revenue. Hence, same is dismissed - Decided in favour of assessee. Issues Involved:1. Taxability of commission paid to foreign agents under Section 5(2)(b) read with Section 9(1)(i) of the Income Tax Act.2. Applicability of Section 195(2) regarding the obligation to deduct tax at source.3. Genuineness of the commission payments and the rendering of services by foreign agents.Detailed Analysis:1. Taxability of Commission Paid to Foreign Agents:The primary issue was whether the commission paid to foreign agents was taxable in India under Section 5(2)(b) read with Section 9(1)(i) of the Income Tax Act. The Assessing Officer (AO) held that the income arising from the commission payable to overseas agents was deemed to accrue or arise in India and was thus taxable. However, the Commissioner of Income Tax (Appeals) [CIT(A)] and the Tribunal found that the services by the foreign agents were rendered outside India, and the sales were booked in other countries. The CIT(A) relied on the Supreme Court decision in CIT vs. Toshoku Limited, which held that commission earned by non-residents for acting as selling agents for Indian exporters, where services were rendered outside India, does not accrue in India. Therefore, the commission paid to foreign agents was not taxable in India, as the services were performed entirely outside the country and there was no business connection or permanent establishment (PE) of the agents in India.2. Applicability of Section 195(2):The second issue was whether the appellant was required to deduct tax at source under Section 195(2) of the Income Tax Act. The AO argued that the appellant should have deducted tax on the commission payments to non-resident agents. The CIT(A) and the Tribunal, however, concluded that since the income was not chargeable to tax in India, there was no obligation to deduct tax at source. The CIT(A) emphasized that the payments were not received in India nor did they accrue or arise in India. The Tribunal further supported this view by citing the Supreme Court decision in GE India Technology Centre Private Limited, which clarified that tax withholding liability does not arise if the sum paid is not chargeable to tax under the Act.3. Genuineness of Commission Payments and Rendering of Services:The third issue was the genuineness of the commission payments and whether the services were actually rendered by the foreign agents. The AO doubted the genuineness of the payments, citing a lack of evidence such as agreements and proof of services rendered. The CIT(A) and the Tribunal, however, found that the appellant had provided substantial evidence, including agreements, bank payment details, Form 15CA and 15CB, and other relevant documents, proving the genuineness of the commission payments and the services rendered by the agents. The payments were made through banking channels and were duly documented, establishing the authenticity of the transactions.Conclusion:The Tribunal upheld the CIT(A)'s decision to delete the disallowance of commission payments to foreign agents. It was concluded that the commission paid to foreign agents was not taxable in India, there was no obligation to deduct tax at source under Section 195, and the commission payments were genuine with services duly rendered by the foreign agents. The appeal filed by the Revenue was dismissed.