Non-resident export commission and timely PF-ESI payments were held outside disallowance, with tax deduction at source not required.

Commission paid to non-resident agents for export-related services rendered outside India was treated as not chargeable to tax in India because the services were performed abroad and no business connection in India was found; accordingly, tax deduction at source was not required and the disallowance under section 40(a)(i) was deleted. Employees' contributions to PF and ESI paid before filing the return were also held allowable, as the delayed-payment disallowance was not sustainable on the jurisdictional view relied upon. The Revenue's appeal failed and the assessee's cross objection succeeded, resulting in deletion of both disputed disallowances.

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Issues: (i) Whether commission paid to non-resident agents for export of garments was chargeable to tax in India so as to attract tax deduction at source and disallowance under section 40(a)(i); (ii) Whether employees' contribution to PF and ESI paid before filing the return of income was disallowable.

Issue (i): Whether commission paid to non-resident agents for export of garments was chargeable to tax in India so as to attract tax deduction at source and disallowance under section 40(a)(i).

Analysis: The payment was found, on the agreement and the manner of computation, to be commission for export-related services rendered outside India in the ordinary course of business. The services were not rendered in India and there was no business connection in India arising from the activity. In such circumstances, no income was chargeable in India and the obligation to deduct tax at source did not arise.

Conclusion: The commission payment was not liable to tax deduction at source and the disallowance under section 40(a)(i) was deleted in favour of the assessee.

Issue (ii): Whether employees' contribution to PF and ESI paid before filing the return of income was disallowable.

Analysis: The contributions were found to have been paid before the due date for filing the return. On that basis, and following the binding jurisdictional view relied upon, the delayed-payment disallowance was not sustainable.

Conclusion: The addition relating to employees' contribution to PF and ESI was rightly deleted in favour of the assessee.

Final Conclusion: The Revenue's appeal failed and the assessee's cross objection succeeded, resulting in deletion of both disputed disallowances.

Ratio Decidendi: Commission paid to non-resident agents for export services rendered outside India, without any business connection or income chargeable in India, does not attract tax deduction at source; employees' contributions to PF and ESI paid before filing the return are allowable.

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