2024 (2) TMI 1384 - AT - Income Tax

Commission to foreign agents outside India not subject to TDS under section 195

The ITAT Mumbai ruled in favor of the assessee regarding TDS u/s 195 on commission paid to foreign agents. The assessee paid commission to non-resident ... Taxability of commission paid to non-resident agents for procuring export orders - Deduction of tax at source under section 195 for payments to non-residents - Place of rendering/utilisation of services and Permanent Establishment - Application of Double Taxation Avoidance Agreement in assessing tax liability of non-residents - Deemed accrual of income under Explanation to section 9(2) of Finance Act, 2007Taxability of commission paid to non-resident agents for procuring export orders - Deduction of tax at source under section 195 for payments to non-residents - Place of rendering/utilisation of services and Permanent Establishment - Whether the addition of commission paid to foreign agents on account of failure to deduct tax at source is sustainable where services were rendered and utilized outside India and agents had no Permanent Establishment in India. - HELD THAT: - The Tribunal accepted the assessee's factual position that foreign agents procured export orders outside India and were paid commission outside India, and that none of the agents had a Permanent Establishment or place of business in India. The Assessing Officer did not produce material to show that the services were rendered or utilized in India or that the agents had a business presence in India. Reliance was placed on earlier favorable decisions in the assessee's own case and on authoritative precedents (including the decisions in Gujarat Reclaim and Rubber Products Ltd. and CIT v. Toshoku Ltd.) holding that commission earned by non-resident agents for selling Indian goods outside India does not amount to income deemed to accrue or arise in India. The Explanation to section 9(2) and Circular No.7/2009 were considered, but absent any evidence of services rendered or utilised in India or of a PE, the legal position favoured non-taxability in India and no TDS under section 195 was exigible. The Tribunal also noted that subsequent assessments of the department accepted the same position in later years.The addition made on account of commission paid to foreign agents for lack of TDS is deleted and the revenue's appeal is dismissed.Final Conclusion: The Tribunal dismissed the revenue's appeal for AY 2016-17, holding that commissions paid to foreign agents for procuring export orders-rendered and utilised outside India and paid to parties without a Permanent Establishment in India-are not taxable in India such as to attract deduction of tax at source under the circumstances of the case. Issues involved: Appeal by revenue against deletion of addition for commission paid to foreign agent.Summary:The appeal was filed by the revenue against the order of the Ld. Commissioner of Income Tax/NFAC for the assessment year 2016-17. The main issue raised was the deletion of the addition in respect of commission paid to a foreign agent amounting to Rs.1,61,90,101/-. The assessee, engaged in manufacturing and exporting, filed its return of income declaring a total income of Rs.7,74,27,070/-. The AO made an addition of Rs.1,61,90,101/- under section 143(3) of the Income Tax Act, 1961. The Ld. CIT(A) deleted the addition based on previous Tribunal decisions and a High Court ruling. The revenue appealed this decision.Upon hearing both parties, it was noted that the assessee paid commission to agents outside India for procuring export orders. The AO contended that tax should have been deducted under section 195 as the agents were providing consultancy services. The Ld. CIT(A) deleted the addition, citing agreements with non-resident agents and previous Tribunal decisions. The Tribunal upheld the Ld. CIT(A)'s decision based on legal precedents and lack of change in facts or law. The revenue's appeal was dismissed, affirming the action of the Ld. CIT(A) and referencing previous court decisions. The AO for a subsequent year also allowed the commission payment without TDS. Ultimately, the appeal of the revenue was dismissed, and the order was pronounced on 29/02/2024.