Tax deduction on export commission received in India upheld where non-resident income was chargeable and Circular 786 did not apply.

Commission paid to an Indian agent for export canvassing was treated as income of the non-resident chargeable in India where the amount was received in India on behalf of the foreign entity and no material showed mere transmission abroad. On that basis, tax deduction at source under section 195(1) was attracted, and disallowance under section 40(a)(i) followed. CBDT Circular No. 786 was held inapplicable because it concerned payments to a non-resident agent operating outside India. The later insertion of section 40(a)(ia) did not assist the assessee, as the disallowance was made under the pre-existing section 40(a)(i).

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Issues: Whether commission paid to an Indian agent of a foreign entity for export canvassing was liable for tax deduction at source and disallowance under section 40(a)(i) of the Income-tax Act, 1961, notwithstanding the reliance on CBDT Circular No. 786 and the plea that section 40(a)(ia) was introduced later.

Analysis: The commission was found to have been received in India by the Indian agent on behalf of the Hong Kong entity, and no material was produced to show that the Indian recipient was merely transmitting the amount abroad. In that situation, the payment was treated as income of the non-resident chargeable in India, attracting the obligation under section 195(1) of the Income-tax Act, 1961. Circular No. 786 was held inapplicable because it governed payments to a non-resident agent operating outside India, whereas the present payment was received in India. The argument based on the later insertion of section 40(a)(ia) was rejected because the disallowance was made under section 40(a)(i), which already applied to payments to non-residents.

Conclusion: The commission payment was liable to tax deduction at source and the disallowance under section 40(a)(i) was upheld, against the assessee and in favour of the Revenue.

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