Foreign commission payments not taxable in India; Tribunal upholds CIT(A)'s decision. No TDS obligation.

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the disallowance of Rs. 1,05,98,558/-, as the commission payments to foreign agents did not constitute income assessable in India, and thus, there was no obligation to deduct TDS.

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Issues Involved:
1. Deletion of disallowance of Rs. 1,05,98,558/- made by the AO due to non-deduction of TDS on commission payments to foreign agents.

Detailed Analysis:

1. Deletion of Disallowance of Rs. 1,05,98,558/-:

The Revenue's appeal revolves around the deletion of disallowance amounting to Rs. 1,05,98,558/- made by the AO. The assessee-company, engaged in manufacturing steel billets, filed its return of income electronically declaring NIL income. During scrutiny, the AO noticed that the assessee claimed an expenditure of commission payment in foreign currency without deducting TDS, invoking section 40(a)(i) of the Income Tax Act. The assessee contended that the commission was paid to foreign agents for services rendered outside India, with no business establishment or activities carried out in India by these agents. Therefore, the commission did not constitute income assessable in India, and TDS was not applicable.

The CIT(A) allowed the assessee's claim, noting that the payments were genuine and made to foreign agents with no PE or business operations in India. The CIT(A) cited various judicial precedents, including the Apex Court's decision in CIT Vs Toshoku Ltd [1980] 125 ITR 525 (SC), which held that commission earned by non-residents for services rendered outside India could not be deemed income accrued or arisen in India. Other cases like GE India Technology Cen. (P.) Ltd. [2010] 327 ITR 456 (SC) reinforced that if the income is not assessable in India, there is no obligation to deduct TDS.

The CIT(A) also referenced consistent decisions from earlier years where similar payments were allowed without TDS deduction. The Tribunal upheld the CIT(A)'s order, emphasizing the consistency in judicial decisions and the identical nature of facts in related cases such as DCIT Vs. Welspun Corporation Ltd., where it was concluded that commission payments to non-resident agents did not have tax implications in India.

The Tribunal reiterated that the assessee's payments to foreign agents, who procured orders outside India, did not involve income assessable in India. Therefore, there was no requirement for TDS deduction, aligning with the Supreme Court's ruling in GE India Technology Centre P. Ltd. v. CIT [2010] 327 ITR 456 (SC) that tax withholding is necessary only if the sum paid is assessable to tax in India.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the disallowance of Rs. 1,05,98,558/-, as the commission payments to foreign agents did not constitute income assessable in India, and thus, there was no obligation to deduct TDS. The decision was pronounced on 9th July, 2018 at Ahmedabad.

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