Referral commission to non-resident for overseas client introductions was not taxable in India; no TDS was required.

Referral commission paid to a non-resident foreign concern for introducing clients and performing services outside India was not taxable in India. The payment did not accrue or arise in India, was not deemed income under section 9 because no operations were carried out in India, and was neither interest, royalty nor fees for technical services. It also did not qualify as fees for included services under the India-USA DTAA, as no technical knowledge or skill was made available. No tax was therefore deductible under section 195, and disallowance under section 40(a)(i) was not sustainable.

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Issues: Whether referral commission paid to a non-resident foreign concern for introducing clients, in respect of services rendered outside India, was taxable in India so as to require deduction of tax at source under section 195 and attract disallowance under section 40(a)(i).

Analysis: The referral fee was paid outside India to a foreign concern for services performed abroad. It was not received in India, could not be treated as deemed receipt in India, and did not accrue or arise in India. On the facts, the payment did not fall within section 9(1)(i) because no part of the operations was carried out in India and no income was attributable to operations in India. It also did not fall within section 9(1)(v), section 9(1)(vi), or section 9(1)(vii), as the payment was neither interest, royalty, nor fees for technical services. The services consisted only of referring or introducing customers and did not amount to managerial, technical, or consultancy services. Therefore, the deeming provision in section 9(2) had no application. Independently, under the India-USA DTAA, the payment was not fees for included services because no technical knowledge, skill, or know-how was made available, and it constituted business profits taxable only in the absence of a permanent establishment in India.

Conclusion: No tax was deductible at source on the referral commission, and the disallowance under section 40(a)(i) was not sustainable.

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