2020 (12) TMI 395 - AT - Income Tax

Tribunal upholds non-taxability of export commission payments to non-resident agents

Deputy Commissioner of Income Tax, Corporate Circle-I (1), Chennai. Versus M/s. ABI Showatech (India) Ltd.

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the disallowance of export commission payment to non-resident ... TDS u/s 195 - disallowance u/s.40(a)(i) for non-deduction of TDS - export commission paid to foreign agents for rendering services outside India - HELD THAT:- We find that the assessee has made payment to M/s.Biggleswade Ltd., Hong Kong, a non-resident agent who rendered services to the assessee outside India for marketing the products of the assessee. Assessee has filed necessary evidence to prove that although the agreement between the parties specifies various services but payment made for the impugned assessment year is only for export sales and such services are rendered outside India. Considering the facts and circumstances of the case and also the consistent view taken by the co-ordinate Bench in the case of M/s. Turbo Energy Ltd. [2017 (5) TMI 1749 - ITAT CHENNAI] we are of the view that the export commission paid to foreign agents for rendering services outside India is not liable for deduction of tax at source u/s.195 and consequently, no disallowance could be made u/s.40(a)(i) for non-deduction of TDS. CIT(A) after considering the relevant facts and also by following the decision of the Hon’ble High Court in the case of Faizan Shoes Pvt.Ltd, [2014 (8) TMI 170 - MADRAS HIGH COURT] has rightly deleted the addition made towards disallowance of export commission made to non-resident agents - Decided in favour of assessee. Issues:- Disallowance of export commission payment to non-resident agents under section 40(a)(i) of the Income Tax Act- Applicability of tax deduction at source (TDS) under section 195 of the Act- Interpretation of services rendered outside India by foreign agents- Consistency in treatment of commission payments by the departmentIssue 1: Disallowance of export commission payment to non-resident agents under section 40(a)(i) of the Income Tax Act:The Revenue challenged the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of export commission payment to a non-resident agent, M/s.Biggleswade Ltd., Hong Kong, amounting to Rs. 3,02,34,070. The Revenue contended that the commission payment was for managerial/technical/consultancy services, falling under the definition of Royalty and Technical Service as per India-Hong Kong DTAA. However, the CIT(A) deleted the additions made by the Assessing Officer, stating that commission payment to non-resident agents for services rendered outside India is not taxable in India, hence no TDS deduction is required under section 195 of the Act. The CIT(A) relied on the decision of the Hon'ble Madras High Court in a similar case. The Tribunal upheld the CIT(A)'s decision, emphasizing that the services were rendered outside India, and no disallowance could be made under section 40(a)(i) for non-deduction of TDS.Issue 2: Applicability of tax deduction at source (TDS) under section 195 of the Act:The Assessing Officer disallowed the commission payment to the non-resident agent, citing it as fees for technical services liable for TDS under section 195. However, the CIT(A) and the Tribunal found that the payment made for export sales services rendered outside India does not fall under the category of fees for technical services taxable in India. The Tribunal referred to the amendment to Explanation to Section 9(2) of the Finance Act, 2010, and held that there was no provision to tax such payments made to services rendered outside India prior to the amendment. The Tribunal concluded that no tax deduction under section 195 was required, supporting the assessee's stance.Issue 3: Interpretation of services rendered outside India by foreign agents:The Tribunal analyzed the nature of services provided by the non-resident agent, M/s.Biggleswade Ltd., Hong Kong, and found that the services were related to marketing the assessee's products outside India. The Tribunal considered the agreement between the parties and the evidence provided by the assessee, concluding that the services were indeed rendered outside India for export sales. The Tribunal referred to previous decisions and held that no territorial nexus existed to tax the services as royalty or fees for technical services under section 9(1)(vii) of the Act.Issue 4: Consistency in treatment of commission payments by the department:The assessee highlighted the consistent treatment of commission payments to non-resident agents in previous assessment years, where the department accepted such payments as deductible without TDS deduction. Despite some disallowances in later years, the CIT(A) provided relief to the assessee, and the department accepted those findings without further appeal. However, for the year under consideration, the department challenged the disallowance, leading to the current appeal. The Tribunal noted this inconsistency and upheld the CIT(A)'s decision based on the facts and legal interpretations provided.In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the disallowance of export commission payment to non-resident agents for services rendered outside India, emphasizing the non-taxable nature of such services in India and the absence of TDS liability under section 195 of the Act.