Non-resident commission payments for overseas sales canvassing were not technical services, so tax deduction disallowance failed.

Payments made to non-resident agents for canvassing sales orders and earning commission-based marketing charges outside India were not fees for technical or managerial services where the recipients had no permanent establishment in India and the income was taxable in the foreign jurisdiction under the relevant tax treaty. On those facts, disallowance under Section 40(a)(i) for non-deduction of tax at source under Section 195 was not sustainable, and the deletion of the disallowance was upheld.

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Issues: Whether disallowance under Section 40(a)(i) of the Income-tax Act, 1961 was warranted for payments made to non-resident agents without deduction of tax at source, on the footing that the payments constituted fees for technical or managerial services.

Analysis: The factual finding recorded by the first appellate authority and affirmed by the Tribunal was that the amounts paid were sales commission and marketing charges paid to non-resident agents for canvassing sales orders outside India. It was further found that the recipients had no permanent establishment in India and that the income was taxable in the respective foreign jurisdictions under the relevant double taxation avoidance arrangements. On those facts, the payments could not be treated as consideration for technical services or managerial services, and the disallowance under Section 40(a)(i) based on non-deduction of tax at source under Section 195 was not sustainable.

Conclusion: The disallowance was rightly deleted and the Revenue's challenge failed.

Ratio Decidendi: Payments made to non-resident agents for procuring sales orders and rendering commission-based marketing services outside India, where no permanent establishment in India exists, are not fees for technical services and do not attract disallowance under Section 40(a)(i) merely because tax was not deducted at source.

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