Contingent sale advances and non-resident marketing commission were not taxable or subject to withholding on these facts

Advances received against proposed sale of plots and villas were treated as contingent deposits, not taxable business income, because project approval was obtained only after the year end, allotment letters made the receipts conditional on approval, and title had not passed during the year. Commission paid to non-resident overseas agents for marketing services was held not subject to tax deduction at source where there was no material showing a permanent establishment in India or services rendered in India, and the income was not chargeable in India. The additions and disallowance were deleted, and the assessee's appeal succeeded.

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Issues: (i) Whether advances received against sale of plots and villas were taxable as income in the assessment year when approvals and transfer of title had not yet taken place; and (ii) whether commission paid to non-resident overseas agents for marketing services was liable to tax deduction at source under section 195.

Issue (i): Whether advances received against sale of plots and villas were taxable as income in the assessment year when approvals and transfer of title had not yet taken place.

Analysis: The project approval was obtained only after the close of the relevant year. The allotment letters made the receipts contingent on governmental approval and treated the amounts as interest-free deposits until such approval. The title in respect of the plots and villas was not transferred during the year, and the receipts were reflected as advances. On these facts, the receipts had not crystallised into taxable business income in the relevant year.

Conclusion: The amounts received from allottees were not taxable as income in the year under consideration; the issue was decided in favour of the assessee.

Issue (ii): Whether commission paid to non-resident overseas agents for marketing services was liable to tax deduction at source under section 195.

Analysis: The agents and the buyers were based outside India, and there was no material to show that the agents had a permanent establishment in India or that the services were rendered in India. In the absence of chargeability of the commission income in India, the obligation to deduct tax at source did not arise.

Conclusion: No tax was deductible at source on the commission payments made to the non-resident agents; the issue was decided in favour of the assessee.

Final Conclusion: The additions and disallowance were deleted and the assessee's appeal succeeded in full.

Ratio Decidendi: Receipts do not acquire the character of taxable income until the underlying transaction is completed so that the seller's rights and title are effectively divested, and tax deduction at source on payments to non-residents arises only where the income is chargeable in India.

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