2019 (2) TMI 2144 - AT - Income Tax

Commission payments to non resident agents for overseas sales held deductible; no Indian withholding tax obligation applied, appeal dismissed.

Commission payments to non-resident foreign agents for overseas sales were accepted as bona fide, allowable business expenditure under section 37 after ... Disallowance u/s 40(a)(i) or/and u/s 37 - commission payment to non-resident foreign agents having regard to the provision of the Section 195 - whether the commission expenses paid to non-resident agents against overseas sale is allowable expenditure or otherwise having regard to the provisions of Section 37 and also on the ground that the assessee has failed to deduct tax deducted at source u/s 195? HELD THAT:- CIT(A) has taken note of the details of commission expenses, the certificate issued by the Chartered Accountant(CA) in prescribed format for remittance of commission, commission agreement with various commission agents, declaration from the commission agents towards absence of their permanent establishments in India, bank statement as well as complete set of e-mails of the communications exchanged by the agents together with invoice copies etc. Before us also, the assessee has filed the ledger account of export sales against which the commission has been paid together with other evidences. This apart, CIT(A) also observed that in own case of the assessee relevant the AY 2010-11 the identical issue has been decided in favour of the assessee in similar facts. CIT(A), in the circumstances found that the bona fides of the commission expenses cannot be doubled. The expenses towards commission payments was thus rightly found to be allowable business expenditure u/s 37. Non-deduction of withholding tax u/s 195 invoking the provisions of Section 40(a)(i) - We find that the issue is squarely covered in favour of the assessee by the decision of Nova Technocast [2018 (5) TMI 1182 - GUJARAT HIGH COURT], MGM Exports [2018 (5) TMI 1240 - GUJARAT HIGH COURT] as well as ABM Steels [2016 (10) TMI 51 - GUJARAT HIGH COURT] The commission being in the nature of income accrued from services rendered outside India, such payments has no tax implications in India in the hands of non-residents. This being so, we find no infirmity in the order of the CIT(A). CIT(A) has rightly concluded that commission payments to non-residents towards overseas sales is not susceptible to take in India and therefore Section 195 has no obligation and consequently Section 40(a)(i) does not get triggered. Appeal of the Revenue is dismissed. Issues: Whether commission payments made to non-resident foreign agents for procuring overseas sales are allowable as business expenditure under Section 37 of the Income-tax Act, 1961 and whether the assessee was obliged to deduct tax at source under Section 195 of the Income-tax Act, 1961 such that non-deduction would attract disallowance under Section 40(a)(i) of the Income-tax Act, 1961.Analysis: The authorities below and the Tribunal considered documentary evidence including commission agreements, bank remittances, ledger entries, e-mail correspondence and declarations regarding absence of permanent establishment in India. The CIT(A) admitted additional evidence after remand and found the commission payments to be genuine and for services rendered outside India. The Tribunal examined applicable law and precedent addressing (i) whether income of non-resident agents arose or accrued in India and (ii) whether payments for services rendered wholly outside India are chargeable to tax in India so as to create an obligation under Section 195. The Tribunal followed consistent decisions holding that commission paid for soliciting orders abroad, where services are performed and utilized outside India and no PE or business connection exists in India, is not chargeable to tax in India, and therefore no obligation to deduct tax under Section 195 arises. In these circumstances Section 40(a)(i) is not attracted. The Tribunal also upheld the CIT(A)'s exercise in admitting additional evidence and found the assessee's evidentiary showing unrebutted in remand proceedings.Conclusion: The commission payments to non-resident foreign agents are allowable as business expenditure under Section 37 of the Income-tax Act, 1961 and, since such payments were not chargeable to tax in India and there was no obligation to deduct tax under Section 195, Section 40(a)(i) does not apply. The appeal by the revenue is dismissed and the assessee's cross-objection is dismissed as infructuous.