Export commission to a foreign agent is not taxable in India where services are performed abroad and no income accrues here.

Sales commission paid to a non-resident foreign agent for services performed outside India was not chargeable to tax in India where no part of the income arose or accrued in India and no operations were carried out in India attributable to the commission. On that basis, no tax was deductible at source under section 195 because the deduction obligation arises only when the sum is chargeable under the Act. The discussion also notes that section 195(2) applies to apportionment where only part of a payment is chargeable, and does not govern a case of complete non-chargeability. Accordingly, disallowance under section 40(a)(i) would not be sustainable in such circumstances.

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Issues: Whether sales commission paid to a non-resident foreign agent for services rendered outside India was chargeable to tax in India so as to require deduction of tax at source under section 195 and, on default, attract disallowance under section 40(a)(i).

Analysis: The commission was remitted outside India to a foreign selling agent who operated outside India in connection with export sales. On the facts found, no part of the non-resident's income was shown to arise or accrue in India, there being no operations carried out in India attributable to the commission. The governing principle was that tax deduction under section 195 arises only when the sum is chargeable under the Act. The reasoning was supported by the Supreme Court's treatment of export commission earned for services rendered outside India and by the Board's circulars clarifying that no tax is deductible on export commission payable abroad for such services. The plea that section 195(2) required prior determination was rejected because that provision concerns apportionment where part of the sum is chargeable, not a situation of no chargeability at all.

Conclusion: The commission was not chargeable to tax in India, no tax was deductible under section 195, and the disallowance under section 40(a)(i) was not sustainable. The issue was decided in favour of the assessee.

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