Non-resident commission and ocean freight payments not chargeable to tax in India, so no TDS disallowance arose.

Commission paid to non-resident agents for procuring export orders, where services were rendered outside India and no business connection or permanent establishment existed in India, was treated as not chargeable to tax in India. On that basis, no withholding was required under section 195, and disallowance under section 40(a)(ia) could not be made. The same legal position was applied to ocean freight payments, leading to the conclusion that the amounts were not liable to TDS and the corresponding disallowance was unsustainable.

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Issues: Whether commission paid to non-resident agents and ocean freight payments were liable for tax deduction at source and consequential disallowance under section 40(a)(ia) of the Income-tax Act, 1961.

Analysis: The payments were made to foreign agents who rendered services outside India and had no business connection or permanent establishment in India. On the settled legal position, income of a non-resident is chargeable in India only if it accrues, arises, or is deemed to accrue or arise in India under section 9 of the Income-tax Act, 1961. Commission for procuring export orders, where no operations are carried out in India, is not taxable in India and does not constitute fees for technical services. Where the sum paid is not chargeable to tax in India, section 195 of the Income-tax Act, 1961 does not require withholding, and disallowance under section 40(a)(ia) of the Income-tax Act, 1961 does not arise. The ocean freight payments were also covered by the applicable legal position relied upon by the first appellate authority.

Conclusion: The payments were not liable to TDS and the disallowance was unsustainable; the Revenue's challenge failed.

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