ITDS on payment for services availed and renderd outside India by Foreign Company

[Rasesh Amin]

Dear Mr. Anuj Gupta, Thank you for your prompt reply to our querry. Payment is being made to agencies in USA and Canada. Fair is being held in Chicago, USA. You have rightly understood, we are incurring cost toward space rent, stall making charges, services towards labour & handling of exhibits as per the organisers contracted terms. We are also of the firm view that no TDS is deductible for payment towards above purposes, however our bank is insisting for suitable certificate from CA for non applicability of TDS. Can you provide us relevant ruling / sections under which TDS is not deductible on payment towards above.

[Anuj Gupta]

The bank is correct in insisting you for a certificate from a CA as it is bound under the regulations to do so. Regarding the sections under which such sum is not chargeable to tax , they are sections 4,5,6 & 9 of Income Tax Act. The combined reading of all these sections shall give you understanding that the foreign party if is not having any business connection /PE in India then the sum paid is not an income chargeable to tax in India.Also the provisions of India-USA DTAA further strengthen this concept by providing that businees income shall not be chargeable to tax in India in absence of PE in India. The most important case law is R.D.Aggarwala & Co(SC) and there are various other judgements on the issue.

AI Summary

Permanent establishment absence means cross border exhibition service payments are not taxable in India, subject to documentary CA certification. Payments to foreign companies for exhibition space rent, stall construction and related services are not chargeable to tax in India if the foreign party lacks a business connection or permanent establishment in India; banks may insist on a CA certificate to justify non deduction of tax at source, and the domestic tax provisions read with the India USA DTAA and judicial authority support non taxability absent a PE.