TDS on Commission to non resident

[Reshma kochar]

Dear Experts,

Please help me out in a query.

Do Commission Income of a non resident for securing export orders for a Indian Company, will be taxable income in India and attract TDS ?

As Circular no. 23, dated 23-7-1969, Circular no. 163, dated 29-5-1975 and Circular no. 786 dated 7-2-2000 has been with withdrawn. and recent AAR rulling dated 22 feb 2012, in case of SKF Boilers and Driers Pvt.Ltd, stating that this commission income of non residents will be taxable in India. 

Please clarify, which stand we can take right now?

Thanks & regards,

Reshma

[Vivek Harsh]

Circulars are only binding on departmental officers and whereas ruling pronounced by AAR is applicable only to the assessee who pronounced it.

As per Explanation to Sec 9 if services of non-resident is utilized in India they shall charged to tax even if services are rendered/ provided  outside india.

In my view TDS needs to be deucted.

You can also make an application to AO under 195(2) to determine the amount on which tax needs to be deducted.

Relevant text Sec 195(2)

Where the person responsible for paying any such sum chargeable under this Act (other than ⁶[***] ⁷[***] ⁸[***] ⁹[***] salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the ¹⁰[Assessing] Officer to determine, ¹¹[by general or special order], the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable.

[Reshma kochar]

Thanks Vivek.

Still the position is not clear to me. Please tell me the explanation no. in section 9 for this. As per my understanding explanation under section 9(2) is specifically for Clause v,vi,vii of section 9(1)

further, what will be considered as services utilized in India?

Please clarify it.

Regards,

Reshma

[Mahir S]

Services utilized in India means  -  Services provided by a non-resident to an Indian resident, for a business carried on in India or for the purpose of making or earning income from a source in India. 

Here service given by a non resident for securing export orders for an Indian Company is the serivce provided by a non-resident for a business establishment located in India.

Such Services would fall within the scope of the Indian tax net.

[Surender Singhal]

in my opinion no tds liability will arise as the payment is made to foreing agent and no operation of business are carried out in the taxable territories(india), it follows that the income accruing or arising abroad through or from any business connection in india cannot be deemed to accrue or arise in india. (CIT Vs Toshoku Ltd.)  1980 (8) TMI 2 - SUPREME Court = (SC) (1980) 125 ITR 525.

similarly you can refer other similar case laws in which the same view was taken

AB Hotel Ltd. vs DCIT ITAT  (2008 (8) TMI 602 - ITAT DELHI)= Delhi ITA 491 (Del) 2003

Dy CIT V Eon Technology (P) Ltd. (2011 (11) TMI 463 - DELHI HIGH COURT) = (2011) 46 SOT 323 (Delhi) (Trib)

Further Section 195(2) is only a safgaurd provision and is not having mandatory application. if payment made is not taxable in india then there is no need to deduct tax u/s 195 of the IT Act 1961. (GE India Technology Centre (P) Ltd. Vs CIT  (2010 (9) TMI 7 - SUPREME COURT OF INDIA)= (2010) 327 ITR 456. if

[Vivek Harsh]

Dear Reshma.

I have reconsidered your case and it seems to me that commission is paid for purchase/sale of goods if that being so i would like to change my view considering 

clause b of Explanation 1 to Sec 9(1) 

"in the case of a non-resident, no income shall be deemed to  accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export"

When income doesn't accrue in india than income is not taxable and question of deducting TDS do not arise

Regards

Vivek

[Mahir S]

Under section 9(1) (i), income accruing or arising directly or indirectly, through or from any business connection in India or source of income in India shall be deemed to accrue or arise in India.

However, Section 5(2)(b) deals with the scope of total income whereby the income of a non-resident includes all income from whatever source derived, which accrues or arises or is deemed to accrue or arise in India during such previous year.

Hence, such commission payable is deemed to accrue and arise in India, and is taxable in view of the specific provision of Section 5(2)(b) r.w.s. 9(1)(i).

Therefore, the position is required to be clarified w.r.t. Section 5 (2) (b)...

[Reshma kochar]

Dear Members,

Thanks for your valuable replies.

Please correct my understanding if it is wrong.

Commission Income of a non resident for securing export orders for a resident will not be taxable in India on the following facts:

• Non resident operate his business activities outside India. 
• Commission paid is in relation to services provided outside India.
• Commission remitted to him directly outside India.
• Agent do not have any permanent establishment or permanent business place in India.

Based on the above facts no income of the non resident will be taxable in india and not to liable to TDS as well.

 

Regards,

Reshma

[ANURAG MARWARI]

Yes, Reshma Ji, You are correct.

[Reshma kochar]

Thanks Anurag....

[Vivek Harsh]

your stand is correct.

AI Summary

Taxability of non-resident commission: services rendered outside India may avoid Indian tax and TDS if no PE. The document analyses whether commission paid to a non resident for securing export orders is taxable and subject to TDS. One view treats such commission as deemed to accrue or arise in India if services are utilized in India, prompting withholding obligations and the option to apply for a withholding determination. The opposing view holds that where services are performed and paid outside India, the agent has no permanent establishment, and activities are confined to export transactions, the commission does not accrue in India and is not taxable nor subject to TDS.