TaxTMI 
TaxTMI 
2026 (4) TMI 341
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....has to be deducted u/s 195, subject to determination of income component. The obligation to approach the assessing officer u/s 195(2) cannot be by passed unilaterally by the assessee. 2. The CITIA) has erred in summarily extend the ITAT's finding in sister concern's case without independent fact-verification since the reliance on the argument of "income not accruing or arising in India" is not tenable without detailed verification of services rendered, place of performance, and actual role of SAFCO in generating sales for the assessee. 3. The CIT(A) has erred in failing to consider that section 172 provides for taxation of occasional shipping operations of non-residents, and is not intended to apply to regular/recurring transactions routed through agents in India and the assessee has made systematic and continuous payments to foreign shipping lines, which are not in the nature of "occasional" operations. 4. Any other ground that the Revenue may rise before or during the proceedings before the Hon'ble ITAT. 5. It, is therefore, prayed that the order of the CIT(A) be set aside and that of the assessing officer be restored to the above e....
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.... terms of section 5(2), the total income of any previous year of a person who is a non-resident includes all income from whatever source derived, which- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Section 9 provides for certain incomes which are always deemed to accrue or arise in India. If the commission paid to the non-resident does not fall within the above categories, then the income cannot be taxed in India. The commission paid to non-resident agents is not liable to tax under the provisions of I.T. Act when the services were rendered outside India, services were used outside India, payments were made outside India and there was no permanent establishment or business connection in India, as, the question of taxability of such commission to income-tax has to be decided as per the provisions of section 9(1) of the Act". 5. Further, the assessee in its written submission dated 23.03.2015, relied on various decisions of Hon'ble I.T.A.T. and High Courts for no TDS to be deducted/ is required while making t....
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....2-63 to clarify that obligation to comply with section 195(1) and to make deduction there under applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident has: (i) a residence or place of business or business connection in India; or (ii) any other presence in any manner whatsoever in India." 6. The SAFCO is an international company having permanent address of 22, 34Gil Nonhyun-Ro, Gangnam-Gu, Seoul, Korea, Tel: 82-2-572-5494, Fax: 82- 2-572-5495 and not having any direct business connection with India. Accordingly, section 195 is not applicable for deducting TDS on this payment. Further all the payment is made in foreign currency and out of India only. For deduction of TDS on ocean freights, the assessee has paid ocean freight to either foreign non-resident company or an agent of such companies. According to circular issued by CBDT having circular no. 723 dated 19.09.1995, following issues were clearly mentioned: "Representations have been received regarding the scope of sections 172, 194C and 195 of the Income-tax Act, 1961, in con....
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....ne S.P.A., Worldwide Head quarters Via del Botteghino, 24/26 50018 Scandicci (Florence), Italy Ph+39 055 52 191 Savino Del Bene Freight Forwarding Pvt. Ltd., 5th Floor, Sahar Classique, Sahar Road, Andheri (East) Mumbai. Ever RM Shipping Co., Ltd. BD 204, Kookminseokwan 257-3, Gong deuk Dong, Mapo-Ku, Seoul, 121-804, Korea No agent in India Thus, no TDS on foreign based companies are required to be deducted. The assessee submitted necessary documents for the same along with circular, before the assessing officer. 8. However, the assessing officer rejected the above contention of the assessee and observed that to verify genuineness of the foreign commission of Rs. 2,23,96,972/-, the assessee needs to submit copies of contracts with SAFCO (Non-resident Agent) to whom the said commission was paid and other relevant detail. Further, the assessee has paid ocean freight of Rs. 43,84,038/- paid to various parties and assessee has not submitted evidences. Therefore, assessing officer observed that failure to deduct tax from payment outside India, the said payment is not allowable under the I.T. Act. Since, the assessee has failed to deduct tax at source under section 195 of ....
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....ng repeated for the sake of brevity. However, on the other hand, Ld. Counsel for the assessee, defended, the order passed by the learned CIT(A). We note that as on date, this issue is no more res-integra because the dispute on subject matter is covered by multiple orders of judicial authorities, including that of ITAT Rajkot, the jurisdictional Tribunal, in the case of DCIT vs. M/s. Sonpal Exports Pvt. Ltd. in ITA No.29/Rjt/2018, wherein the Tribunal held as follows: "15. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee, along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that an important objection of the Ld. DR for the revenue is that during the appellate proceedings, the assessee has submitted additional evidences, therefore, the matter may be remitted back to the file of the assessing officer for fresh adjudication. However, we note that assessee has submitted before ld CIT(A), merely supportive additional new argument to the main evidences. The main evidence and documents were ....
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....ditional ground raised by the revenue. 16. Coming to the merits of the case, we note that generally, commission is paid to foreign agents (located outside India) for procuring export orders or facilitating sales. Such foreign agents usually operate outside India, and they do not have: (i) any office in India, (ii) any Permanent Establishment (PE) in India, or (iii) any business connection in India. In such cases, the commission income of the foreign agent is earned and arises outside India. Under section 5(2) and Section 9(1)(i) of the Act, such income is not deemed to accrue or arise in India. Accordingly, it is not taxable in India. For that reliance is placed on the following judgements of the Hon`ble Supreme Court. (i) CIT v. Toshoku Ltd. (1980) 125 ITR 525 (SC): Commission earned by non-resident agents for services rendered outside India is not taxable in India. (ii) GE India Technology Centre (P) Ltd. v. CIT (2010) 327 ITR 456 (SC): TDS under section 195 arises only if the payment is chargeable to tax in India. About the consequence under section 40(a)(ia) of the Act, we note that section 40(a)(ia) of the Act, disallows certain expenditure ....
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....y, certificate of registration of the Korean party by Korean Authorities, letter of credit issued by the assessee, copy of supplier certificate issued by the assessee to the Korean party, debits notes issued by the Korean party to the assessee. 18. The ld. CIT(A) similarly, noticed in respect of other commission agents, and observed that payments have been made through banking channel, outward remittance certificates are on record, debit notes raised by them on are on record, foreign exchange remittance certificates are on record, Form 15 CA/CB in respect of such parties are on record. It is also very natural to envisage payment of foreign sales commission (paid to foreign parties) in respect of export sales to the foreign customers. The evidences submitted in respect of these foreign commission agents are real and they could not be rebutted by the assessing officer. The assessing officer has simply raised doubts in respect of certain fact like deficiencies in the agreement (in respect of inadequate safe guard of the interest of the foreign commission party and presumed high rate of commission vis- a -vis the exports and unusual/unlikely name of one of the foreign agent. D....
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...."I have duly considered the assessment order and written submission filed by the AR of the assessee. The fact as enumerated from the assessment order and also from the written submission is that the assessee has paid commission to foreign agent residing at Hongkong. The foreign agent has provided services for sales carried out at Hongkong and such agent is also liable to recover sales proceeds from the buyer, the services are provided outside India. In this connection the relevant provision is section 9(1)(i) of the I.T. Act. As per section 9(1)(i) of the Act, all income accruing or arising, whether directly or indirectly, through or from any business connection in India or through or any capital asset situate, in India or though the transfer of capital asset situate in India. The provision of section 9(1)(i) has been duly considered by the Hon'ble Supreme court in the case of CIT vs. TOSHOKU Ltd. 125 ITR 0525 (SC), the apex court has held that " clause (a) of the explanation to Cl.(1) of sub-s. (1) of s. 9 provides that in the case of a business of which all the operations are not carried out in India, the Income of the business deemed under that clause to accrue or arise in I....
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.... income can be deemed to be accrued or arisen in India, section 9 is the basis. This section does not provide scope for taxing such payment because the basic criteria provided in the section is about genesis or accruing or arising in India, by virtue of connection with the property in India, control and management vested in India, which were not satisfied in the instant cases. Under these circumstances, withdrawal of earlier circulars issued by the CBDT had no assistance to the department, in any way. In disallowing such expenditure, it appeared that an overseas agent of Indian exporter operated in his own country and no part of his income arises in India and his commission is usually remitted directly to him by way of posting of cheques /demand drafts in India and, therefore, the same is not received by him or on his behalf in India and such an overseas agent is not liable to Income-tax in India on those commission payments." Therefore, respectfully following the decisions of Hon'ble Supreme Court and other high courts, I am of the considered view that the provisions of section 9(1)(1) is not applicable to the commission payment outside India in the present case and such incom....
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....te provisions of section 40(a)(ia) to disallow the said expense. There is no dispute in the fact that the payees are non-resident agents having no business connections in India. The assessing officer has ruled that the obligation to deduct TDS is extended to all the payment made to all persons, resident not and having place of business and businesses connection in any manner whatsoever in India or not. The assessing officer has relied on the decision of the AAR in the case of SK boilers & Dryers Pvt. Ltd AAR No. 9832984 of 2010. Thus, assessing officer has not gone into the issues of nature of the income arisen to the foreign agent and whether that income is covered by section 9 of the Act, to be taxed in India in the hands of the agent. According to the assessing officer, all payments to Non-resident, are covered u/s 195 of the Act and assessing officer had ruled that the facts that services are being rendered outside India and payment is being remitted out of India are wholly irrelevant because sources of income to the non-residents agent is situated in India. This approach of assessing officer is very simplistic and it has forgotten that section 195 of the Act, is concerned with....
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....detailed above, made on account of commission paid to non-resident "export commission agents". All other issues raised in the above grounds of appeal are simply the arguments in support of this core grievance..... 12. As regards taxability of the amounts so paid to these three entities, the Assessing Officer took note of the contentions of the assessee (a) that Export Commission per se is not a services, (b) that if at all they are being construed as services the same being rendered outside India the same are not taxable in India a per section 5(2) of the Act (c) That, without prejudice to the above since the agents does not have any business connection in India the same are not taxable in India in light of the section of the Act (d) That without prejudice to the above the same is not FTS in light of the section 9(1)(vi) of the Act as the same neither qualifies as Managerial, technical or consultancy services (e) that further the same does not accrue or arise in India as the same are incurred for earning from a source outside India as per section (v) of the Act (f) That without prejudice to the above the same are even considered as FTS as per the Act the same cannot be tre....
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....%, and raised tax withholding demands under section 201 r.w.s 195, for not deducting the tax at source....... 21. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 22. So far as the first category of cases are concerned, i.e. payments to the residents of the tax jurisdictions with which Indian has tax treaties. 30. As regards the remaining cases, in category (b) and in category (c) as also in the case of JT-Iran, the provisions of the tax treaties do not come to the rescue of the recipients, and, therefore, the taxability in these cases is to be decided on the basis of the provisions in the domestic law. 31 The scheme of taxability in India, so far as the non- residents, are concerned, is like this. Section 5 (2), which deals with the taxability of income in the hands of a non-resident, provides that "the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or aris....
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....n though deeming fiction under section 9(1)(i) is triggered on the facts of this case, on account of commission agent's business connection in India, it has no impact on taxability in the hands of commission agent because admittedly no business operations were carried out in India, and, therefore Explanation 1 to Section 9(1)(i) comes into play. 33. There are a couple of rulings by the Authority for Advance Ruling, which support taxability of commission paid to non-residents under section 9(1)(i), but, neither these rulings are binding precedents for us nor are we persuaded by the line of reasoning adopted in these rulings. As for the AAR ruling in the case of SKF Boilers & Driers Pvt. Ltd [(2012) 343 ITR 385 (AAR)], we find that this decision merely follows the earlier ruling in the case of Rajiv Malhotra ((2006) 284 ITR 564] which, in our considered view, does not take into account the impact of Explanation 1 to Section 9(1)(1) properly. That was a case in which the non-resident commission agent worked for procuring participation by other non-resident entities in a food and wine show in India, and the claim of the assessee was that since the agent has not carried out....
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.... revenue, however, is that these rulings, being from such a high quasi-judicial forum, even if not binding, cannot simply be brushed aside either, and that these rulings at least have persuasive value. We have no quarrel with this proposition. We have, with utmost care and deepest respect, perused the above rulings rendered by the Hon'ble Authority for Advance Ruling. With greatest respect, but without slightest hesitation, we humbly come to the conclusion that we are not persuaded by these rulings. 34. Coming to Section 9(1)(vii)(b) this deeming fiction- which is foundational basis for the action of the Assessing Officer, inter alia, provides that the income by way of technical services payable by a person resident in India, except in certain situations-which are not attracted in the present case anyway, are deemed to be income accruing or arising in India. Explanation 2 to Section 9(1)(vii) defines 'fees for technical services' as 'any consideration (including any lumpsum consideration) for the rendering of any managerial, technical or consultancy services (including the provisions of services of technical or other personnel) but does not include consider....
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.... services, may be technical services, but the amounts paid by the assessee are not for the rendition of these technical services nor the quantification of these amounts have any relation with the quantum of these technical services. The key to taxability of an amount under section 9(1)(vii) is that it should constitute "consideration" for rendition of technical services. The case of the revenue fails on this short test, as in the present case the amounts paid by the assessee are "consideration" for orders secured by the assessee irrespective of how and whether or not the agents have performed the so called technical services. 36. Let us sum up our discussions on this part of the scheme of Section 9, so far as tax implications on commission agency business carried out by non-residents for Indian principals are concerned. It does not need much of a cerebral exercise to find out whether the income from the business carried on by a non-resident assessee, as a commission agent and to the extent it can be said to directly or indirectly accruing through or from any business connection in India, is required to be taxed under section 9(1)(i) or under section 9(1) (vii) of the Incom....
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....imb of the definition of technical services. 38. As is clear from the above provisions of the agreement, the work that the agent has to done under this agreement, as is stated unambiguously in the agreement itself, is to "carry out all the duties normally rendered by an agent" including but not limited to the activities specified therein. The consideration for which the payment made to the commission agent is obtaining of the orders and not any services per se. The consideration is computed on the basis of business procured. Obviously, if there are no business generated for the principal, the agent gets nothing. Quite clearly, what is done by the agent is not a rendition of service but pure entrepreneurial activity. The work actually undertaken by the agent is the work of acting as agent and so procuring business for the assessee but as the contemporary business models require the work of agent cannot simply and only be to obtain the orders for the product, as this obtaining of orders is invariably preceded by and followed by several preparatory and follow up activities. The description of agent's obligation sets out such common ancillary activities as well but that do....
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....resentation, on behalf of the assessee, which can only be done by a specialist in this field so as to convince the clients about Welspun's suitability to the contract". This at best signifies complexity in the businesses and the need of technical inputs in the process of businesses, particularly when the products being dealt with are technical products, but then merely because technical inputs are needed in carrying out business activity, it does not become a technical service rather than a business activity. At the cost of repetition, we must emphasize the important distinction between a business activity, requiring understanding of related technology, and rendition of technical services simpliciter. In any case, what has been described as a technical service is the service being rendered to the buyer but the payment received by the commission agents is not for this service per se but for generating business orders for the assessee. Generating business or securing orders is an entrepreneurial activity and cannot, by any stretch of logic, be treated as a technical service per se. The same is the position with regard to assistance with respect of logistics, such as shipping and ....
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....2. In view of these discussions, we uphold the relief granted by the CIT(A) and decline to interfere in the matter." 22. Therefore, learned CIT( A) noticed that assessee`s case is covered by the above detailed decision which provides full and complete guidance in the present case. It is evident in the present case that assessee has made payments to agents located in foreign country and the agents had rendered services outside India. The agents are engaged in the services executed outside India and cannot be considered to carry on any business operation in India and therefore provisions of section 9 (1) (i) of the Act, will not be applicable. It is also evident that the payments made to foreign agent is sales commission and cannot be deemed as fee for technical services and thus provisions of section 9 (1) (vii) of the Act, will also be not applicable. Now, if the payments to the foreign agent are not a receipt (in agent's hand) which is liable to tax in India, then there is no question of deduction of tax at source. Therefore the provision of section 195 of the Act will not be applicable and therefore the disallowance made by assessing officer u/s 40(A) (ia) of the Act....