ACIT Vs Emco Exports (ITAT Agra)
No TDS on Foreign Commission Where Income Not Chargeable in India; Section 40(a)(i) Disallowance Unsustainable – ITAT Agra
The Agra Bench of the ITAT dismissed the Revenue’s appeal and upheld deletion of disallowance of ₹2.53 crore made under section 40(a)(i) for alleged failure to deduct tax under section 195 on commission paid to a foreign agent.
The Tribunal noted that the assessee, an exporter of footwear, had paid commission to a non-resident agent in Italy who had no permanent establishment, office or staff in India and rendered services entirely outside India. Based on the agreement, declarations and supporting documents, the income of the foreign agent was not chargeable to tax in India.
Relying heavily on the Supreme Court decision in GE India Technology Centre Pvt. Ltd., the Tribunal reiterated that tax is deductible under section 195 only when the payment is a “sum chargeable to tax” in India. If the remittance does not contain any element of income taxable in India, no obligation to deduct tax arises and filing of an application under section 195(2) is not mandatory.
The Tribunal further held that the reliance placed by the Revenue on Transmission Corporation of A.P. Ltd. was misplaced, as that decision applies only to composite payments where a part of the payment is admittedly taxable in India. In the present case, no part of the commission was chargeable to tax in India.
It was also noted that in the assessee’s own cases for other assessment years, identical payments had been accepted by the Department, and therefore consistency required similar treatment.
Accordingly, the Tribunal confirmed that the commission paid to the foreign agent was not liable for TDS under section 195 and the consequential disallowance under section 40(a)(i) was rightly deleted. The Revenue’s appeal was dismissed.
FULL TEXT OF THE ORDER OF ITAT AGRA
