ACIT Vs Jagson Colorchem Limited (ITAT Ahmedabad)
The ITAT, Ahmedabad Bench held that commission paid to foreign agents for services rendered entirely outside India is not chargeable to tax in India, and therefore no obligation to deduct TDS u/s 195 arises. Consequently, disallowance u/s 40(a)(i) is unsustainable.
In this case (AY 2018-19), the AO disallowed ₹5.63 crore being commission paid to overseas agents, purely on the ground of non-deduction of TDS, without examining whether such income was chargeable to tax in India. The CIT(A) deleted the disallowance, and the Revenue appealed.
The Tribunal noted that the issue was squarely covered in assessee’s own case for AY 2013-14, and relied on settled law laid down by the Supreme Court in GE India Technology and Vedanta Ltd., holding that TDS obligation arises only when the sum is chargeable to tax u/s 4, 5 or 9. The AO had mechanically applied s.40(a)(i) without establishing any nexus of services or income accrual in India.
Since the foreign agents operated abroad and rendered services outside India, and the Revenue failed to show otherwise, the primary condition for invoking s.40(a)(i) failed. Accordingly, the CIT(A)’s deletion was upheld and the Revenue’s appeal was dismissed
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
