Ajay Sharma Vs ITO (ITAT Delhi)
Material Facts: The assessee, engaged in the manufacture and export of readymade garments, challenged the disallowance of commission paid to a Swedish agent, Belinda Sandell, under Section 40(a)(ia) read with Sections 195 and 9 of the Income-tax Act. The commission related to procurement of export orders from a Swedish buyer and follow-up of invoice payments. The Assessing Officer treated the payment as Fees for Technical Services (FTS) under Section 9(1)(vii)(b) and disallowed it for non-deduction of tax under Section 195.
The appeals also challenged a rectification order passed by the CIT(A) under Section 154.
Procedural History
The matter had earlier been remanded by the Tribunal for fresh examination of whether the services constituted commission or consultancy services. After fresh assessment, the CIT(A) upheld the disallowance. Subsequently, the CIT(A) passed a rectification order under Section 154, leading to separate appeals before the Tribunal.
Legal Issues
- Whether commission paid to the overseas agent constituted Fees for Technical Services or commission for procuring export orders.
- Whether tax was deductible under Section 195.
- Whether the disallowance under Section 40(a)(ia) was sustainable.
- Whether the rectification order under Section 154 was valid.
Parties’ Submissions
The assessee submitted that the Swedish agent acted only as an intermediary by procuring orders, communicating specifications, coordinating with the overseas buyer and following up payments. The services were rendered entirely outside India and no written agreement existed between the parties. It was argued that the email correspondence merely related to order execution and commission invoices and did not establish consultancy or technical services.
