Jupiter Comtex Pvt. Ltd. Vs ACIT (ITAT Ahmedabad)
Foreign commission paid to non-resident agents for procuring export orders—services rendered entirely outside India—no PE or business operations in India—income not chargeable to tax in India—no TDS liability under section 195—disallowance under section 40(a)(i) deleted.
Summary: The appeal was filed by the assessee against the order of the Ld. CIT(A), NFAC, Delhi dated 07.04.2026 for AY 2012-13, concerning disallowance of Rs. 9,66,471/- under Section 40(a)(i) of the Income-tax Act, 1961 for alleged non-deduction of tax at source on commission paid to non-resident agents. The assessee contended that the foreign agents rendered services outside India, had no permanent establishment or place of business in India, and that agreements, invoices and other documentary evidence had been furnished. The CIT(A) held that the commission was chargeable to tax in India under Sections 5(2) and 9(1)(i), principally because the commission became payable upon execution of export orders in India, and accordingly upheld the disallowance. The ITAT considered the decisions of the Hon’ble Supreme Court in CIT v. Toshoku Ltd., 125 ITR 525 (SC), and GE India Technology Centre Pvt. Ltd. v. CIT, 327 ITR 456 (SC), and found that the Revenue had not established that the non-resident agents rendered services in India or had any permanent establishment or business operations in India. Following the stated decisions of the Supreme Court and the jurisdictional Gujarat High Court, the Tribunal held that the commission paid for services rendered outside India was not chargeable to tax in India, the assessee was not liable to deduct tax under Section 195, and no disallowance under Section 40(a)(i) was warranted. The disallowance of Rs.9,66,471/- was deleted and Grounds No. 1 to 6 were allowed. Ground No. 7 was treated as general, and the appeal was allowed.
Core Issue. Whether export commission of ₹9,66,471 paid to non-resident agents for procuring export orders, where the agents rendered services outside India and had no PE or business operations in India, was chargeable to tax in India so as to require deduction of tax under section 195, and consequently attract disallowance under section 40(a)(i).
Facts. The assessee paid commission to foreign agents for procuring export orders. No tax was deducted at source. The assessee maintained that the agents rendered their services entirely outside India and had no permanent establishment or business presence in India. The AO nevertheless disallowed the commission expenditure of ₹9,66,471 under section 40(a)(i), and the NFAC/CIT(A) confirmed the disallowance on the reasoning that the commission was connected with export business carried on in India and the right to receive commission arose from Indian business operations.
AO / CIT(A) Findings. The Revenue authorities held that since the commission became payable in connection with export orders executed by the Indian assessee, the income had a sufficient nexus with India and was deemed to accrue or arise in India under section 9(1)(i). Consequently, according to them, the assessee was required to deduct tax under section 195, and failure to do so justified disallowance under section 40(a)(i).
ITAT Finding. The Tribunal held that the decisive test for deduction of tax under section 195 is whether the payment is chargeable to tax in India. The Revenue failed to establish that the non-resident agents rendered any services in India or had any PE or business operations in India. Mere connection of the commission with export orders executed by the Indian assessee could not make the income taxable in India. Therefore, the foreign commission was not chargeable to tax in India, no obligation to deduct tax under section 195 arose, and consequently, no disallowance under section 40(a)(i) could be made.
Cases Relied Upon The Tribunal principally relied upon CIT v. Toshoku Ltd.[1980 (8) TMI 2 – Supreme Court], holding that commission earned by non-resident agents for services rendered outside India does not accrue or arise in India merely because orders are procured for an Indian exporter, andGE India Technology Centre Pvt. Ltd. v. CIT [2010 (9) TMI 7 – Supreme Court], which established that the obligation to deduct tax under section 195 arises only when the payment is chargeable to tax in India.
Outcome. The assessee’s appeal was allowed. The disallowance of ₹9,66,471 under section 40(a)(i) on account of alleged failure to deduct TDS on foreign commission payments was deleted in full.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The captioned appeal has been filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals) (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 07.04.2026 relevant to Assessment Year 2012-13.
2. The assessee has raised the following grounds of appeal:
1. The learned NATIONAL FACELESS APPEAL CENTRE (NFAC) has grievously erred both in law and on facts in dismissing the appeal of the appellant and upholding the addition/disallowance of Rs. 9,66,471/- made by Ld AO by wrongly invoking section 40(a)(i) of the Income tax Act, 1961. There being no liability to make TDS on payment of sales commission to foreign agent rendering service of sales outside India, the disallowance ought to be deleted, it be deleted now.
2. The LD NFAC further erred in law and on facts in not appreciating that the payee foreign agent had rendered services outside India for effecting sales as per evidences furnished and there was no justification to apply section 40(a)(i) to make disallowance of expenditure on commission. It be so held now and disallowance of Rs. 9,66,471/-be deleted now.
3. The LD NFAC further grievously erred in law and on facts in relying on the decisions of AAR which have been duly considered in a series of judgment [ITA NO: 2028/AHD/2013] AND SINCE THE PAYEE HAD NO PERMANENT ESTABLSIHMENT OR PLACE OF BUSINESS IN India, was not liable to income tax and hence the judgments cited were clearly applicable. It be so held now and disallowance made b and confirmed by Ld NFAC be deleted.
4. The LD NFAC further also erred in law and on facts in not appreciating that the appellant had vide its replies including dated 13.08.2022 had furnished documentary evidences including agreement with foreign agent and invoices etc and as such, considering direct judgments of Apex Court and Jurisdictional High Court, there was no liability to make TDS and hence disallowance made u/s 40(a)(i) of the Act ought to be held to be unjustified. It be so held now and addition/ disallowance of Rs. 9,66,471/- confirmed by Ld NFAC be deleted now.
5. The LD NFAC erred in law and on facts in not properly considering the submission, explanations and evidences as well as binding judgments o the issue while confirming disallowance of Rs. 9,66,471/ The order passed is therefore against the sanction of law and in violation of rules of natural justice. It be so held now and order so passed be cancelled.
6. The LD NFAC ought to have allowed the appeal in toto
7. The appellant craves leave to add, alter, modify or delete any of the grounds at the time of hearing.
3. Brief facts of the case are that in the original order passed u/s.143(3) AO made addition in respect of non-deduction of TDS from the commission payments made outside India the assessee however had failed to discharge the obligation. Therefore, the expenditure claimed under the head Commission expenses paid to non-residents is disallowed and added back to income u/s 40(a)(i), of Income tax Act. Thus, an amount of Rs. 9,66.,471/ on which TDS has not been deducted, is disallowed and added in the hands of the assessee The CIT(A) passed order on 10.03.2016 vide order Appeal No.CIT (A)-2/321/DC Cir. 2(1)(2)/2014-15 and upheld the order of the AO in respect of remitted the issue of addition on account of disallowance of foreign commission amounting Rs. 9,66,471/-, The ITAT vide its order dated 25.05.2022 in ITA no. 938/Ahd/2016 had remitted the issue of addition on account of disallowance of foreign commission amounting Rs. 9,66,471/- back to the file of AO to take action in accordance with the law. During the course of set aside assessment proceedings, the reply of the assessee was considered by the A.O. and after considering the reply the A.O. again made addition on account of disallowance of foreign commission amounting to Rs. 9,66,471/-
4. Aggrieved by the Assessment Order, assessee preferred an appeal before the Ld. CIT(A), who dismissed the appeal of the assessee by observing as follows:
“…6.2.1 I have carefully considered the facts of the case, the assessment order, written submissions, and other material available on record. The primary issue is whether commission paid to non- resident agents for procuring export orders is chargeable to tax in India, thereby warranting deduction of tax at source u/s 195. It is undisputed that the appellant did not seek determination of nil/lower withholding from the AO under section 195(2) before making payments to the foreign agents. The appellant has made a unilateral decision not to deduct tax, which cannot be justified merely on the basis of self-assessment of chargeability Section 5(2)(b) provides that income of a non-resident includes income which accrues or arises or is deemed to accrue or arise in India. As per section 9(1)(i), income arising directly or indirectly through or from any “business connection” in India is deemed to accrue or arise in India. In the present case, though services were rendered outside India, the commission became due and payable only upon execution of export orders in India. Hence, the source of income is situated in India. The right to receive commission is directly linked to the appellant’s business operations in India. Accordingly, the income is deemed to accrue or arise in India Support for this view is found in the rulings of Rajiv Malhotra (284 ITR 564, AAR) and SKF Boilers and Driers (P.) Ltd (18 taxmann.com 325, Kar AAR). These rulings have held that where the right to receive arises in India, the income is taxable in India even if services were performed abroad.
6.2.2 Further, the decisions relied upon by the appellant such as GE India Technology Centre Pvt Ltd are distinguishable on facts. In that case, the payments were made for purchase of software/license without any business connection in India. However, in the present case, the commission payments have direct nexus with the appellant’s Indian business activity of export sales. Therefore, the ratio of those cases is not applicable. Since the income of non- resident agents is chargeable to tax in India, the appellant was mandatorily required to deduct tax at source u/s. 195. failure to do so attracts disallowance u/s.40(A)(i). The AO was, therefore, justified in making the disallowance. The addition of Rs.9,66,471/- is upheld. Accordingly, the grounds of appeal no.1(a to f) are dismissed…”
5. Heard the argument of both the parties and perused the material available on record.
6. We have gone through the records. The issue is whether the commission of Rs.9,66,471/- paid to non-resident agents for procuring export orders is chargeable to tax in India and, consequently, whether tax was deductible under section 195 of the Act. The commission was paid to non-resident agents for services rendered outside India. The assessee furnished agreements, invoices and other supporting documents and submitted that the agents had no permanent establishment or business operations in India.
6.1 The Hon’ble Supreme Court inCIT v. Toshoku Ltd.,, 125 ITR 525 (SC), held that commission earned by non-resident agents for services rendered outside India does not accrue or arise in India merely because the orders were obtained for an Indian assessee. Further, in GE India Technology Centre Pvt. Ltd. v. CIT, 327 ITR 456 (SC), it was held that tax is deductible under section 195 only where the payment is chargeable to tax in India.
6.2 In the present case, the Revenue has not brought any material on record to establish that the non-resident agents rendered services in India or had any permanent establishment or business operations in India. The finding of the Ld. CIT(A) that the commission was taxable merely because it became payable in connection with export orders executed in India is therefore not sustainable.
6.3 Respectfully following the above decisions of the Hon’ble Supreme Court and the jurisdictional Hon’ble Gujarat High Court, we hold that the commission of Rs.9,66,471/- paid to the non-resident agents for services rendered outside India was not chargeable to tax in India. Accordingly, the assessee was not liable to deduct tax under section 195 and no disallowance under section 40(a)(i) was warranted. Accordingly, the disallowance of Rs.9,66,471/- made under section 40(a)(i) and confirmed by the Ld. CIT(A) is deleted. Grounds No. 1 to 6 are allowed.
7. Ground No. 7 is general in nature and requires no separate adjudication.
8. In the result, the appeal of the assessee is allowed.
The order is pronounced in the open Court on 24.08.2026.
