Case Law Details
Hon’ble Allahabad High Court in the case of Model Exims (supra) has held that failure to deduct tax at source from payment to nonresident agents, who has their own offices in foreign country, cannot be disallowed, since the agreement for procuring orders did not involve any managerial services. It was held that the Explanation to section 9(2) is not applicable. It was further held that the situation contemplated or clarified in the Explanation added by the Finance Act, 2010 was not applicable to the case of the assessee as the agents appointed by the assessee had their offices situated in the foreign country and that they did not provide any managerial services to the assessee. Section 9(1)(vii) deal with technical services and has to be read in that context. The agreement of procuring orders would not involve any managerial services. The agreement did not show the applicability or requirement of any technical expertise as functioning as selling agent, designer or any other technical services.
Similar view has been taken by the Hon’ble Madras High Court in the case of Kikani Exports Pvt. Ltd. (supra) and Faizan Shoes Pvt. Ltd. (supra). The Hon’ble Delhi High Court in the case of EON Technology P. Ltd. (supra) has also taken similar view where it has been held that non-resident commission agents based outside India rendering services of procuring orders cannot be said to have a business connection in India and the commission payments to them cannot be said to have been either accrued or arisen in India. In view of the decisions cited above (supra), we are of the considered opinion that the assessee is not liable to deduct tax under the provisions of section 195 of the I.T. Act on account of foreign agency commission paid outside India for promotion of export sales outside India.
Full Text of the ITAT Order is as follows:-
This appeal filed by the assessee is directed against the order dated 07.07.2014 of CIT(A), Noida relating to assessment year 2010-11.
2. Facts of the case, in brief, are that the assessee is a partnership firm engaged in the business of manufacturing and export of plain and studded Gold and Silver jewellery. It filed its return of income on 29.09.2010 declaring taxable income of Rs.2,83,03,490/-. During the course of assessment proceedings, the Assessing Officer observed that the assessee has debited expenses under the head “Foreign Agency Commission” amounting to Rs.62,12,609/-. The Assessing Officer asked the assessee to furnish the details regarding this commission expenses to which the assessee submitted that an amount of Rs.4,60,523/- was paid to M/s TWC, 2 Route De Cillers Le Lac, Les Chauchets, Les Fins 25,500/-, France and Rs.57,52,086/- were paid to M/s Newtechno SA, Rue Des Fontaines 2 2087, Cornaux Ne, Switzerland as foreign agency commission for promoting the sale all over Europe. The assessee also furnished the copy of the agreement with the foreign commission agent.
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