Case Law Details
Evolv Clothing Company Pvt. Ltd. Vs ACIT (Madras High Court)
Conclusion: Section 40(a)(i) did not contemplate order wise commission based on the order value. Consequently, the expenditure on export commission payable to non-residents for services rendered outside India became an allowable expenditure.
Held: Assessee carried on business of export of garments. It claimed to have entered into Agency Agreements with a non-resident Italian Agent for procuring export orders for asseseee at a commission. Since no amount of agency commission was chargeable to tax in India, assessee did not deduct tax at source (TDS) before payment of Commission to the foreign agent. AO passed the assessment order disallowing the entire commission under Section 40(a)(i) for non deduction of TDS under section 195. It was held that on reading of Explanation (2) to Section 9(1)(vii), fees for technical services means consideration, including lumpsum consideration for rendering any managerial, technical or consultancy services. In the instant case, AO had, in the assessment order, accepted that assessee had paid commission charges to overseas agents. It was not the case of AO that any lumpsum consideration had been made for any specific managerial, technical or consultancy services. On a overall reading of the Explanation, it was apparent that fees for technical services did not contemplate commission which was order specific and computable at a small percentage of the order value. Section 40(a)(i) did not contemplate order wise commission based on the order value. Consequently, the expenditure on export commission payable to non-residents for services rendered outside India became an allowable expenditure.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
Please become a Premium member. If you are already a Premium member, login here to access the full content.
Author Bio
