Orbit Resorts Limited Vs DCIT (ITAT Chandigarh)
Services Outside India, No PE, No Tax: Tribunal Deletes 40(a)(i) Disallowance; Commission ≠ Technical Service: Tribunal Slams AO
Orbit Resorts Ltd., engaged in hospitality business operating luxury hotels such as The Oberoi & Trident, filed its return declaring huge losses. During scrutiny u/s 143(3), AO noticed payment of commission to foreign agents. AO held that the services rendered by foreign entities were not mere referral services but involved expert support & therefore constituted fees for technical services. Since no TDS was deducted, AO disallowed the commission u/s 40(a)(i).
CIT(A) held that the services were commission for facilitating sales & did not fall under fees for technical services. However, CIT(A) concluded that the right to receive commission arose only when customers actually stayed in India at Assessee’s hotels & made payment in India. Hence, income accrued in India u/s 5(2)(b) r.w.s 9(1)(i), making it taxable in India & liable for TDS. CIT(A) relied on SKF Boilers & upheld disallowance u/s 40(a)(i).
Before Tribunal, Assessee argued that CIT(A) has already given a categorical finding that services were not technical services & the Department has not challenged this. Therefore, only the question is whether commission income of foreign agents is taxable in India. Assessee demonstrated that agents operated entirely outside India, had no PE or business connection in India, procured customers abroad & all services were rendered outside India. Tribunal noted that numerous judicial precedents such as A.B. Hotels (Delhi ITAT), Taj International (Delhi ITAT), Stylam Industries (Chd ITAT), ITC Ltd (Kolkata ITAT) have consistently held that commission paid to foreign agents for procuring customers abroad is not taxable in India, hence no TDS liability arises. Tribunal also held that AAR ruling in SKF Boilers is merely persuasive & has been distinguished by later decisions.
