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Circular No
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786
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Date of Issue
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7.2.2000
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Section(s) Referred
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195, 5, 9, 40(a)(i)
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Statute
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Income-Tax Act
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Subject : Deduction of tax u/s 195 and the taxability of export commission payable to non-resident agents rendering services abroad – clarification regarding.
In the Audit Report for 1997-98 (D P No 79(I.T.) The Comptroller & Auditor General (C&AG) raised an objection that the Assessing Officer in computing the Profits and Gains of Business or Profession, in a case in Mumbai charge, had wrongly allowed a deduction in respect of a payment to a non-resident where tax had not been deducted at source. The nature of the payment in this case was export commission and charges payable for services rendered outside India. In the view of C&AG the expenditure should have been disallowed in accordance with the provisions of section 40(a)(i) of the Income-tax Act, 1961. It has come to the notice of the Board that a similar view, on the same set of facts has been taken by some Assessing Officers in other charges.
The deduction of tax at source under section 195 would arise if the payment of commission to the non-resident agent is chargeable to tax in India. In this regard attention to CBDT Circular No 23 dated 23.7.1969 is drawn, where the taxability of ‘Foreign Agents of Indian Exporters” was considered alongwith certain other specific situations. It had been clarified then that where the non-resident agent operates outside the country, no part of his income arises in India. Further, since the payment is usually remitted directly abroad it cannot be held to have been received by or on behalf of the agent in India. Such payments were therefore held to be not taxable in India. The relevant sections, namely section 5(2) and section 9 of the Income-tax Act, 1961 not having undergone any change in this regard, the clarification in Circular No 23 shall prevails. No tax is therefore deductible under section 195 and consequently the expenditure on export commission and other related charges payable to a non-resident for services rendered outside India becomes allowable expenditure. On being apprised of this position, the Comptroller & Auditor General have agreed to drop the objection referred to above.
3. This may be brought to the notice of all assessing officers working in your region
Sd/-
Rajat Bansal
Officer on Special Duty (FTD)
(Endorsement as usual)
[F. No. 500/108/98-FTD, dt. 07-02-2000 from CBDT, Deptt. of Revenue New Delhi]
