No TDS on commission paid outside India for services received outside India by Non-Residents

Effecting deduction at source one of the aspects to be examined is whether such income is taxable in terms of Income Tax Act

Brief:

The commission earned by the non-resident agent who carried on the business of selling Indian goods outside India, cannot be said have deemed to be, income which has accrued and/or arisen in India & therefore no occasion to deduct tax at source in respect of the payment made to the non-resident agent arise & thus there is no liability to deduct TDS in such cases.

Fact of the Case:

the Assessing Officer disallowed commission paid to foreign agents of Rs. 10,86,92,826/- on account of non-deduction of TDS and that the expenditure has not been paid for the purpose of business of the assessee. The Tribunal held that the commission payment to the foreign agents was for the purpose of business and commercial expediency, however regarding non-deduction of TDS, applicability of the provisions of sec. 40(a)(ia)

Contention of Department:

Tribunal held that the provisions of sec. 195 has been amended by the introduction of Explanation-II to the said section by the Finance Act, 2012 with retrospective effect from 01/04/1992, whereby it is clarified that “the obligation to comply with sub-sec. (1) and to make deduction there under applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has (i) a residence or place of business or business connection in India; or (ii) any other presence in any manner whatsoever in India”. Therefore, as the assessee has not deducted TDS under sec. 195, the disallowance made by the Assessing Officer by invoking the provisions of sec. 40(a)(ia) are restored.

Judgement of ITAT:

ITAT referred to the decision of below noted case:

• Relying on the decision of the Tribunal In DeIT v/s Ardeshi B Cursetjee & Sons Ltd. 115 TTJ 916 which held that the commission paid to non-resident agent outside India for the services rendered were not chargeable to tax in India. In these circumstances, the CIT(A) held that there was no occasion to deduct tax at source in respect of the payment made to the non-resident agent.
• the commission earned by the non-resident agent who carried on the business of selling Indian goods outside India, cannot be said have deemed to be, income which has accrued and/or arisen in India. This view of that CIT(A) for Assessment Year 2008-09 was found acceptable by the Tribunal in its impugned order and applied the same even for Assessment Year 2007-08. In view of the fact that the issue stands concluded in favour of the Respondent-Assessee by the decision of the Supreme Court in Toshoku Ltd.
• Moreover, we find CBDT Circular No.23 of 1969 has been reproduced — in the impugned order and the relevant extract reads as under:

“Foreign agents of Indian exports — a foreign agent of Indian exporter operates in his own country and no part of his income arises in India. His commission is usually remitted directly to him and is, therefore, not received by him or on his behalf in India. Such an agent is not liable to income tax in India on the commission.”

In the result, appeal of the Revenue is dismissed.