S. 9, Treaty with South Africa; in favor of taxpayer: – Z, a South African company, offered to promote and market the products of the taxpayer, an Indian company, on commission basis. Z will procure and negotiate orders and forward these to the taxpayer. The taxpayer will execute the orders directly and will receive the consideration in India. Z will render all services outside India and will not maintain any PE in India.
On the taxability of the amounts paid by the taxpayer to Z and withholding tax liability, held, such amounts being commission received could be taxed only in South Africa based on the principle of tax residency. In absence of a PE, the amounts could not be taxed as business profits. Further, irrespective of the existence or otherwise of the business connection of Z in India, since no business operations would be carried out in India by Z, no income could be deemed to accrue or arise in India. As such, tax was not required to be withheld from payments made to Z.
Decided by Authority for Advance Rulings
SPAHI Projects (P.) Ltd., in re  183 Taxman 92 (AAR)