ITO Vs Avadh Agri Exports (ITAT Rajkot)
In this case, the ITAT Rajkot dismissed the Revenue’s appeal and upheld the deletion of disallowances made under Section 40(a)(i)/(ia) for non-deduction of TDS on foreign commission and ocean freight payments. The Tribunal held that commission paid to non-resident agents for services rendered outside India, without any permanent establishment or business connection in India, does not accrue or arise in India under Sections 5 and 9. Consequently, such payments are not chargeable to tax in India, and no TDS obligation arises under Section 195. Relying on settled judicial precedents and its earlier ruling in a similar case, the Tribunal confirmed that disallowance under Section 40(a)(i)/(ia) cannot be made where the underlying payment itself is not taxable. Further, in respect of ocean freight payments to non-resident shipping companies or their agents, the Tribunal applied CBDT Circular No. 723, holding that Section 172 governs such cases, thereby excluding TDS applicability.
Core Issue
The core issue involved in the present case pertains to whether the assessee was liable to deduct tax at source under section 195 on payments made to non-resident entities towards foreign commission and ocean freight, and consequently, whether disallowance under section 40(a)(i)/(ia) could be made for non-deduction of such tax. The dispute also extended to the applicability of section 172 in respect of ocean freight payments and whether such payments fall outside the purview of TDS provisions.
