Case Law Details
The Hon’ble ITAT, Jaipur in Modern Threads India Limited v. ACIT (Income Tax Appeal Nos. 198/JP/2019 and 199/JP/2019 decided on February 15, 2021) has held that payment of sales commission by the assessee to non-resident agents for the services rendered outside India will not fall in the category of the income received or deemed to be received in India as well as accrues or arises or is deemed to accrue or arise in India. Hence, there will be no liability to deduct tax at source (TDS) under Section 195(1) of the Income Tax Act, 1961 (IT Act) and the provisions of Section 40(a)(i) of the IT Act that is disallowance of such commission cannot be invoked.
Facts:
Modern Threads India Limited (“the Appellant”) is a public limited company deriving income from polyester viscose, blended woollen yarn etc., and the company was declared a sick company by the Board of Financial Reconstruction on May 21, 2005.
The Assessing Officer (“the AO”) while completing the assessment mentioned that the Appellant had paid commission of Rs. 99,84,435/- to foreign agents as sales commission during the year and no TDS was deducted as per the provisions of Section 195 of the IT Act. A show cause notice was issued to the Appellant as to why this commission should not be disallowed under Section 40(a)(i) of the IT Act in view of insertion of Explanation 2 to Section 195(1) of the IT Act vide Finance Act, 2012 with retrospective effect from April 01, 1962. The Appellant in response to show cause notice filed a detailed reply but it was rejected by the AO and the sum was disallowed in terms of Section 40(a)(i) of the IT Act.
The Appellant filed an appeal before CIT(Appeals) but the appeal was rejected and the order of AO was upheld.
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No TDS is deducted on Commission to Foreign Party…
Does the same need to be shown in TDS Return? and under what category for zero payment?