ITAT Chennai Bench recently held that assessee is not liable to deduct tax at source for making payment to its foreign agents for rendering services abroad, if the foreign agent does not have a permanent establishment in India and the service rendered is not in the nature of technical service.
Facts of the case:
The assessee, a private limited company, manufactures and exports leather garments and incurred expenditure towards commission paid to non-residents for the purpose of procuring orders abroad. The A.O disallowed the same, by observing that section 9 of the Act applied in this case as the commission amount had accrued to a non-resident/ payee principally on account of a business activity in India which required TDS deduction. The Assessing Officer further held that the certificate under section 195(2) of the Act had also not been produced. Accordingly, he disallowed/added the commission amount in assessee’s income.
The Appellate Tribunal held that:
The Revenue’s only grievance is that the aforesaid foreign agency commission paid by the assessee to the non residents/payee attracts disallowance under section 40 (a)(i) for non deduction of TDS. It is made clear that in support of this plea, no cogent evidence has been produced. It transpires from the case file the assessee has paid foreign exchange commission to its non-resident agent who do not have any permanent establishment in India. There is no material to prove that these payment have arisen out of an agreement executed in India. Nor there is any evidence to conclude that the non-resident/payee has rendered any technical service to the assessee. The Revenue also fails to prove the payments to have been accrued, arisen or paid in India so as to make it taxable under provision of the Act.
Taking into consideration all these circumstances, CIT(A) held that the assessee was not liable to deduct TDS on above stated commission paid to its non-resident payees.
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