EL FORGE LIMITED,CHENNAI vs. DCIT CORPORATE CIRCLE 2(1), CHENNAI

PER G.MANJUNATHA, ACCOUNTANT MEMBER:

“1. The order of Commissioner of Incometax (Appeals) dated 25.09.2018 is contrary to law, facts and in the circumstances of the case. 2. The Commissioner of Incometax (Appeals) has erred in confirming the disallowance of foreign agents commission on the application of section 195 r.w.s 40(a)(i) of the Act in the computation of taxable total income without assigning proper reason and justification.

3. The Commissioner of Incometax (Appeals) failed toappreciate the provisions of section195 of the Act had no application to the facts of the case and consequently ought to have appreciated that disallowance of the commission in the computation of taxable total income was wrong, erroneous, unjustified, incorrect and not sustainable in law.

The learned CIT(A), for the detailed reasons recorded in his appellate order dated 25.09.2018, confirmed the additions made by the Assessing Officer towards disallowance of overseas commission u/s.40(a)(i) of the Act, for non-deduction of TDS u/s.195 of the Act, on the ground that the assessee has not furnished any details with regard to the nature of services rendered by the non-resident payee to whom commission was paid. Further, no copy of agreement was furnished to show that the assessee has entered into any agreement specifying the nature of services to be rendered by non-resident agent. In the absence of aforesaid basic data and details, the assessee’s claim that commission paid was not chargeable to tax in India is not established. Therefore, the Assessing Officer was right in disallowing the overseas commission u/s.40(a)(i) of the Act, for non-deduction of TDS u/s.195 of the Act. Aggrieved by the learned CIT(A) order, the assessee in appeal before us.

4. The learned AR for the assessee submitted that learned CIT(A) has erred in confirming the disallowance of overseas commission paid to foreign agents u/s.40(a)(i) of the Act, for non-deduction of TDS u/s.195 of the Act, without appreciating the fact that commission payment to non-resident agents having no permanent establishment in India are not liable to tax in India on their income and consequently, the question of deduction of TDS u/s.195 of the Act does not arise. The learned CIT(A) without appreciating these facts has confirmed the additions made by the Assessing Officer by holding that no details have been filed, but the fact remains that the assessee has submitted necessary details to prove that commission has been paid for rendering services in connection with export sales and the percentage of commission and the consequential amounts are specified in the export invoice itself.

Therefore, the Assessing Officer as well as learned CIT(A) have rightly disallowed the overseas commission paid to non-resident agents u/s.40(a)(i) of the Act, for non-deduction of TDS u/s.195 of the Act. Although, the assessee has relied upon various decisions including the decision of the Hon’ble Supreme Court in the case of G.E. India Technology Centre Pvt. Ltd. Vs.CIT (2010) 327 ITR 356 (SC), but those case laws are rendered under peculiar facts of the said case and cannot be universally applied to each and every case to decide whether the payment made to non-resident payee are liable for TDS u/s.195 of the Act.

The Jurisdictional High Court of Madras in the case of M/s. Faizan Shoes Pvt.Ltd (2014) 367 ITR 155 has considered an identical issue and held that export commission paid to non-resident agents for rendering services outside India is not liable to tax in India, if such non-resident agents do not have any permanent establishment or business connection in India and consequently withholding tax as per section 195 of the Act have no application and hence, no expenditure should be disallowed u/s.40(a)(i) of the Act. In this case, although the lower authorities disallowed the overseas commission paid to non-resident agents for rendering services outside India on the ground that no basic details have been filed to prove rendering of services by non-resident agents, but the fact remains that the assessee has filed necessary details including percentage of commission and consequential amounts paid to them by filing export invoices, where the rate of commission and amount has been specified. The assessee has also filed necessary details to prove that services rendered by non-resident agents are not liable to tax in India because they do not have any permanent establishment or business connection in India. Therefore, we are of the considered view when overseas commission payment made to non-resident agents for rendering services outside India is not liable to tax India under the provisions of Section 9(1)(vii) of the Act, then the question of deduction of TDS on the said payment u/s.195 of the Act does not arise and hence, the commission payment to the said non-resident agents cannot be disallowed u/s.40(a)(i) of the Act for failure to deduct TDS. The Assessing Officer as well as the learned CIT(A), without appreciating the facts simply disallowed the overseas commission payments made to non-resident agents u/s.40(a)(i) of the Act. Hence, we direct the Assessing Officer to delete the addition made towards disallowance of overseas commission paid to non-resident agents u/s.40(a)(i) of the Act.