In the case of M/s Bengal Tea & Fabrics Ltd vs DCIT, Kolkata bench of Income Tax Appellate Tribunal (ITAT) recently ruled that there is no Tax Deducted at Source ( TDS ) liability in the hands of the Assessee since commission to the foreign agent is not subject to Income Tax in India.
The assessee in the present case is a limited company engaged in manufacturing of tea, cloth, and yarn. During the assessment year, the Assessee has paid commission to certain parties based in Hong Kong.
During the assessment period the Assessing Officer (AO) noticed that there was no Double Tax Avoidance Agreement (DTAA) exists between the Assessee and the said parties, therefore, he was of the opinion that commission in the hands of the foreign parties was taxable in India under the provisions of Section 5(2)(b) r.w.s 9(1)(i) of the Income Tax Act 1961 and the Assessee was under obligation TDS on the amount of commission paid to the aforesaid parties but assessee failed to do so. Accordingly, he added the said commission amount to the total income of the Assessee while completing the assessment.
Thereafter the Assessee carried the matter before the CIT(A) and counsel for the Assessee advocate S. Jhajharia submitted that that commission was paid to various parties in connection with direct exports to the parties referred by them. The services were rendered by these agents from their respective countries. Therefore, the commissions earned by them were not chargeable to tax and consequently there was no liability to deduct the tax under section 195 of the Act. Further, he submitted that the provision of Section 5(2)(b) r.w.s. 9(1)(i) as relying upon the AO are not applicable to the instant facts of the case as the party had no business connection, property in India or no source or income liable to tax in India.
However, the authority refused to accept the contentions of the Assessee and accordingly upheld the order of the AO and confirmed the addition made by him. Thereafter the Assessee approached the Tribunal on further appeal.
After analyzing the above-narrated facts and circumstances, the Tribunal bench consists of Judicial Member Aby. T. Varkey AND Accountant Member Waseem Ahmed observed that “the payment for the commission was not received by the foreign agents in India. Therefore, the same cannot be taxed in India as per clause (a) of sub-section (2) of section 5 of the Act. Similarly, we further note that the income was received by the foreign agents on account of services rendered by them in their respective countries. Therefore the bench held that such income has not accrued or arisen in India and consequential not chargeable to tax in India”.
The division bench further said that “assessee paid Commission to the foreign agent is not the income chargeable to tax in India. Once an income is not chargeable to tax in India then the question of deducting TDS under the provision under section 195 of the Act does not arise”.
While allowing the appeal filed by the Assessee, the bench declared that Assessee in the present case is not liable to deduct TDS under section 195 of the Income Tax Act since the said commission is not subject to Income Tax in India.
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