Commission paid to Non-Resident Agents for services rendered outside India are not subject to TDS: ITAT Mumbai [Read Order]

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The Mumbai bench of the Income Tax Appellate Tribunal has recently ruled that the section 195 of the Income Tax Act, 1961 requiring deduction of Tax at Source does not applicable to payments made to non-residents as commission for the services rendered by them outside the territory of India.

The assessee, is a Firm engaged in the business of export of meat and seafood, filed its return of income for the relevant assessment year claiming deduction in respect of various expenses including export commission. The assessing Officer asked for the details of TDS paid on such amount as the payments were made to non-resident entities. The assessee maintained that no tax was required to deduct u/s 195 of Act since the non-resident agents were operating from their respective countries and procured export orders for the assessee firm outside India, and further, the commission was also paid outside India. However, the AO rejected these contentions and passed an order to the effect that the commission payable to agents abroad was deemed to arise in the group in India and therefore, provisions of section 40 were applicable to the payments in question.

On appeal, the Commissioner of Income Tax (Appeals) deleted the addition made by the Assessing Officer by accepting the contentions of the assessee. The CIT(A) observed that the AO had disallowed the payment made to foreign agents only on the ground that no tax was deducted at source as per the provisions of section 195 of the Income Tax Act, that there was no other ground for disallowance of such payments, that the foreign agents procured export orders, that the entire services were rendered outside India, that the commission agents did not have any Permanent Establishment in India, that the amounts paid by it to the agents for rendering services did not accrue in India. Being aggrieved, the Revenue preferred an appeal before the ITAT.

The Tribunal noticed that in Faizan Shoes Pvt. Ltd., the Madras High court held that “commission paid by the assessee to the non-resident agents would not come under the term “fees for technical services” and therefore, the assessee was not liable to deduct tax at source on payment of commission.”

Following the above decision, the Tribunal confirmed the decision of the Commissioner of Income Tax (Appeals) by holding that no interference is needed in the impugned Order.

Read the full text of the order below.