The Bangalore Bench of Income Tax Appellate Tribunal (ITAT) has held that Tax Deduction at Source (TDS) not applicable to commission for professional service by Nonresident.
The appellant M/s. IRunway India Private Limitedis engaged in the business of providing technology, consulting and litigation support services with focus on intellectual property domain, especially patent, to companies, law firms and other technology investment and licensing firms. The appellantassessee had entered into an iRunway Sales Contractors Agreement with Mr. Neeraj Gupta, a non-resident and tax-resident of USA, wherein the assessee availed itself of certain sales consulting services. In consideration thereof, sales commission of 8% to
10% aggregating to Rs. 4,505,685 was payable by the assessee to NeerajGupta for FY 2014-15.
The AO held Sales commission of Rs. 4,505,685 payable to NeerajGupta a non-resident and tax-resident of USA, was treated as FTS and disallowed u/s 40(a)(ia) of the Act by alleging that the Assessee had not deducted tax u/s 195 of the Act.On appeal by the Assessee, the CIT(A) confirmed the order of the AO. Hence, the assessee filed appeal before the ITAT.
The appellant submitted that Mr. Neeraj Gupta was a tax resident of the US for FY 2014-15. The services under the aforesaid agreement were rendered by Mr. Neeraj Gupta from US. Mr. Neeraj Gupta did not visit India during FY2014-15 for the purposes of rendering services to the assessee under the saidagreement; and Sales commission at a fixed percentage on the amount of revenue earned from the relevant client which was solicited by Mr. Neeraj Gupta was payable by the assessee.
Further submitted by the appellant that a non-resident Company is chargeable to income-tax in India, inter alia, on income that is deemed to accrue or arise in India. The sales commission paid to Mr. Neeraj Gupta did not qualify as ‘sum chargeable to tax’ in India and therefore assessee did not have an obligation to deduct tax at source u/s 195 of the Act.
The Tribunal observed that Article 15 of the India-US Tax Treaty provides that income derived by a person from the performance of professional services shall be taxed in the country of which he is resident except where the professional has a fixed base regularly available to him in India for the purpose of performing his activities or has stayed in India for a period or periods amounting to or exceeding in the aggregate 90 days in the relevant taxable year.
The Coram of Mr. N. V. Vasudevan andMrs. Padmavathy S has held that “sales commission paid to Mr. NeerajGupta is not taxable under Article 15 also of the India-US Tax Treaty as it does not satisfy either of the criteria specified therein.We therefore hold that the disallowance of the sum paid to him u/s.40(a)(ia) of the Act cannot be sustained and the addition is directed to be deleted”.
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