TDS not Deductible on Commission Paid to Non-Resident Agent Overseas: Delhi HC [Read Order]

The Delhi High Court has held that Tax Deducted at Source (TDS) is not deductible on commission paid to non-resident agents overseas.

The Revenue challenged the order dated 06.08.2019, passed by the Income Tax Appellate Tribunal (ITAT)(Tribunal) which disposed of two appeals filed by the Revenue impugning two separate orders dated 16.06.2017 passed by the Commissioner Income Tax (Appeals) in favour of Maharani Enterprises, the assessee. 

The Assessing Officer (AO ) disallowed ₹4,13,48,057/- under Section 40(a)(i) of the Income Tax Act on account of non-deduction of TDS.  The respondent assessee had sought a deduction of certain expenditures being the commission paid to the agent overseas and had not deducted the tax at source.  According to the AO, the non-deduction of TDS under Section 195 of the Act disentitled the assessee to avail of any deduction on that account.

The assessee contended that the commission paid to overseas agents was not chargeable to tax under the Act therefore, it had no obligation to deduct TDS. 

The Tribunal in earlier decisions viewed that the export commission was paid to agents overseas on account of services rendered overseas. The agents had procured orders abroad and were paid the commission for the same. In view of the finding, the Tribunal held that the commission paid did not accrue in India on the purchase orders being serviced by the assessee. 

It was viewed that section 195 of the Act provides for the deduction of tax in respect of the income that is chargeable under the Act. There is no obligation on the part of an assessee to deduct or deposit tax if the payments made by it to non-residents are not chargeable to tax under the Act. 

The division bench comprising of Justice Vibhu Bakhru and Justice Amit Mahajan observed that “there is no material on record to even remotely suggest that the non-resident, who had been paid the export commission had any permanent establishment in India; had carried on any business within the taxable territory in India; or had any business connection in India rendering them liable to pay tax under the Act.”

While dismissing the appeal of revenue, the Court held that there is also no allegation that the payments made were not bona fide expenses. 

To Read the full text of the Order CLICK HERE

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