Commission for Overseas Services Rendered Abroad: ITAT Deletes Disallowance for Non-Deduction of TDS [Read Order]

The Ahmedabad Income Tax Appellate Tribunal (ITAT) has held that commission paid to non-resident agents for services rendered entirely outside India does not attract tax deduction at source (TDS) under Section 195 of the Income Tax Act.

During the assessment, the AO observed that assessee Intas Biopharmaceuticals Ltd had paid ₹90.39 lakh as sales commission to foreign agents without deducting TDS. The agents, located outside India, facilitated export orders and provided marketing and liaison support for Intas’s biopharmaceutical products.

The AO held that such payments constituted income deemed to accrue in India under Section 9(1)(i) and disallowed the amount under Section 40(a)(ia). The CIT(A) confirmed the addition, citing the absence of documentation proving that services were performed wholly abroad.

The assessee argued before the Tribunal that the agents had no office, place of business, or permanent establishment (PE) in India and that all services were rendered outside India. Consequently, the income was not taxable in India under Section 9 or the relevant Double Taxation Avoidance Agreements (DTAAs).

It relied on CBDT Circular 786 (now withdrawn) and judicial precedents, including GE India Technology Centre Pvt Ltd v. CIT, which clarified that TDS under Section 195 applies only when the payment is chargeable to tax in India. The assessee also pointed out that in its own case for AY 2013-14, similar commission payments were allowed by the ITAT.

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The Department contended that the assessee had not proved that no part of the services was rendered in India. It argued that the mere absence of a PE did not automatically exempt such payments, and that the payer must obtain prior determination under Section 195(2) to avoid TDS liability.

The Revenue further maintained that the foreign agents’ activities were directly connected to business operations in India, making the income taxable.

The Tribunal found merit in the assessee’s contention that the foreign commission was paid for services executed entirely outside India. It was observed that the Revenue had not produced evidence showing that any part of the activity was carried out within India. Referring to its own order in Intas’s subsequent assessment year, the Bench held that when services are rendered abroad and the non-resident has no business connection or PE in India, the income is not taxable under domestic law or treaty provisions.

Accordingly, the two-member bench comprising Suchithra Kamble (Judicial Member) and Makarand Vasant Mahadeokar (Accountant Member) deleted the disallowance of ₹90.39 lakh made under Section 40(a)(ia), holding that TDS under Section 195 was not required on such payments. The appeal was allowed on this issue, reaffirming the principle that offshore service commissions fall outside Indian withholding obligations.

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