Payments to foreign agents exempt from TDS as income not taxable in India: ITAT [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) allowed the appeal, ruling that payments made to foreign agents for services rendered entirely outside India were not taxable in India and no Tax Deducted at Source ( TDS ) was required.

Manisha Kiran Temkar,appellant-assessee, was engaged in international merchant trade under the name M/s. Kathmandu Apparel Group and declared an income of Rs. 5.74 crore while filing her return. Her case was selected for scrutiny, during which the assessing officer noted foreign remittances made to several parties, as reported in Form 15CA and 15CB.

The assessee was asked to provide details of the remittances, including the nature of services, copies of agreements, and TDS compliance.

The assessee explained that the remittances were made for her business conducted entirely outside India and related to invoices or debit notes for international transactions. The assessee furnished an agreement with Imperial Impact Bangladesh Ltd., which acted as her agent for sales execution and allied activities.

Payments to Bureau Veritas Hongkong Limited were for garment sample testing, to Imperial Impact Bangladesh Ltd. for agency commission and shipment facilitation, and to Ec Vision Limited for software subscriptions used at her Bangladesh and Vietnam representative offices. She stated that these services were utilized outside India and argued that she had complied with Chapter XVII-B of the Income Tax Act.

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The Assessing Officer (AO ) did not accept her submissions, noting that as an Indian resident, her income and related foreign expenditures were deemed to accrue in India. He observed that the controlling office was in Mumbai, samples were developed there, and all orders were processed through India before sending goods to foreign suppliers.

Consequently, he held that the remittances were subject to TDS under section 195/40(a)(i) and disallowed 30% of payments to Imperial Impact Bangladesh Ltd., Ec Vision Limited, and Bureau Veritas Hongkong Ltd., totaling Rs. 1.857 crore. The Commissioner of Income Tax (Appeals)[CIT(A)] confirmed the disallowance, and the assessee filed the present appeal before the tribunal.

The two member bench comprising Pawan Singh (Judicial Member) and Padmavathy S (Accountant Member) considered the submissions of both parties and examined the records. It noted that the appellant’s business model was not in dispute.

The assessee had made payments to parties in Bangladesh, who provided services entirely outside India, and their income did not accrue in India. The foreign agents carried out activities like checking and packing goods outside India, and the payments to them were not for royalty or technical services.

The appellate tribunal agreed with the assessee that since the services were rendered outside India, the commission paid was not taxable in India and no TDS was required, as supported by the Supreme Court in PCIT vs Vedanta Ltd. Payments to non-resident Indians and software-based inspection charges were also not treated as fees for technical services or royalty.

The tribunal allowed the assessee’s appeal.

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