Income Tax Act, 1961

Section 40(a)(ia)

Business disallowance under section 40(a)(i) - Commission paid to non - resident foreign agents - No requirement of tax deduction at source under section 195

AO made disallowance under section 40(a)(i) of commission payments made by assessee to non-resident foreign agents on account of non-deduction of tax at source under section 195. Assessee contended that as non-resident agents did not receive the commission in India, therefore, the income did not fall under the category where the TDS was liable to be deducted on such commission paid to foreign agents. Further, as the foreign agents were situated outside India and did not carry out their business activity in India, thus the income did not accrue or arise in India. Held:-Since the non-resident agents do not have any permanent establishment in India, no part of commission income of those agents could be said to be accrued or arise in India. Further, the commission payment to non-residents also could not be regarded as fee for technical service as defined in Explanation 2 of section 9(vii), as the commission payment was not for rendering any managerial, technical or consultancy services but was for procurement of sales order in abroad. Thus, as the commission payment was not chargeable to tax in India, disallowance made by AO was not justified.

REFERRED : G.E. India Technology Centre (P.) Ltd. v. CIT (2010) 327 ITR 456 (SC): 2010 TaxPub(DT) 2241 (SC) and CIT v. Toshoku Ltd. (1980) 125 ITR 525 (SC): 1980 TaxPub(DT) 1127 (SC)

FAVOUR : In assessee's favour

A.Y. : 2012-13

INCOME TAX ACT, 1961

Section 14A

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