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IN THE INCOME TAX APPELLATE TRIBUNAL , ‘C’ BENCH, CHENNAI
Assessment Year : 2009-10
Assistant Commissioner of Income Tax
Vs.
M/s. Track Shoes (P)Ltd.
Date of Pronouncement : 26th September, 2014


Summary:
Commission paid by Assessee on Export Sales to Non Resident Agents cannot be treated as Fees for technical Services (FTS).  And since Non Residents Agents have no PE in India and no part of their services have been rendered in India therefore in such situation there is no obligation on the assessee to deduct tax at source under section 195 of the Act.
 

Facts of Case:
The Assessee paid export sales commission of  Rs.82,30,847/- to four non-resident agents. The same has been disallowed by Assessing Officer. The Assessing Officer was of the view that the amount paid by the assessee to non-resident agents is fee for technical services and since the assessee did not deduct TDS under section 195 of the Act the said expenditure is not allowable under section 40(a)(i) of the Act. He further submits that there were no agreements between the assessee and the non-resident agents in respect of export sales and in the absence of any such agreements it is not known as to whether the assessee has paid sales commission or it is fee paid for technical services.


Arguments by Assessee:

Counsel for the assessee submits that the assessee paid only sales commission based on the orders procured by the non-resident agents and there was no agreement for any technical services to be provided to the assessee by the non resident agents. Counsel submits that since the assessee has paid only export sales commission, the said commission is not taxable in India and therefore provisions of section 195 have no application and in which case disallowance under section 40(a)(i) is not warranted. Counsel further submits that the decision relied on by the Commissioner of Income Tax (Appeals) in the case of Faizan Shoes Ltd. (supra) has been affirmed by the Hon’ble Madas High Court in Tax Case Appeal no.789 of 2013 dated 22.7.2014, copy of which is placed on record.

 
Held by ITAT:

Heard both sides. Perused orders of lower authorities and the decisions relied on. The Assessing Officer while completing the assessment disallowed commission payments made to foreign agents on the ground that assessee has not deducted TDS. The Assessing Officer was of the view that sales commission paid by the assessee shall be deemed to accrue or arise in India, if such income is accrued or arisen from any business connection in India, The Assessing Officer was of the opinion that in the instant case payments were made for assessee’s business purposes which is carried on in India and therefore such commission paid to non-residents abroad is deemed to have been arisen in India. The Assessing Officer is not disputing that the commission paid by the assessee is not for export sales. Further he has not brought on record to suggest that non-residents provided technical services to the assessee. The Commissioner of Income Tax (Appeals) in respect of sales commission paid to Calzados Jose and M.G. Diffusion International deleted the disallowance relying on the decision of this Tribunal in the case of ITO Vs. Faizan Shoes Pvt. Ltd. (supra) where the facts were identical as foreign agents have no permanent establishments in India, no part of their services have been rendered in India and in such situation there is no obligation on the assessee to deduct tax at source under section 195 of the Act. The decision relied on by the Commissioner of Income Tax (Appeals) has been affirmed by the Hon’ble Madras High Court in the case of CIT Vs. Faizan Shoes Pvt. Ltd. in Tax Case Appeal No.789 of 2013 dated 22.07.2014. 

The Hon’ble High Court in the abovementioned case held that the services rendered by the non-resident agent can at best be called as a service for completion of export commitment, therefore commission paid to non-resident agents will not fall within the definition of fees for technical services. Further it was also held that commission amounts earned by non-resident assessees for services rendered outside India cannot be deemed to be incomes which have either accrued or arising in India. Thus, respectfully following the said decision we uphold the order of the Commissioner of Income Tax (Appeals) in deleting the disallowance made under section 40(a)(i) of the Act and reject the grounds of appeal raised by the Revenue.


ITAT also held that simply because the parties are at different countries one cannot presume that foreign agents have rendered technical services to the assessee. Thus, we delete the disallowance sustained by the Commissioner of  Income Tax (Appeals) and allow the cross objection of the assessee.

To download the full judgment click here

 



 

 

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Author:

TaxReply


Jan 5, 2015

Comments


[2014] 52 taxmann.com 485 (Mumbai - Trib.)

IT/ILT: Where commission payments were made to foreign agents for securing sales orders payments will not fall in category of 'Fee for Technical Services' requiring withholding of tax

read more

By: S.srinivasan | Dt: Jan 8, 2015


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