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Deputy Commissioner of Income Tax, Circle-1(1)(2) Vs. Inox India Private Limited - (Income Tax Appellate Tribunal) (11 Jan 2021)

Remittance made by the assessee abroad towards commission expenses is not chargeable to tax in India


Direct Taxation

In instant case, the Assessing Officer (AO) disallowed claim towards commission expenses on export sales to the extent of Rs. 78,90,570 in the course of the assessment carried out under Section 143(3) of the Income Tax Act, 1961 (IT Act) on the ground that, the assessee has defaulted in deduction of tax at source under Section 195(1) of the IT Act. As a consequence of alleged default, provisions of Section 40(a)(i) of the IT Act was invoked and expenses incurred were disallowed to the extent of 30% of such expenses. The AO also observed that, the expenses incurred are in the nature of 'fee for technical services' and thus falls within the sweep of Section 9(1)(vii) read with Explanation (2) thereto as against the claim of the assessee that, commission payments are business expenses without involvement of any managerial, technical or consultancy services. Aggrieved by the disallowance, the assessee preferred appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) reversed the action of the AO.

The solitary issue involved in the instant case is, whether in the facts of the case, the remittance made by the assessee abroad towards commission expenses is chargeable to tax in India or not and consequently, whether the commission payment is susceptible to provisions of Section 195 of the IT Act or not.

It is the case of the assessee that, the remittance have been made towards commission payments almost to the same parties as in the earlier years for which favourable view has been taken by the Tribunal on facts. Further, the commission agents have rendered the services abroad and the situs of accrual or receipt of their commission income is outside India. It is further claimed that, services rendered by agents have been utilized by the assessee outside India in procuring the export orders.

The issue is squarely covered in favour of the assessee by the decision of co-ordinate bench for Assessment Year 2010-11 (AY 2010-11) as rightly acknowledged by the CIT(A). The commission payments are seen to be made to the similar set of parties as in AY 2010-11. Except for bald allegation of the services being akin to managerial or consultancy services, the AO has not brought any material on record to discard the stand of assessee. The services in respect of commission expenses are stated to be rendered outside India as well as utilized outside India and therefore, the income arising by way of commission against rendition of agency services cannot be deemed to accrue or arise in India in the hands of the recipients of such commission payments.

In the circumstances, where the income arising to non-resident commission agents is not found to be chargeable in India under Section 4 read with Section 5(2) of the IT Act, the obligation under Section 195 of the IT Act for deduction of tax at source cannot be fastened upon the remitter assessee. In the absence of statutory obligation arising under Section 195 of the IT Act for deduction of tax and in the absence of chargeability of remittances, the corresponding disallowance under Section 40(a)(i) of the IT Act is without any merit and thus uncalled for. There is no error in the action of the CIT(A) who has rightly applied the decision of the Tribunal in the facts of the case. Appeal of the Revenue is dismissed.


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