Where payment of commission is made to non-resident overseas agents who have no PE or business activities in India and the services are also rendered outside India as such no income is arising to the non-resident commission agent in India and as such no TDS is deductible u/s 194-H

Business expenditure TDS Commission to non-resident agent Assessee filed return of income which was processed u/s 143(1) AO issued statutory notices under Ss 143(2) and 142(1) which were complied with by assessee AO observed that a sum was debited to P&L account under head commission on export sale by assessee AO completed assessment by making disallowance on account of export commission paid to foreign parties u/s. 40(a)(ia) CIT(A) partly allowed assessee’s appeal Held, CIT(A) held that activity of foreign agent rendering services to exporter in India could be best described as income accruing from business connection u/s 9(1)(i), thus carrying on some activity in India was must for making their foreign commission taxable in India In absence of any services rendered in India, foreign commission paid to non-resident for services rendered outside India was not taxable in India and hence, no liability to deduct TDS u/s 195 Commission payment to non-resident does not represent income which was chargeable to tax u/s 195 when examined and analysed under framework of provisions of Income Tax Act, 1961 TDS was not required for commission payment which was paid to non-residents As such mischief of s. 40(a)(i) for disallowance was not warranted Consequently, no disallowance u/s 40(a)(i) could be made as there was no violation of TDS provisions CIT(A) had rightly observed that payment of commission were made to non-resident overseas agents who have no PE or business activities in India and services were also rendered outside India as such no income was arising to non-resident commission agent in India and as such no TDS was deductible u/s 194-H which was applicable for resident Indians only Revenue’s appeal dismissed.

ASSISTANT COMMISSIONER OF INCOME TAX vs. ISHMAN INTERNATIONAL

(2019) 56 CCH 0426 DelTrib