Sum paid to Non Resident is subject to TDS as assessee failed to establish that Non Resident rendered services outside India

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Sum paid to Non Resident is subject to TDS as assessee failed to establish that Non Resident rendered services outside India

Chariot International (P.) Ltd. v. DCIT – [2021] 125 taxmann.com 229 (Karnataka)

Short Overview:

Assessee’s case was selected for scrutiny. During assessment proceedings, it was called upon to explain why gross sales commission paid to non-residents without deduction of TDS should not be disallowed and brought to tax.

Assessing Officer (AO) held that assessee, in response, submitted that the tax need not be deducted at source against the payments made to non-residents on the commission agents.

AO held that as per Section 195, the tax was required to be deducted at source on the payments made to such non-residents. Since the payments had been made to non-residents without deduction of tax at source, assessee had violated the provisions of section 195.

Assessee filed an appeal before CIT(A). The CIT(A) held that assessee had failed to furnish either any evidence or proof to prove that the payments were made to the foreign parties for the services rendered outside India.

The terms and conditions of payment were only explained without establishing that assessee had made the payments for services rendered outside India.

Therefore, the deduction couldn’t be permitted. On further appeal, ITAT held that assessee, despite opportunity being afforded, failed to place on record any material to controvert the finding recorded by CIT(A).

Thus, appeal filed by assessee to be dismissed.

On further appeal, Karnataka High Court held that the Courts concurrently held that assessee had failed to place any material evidence on record to show that the payment made by the assessee to the non-residents was for the services rendered by them to the assessee outside India. Revenue had not disputed the payments made by assessee to the non-residents.

Revenue’s case was that assessee had failed to prove that assessee incurred the aforesaid expenditure in connection with its business to entitle it to claim deduction under section 37(1).

Thus, substantial questions of law did not arise for consideration in this appeal.

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