Commission paid to Non-residents for services rendered outside India not taxable without PE in India
Chennai ITAT rules that commission paid to Non-residents for services rendered outside India not taxable without PE in India [DCIT vs Allsec Technologies Ltd, ITA No.1255/Chny/2019; Date of Judgement: 03/12/2024]
The Chennai Tribunal ruled that commission payments made to non-residents for services rendered outside India are not taxable under the Act in the absence of a PE or business connection in India. Allsec Technologies Ltd, the assessee, paid selling commissions of ₹197.18 Lakhs to Allsechtech, USA. TDS was deducted on ₹99.55 Lakhs as the assessee argued that the recipient had no business connection or PE in India. So, the payments were not chargeable to tax under Sec 195 of the Act. The AO disallowed ₹ 97.62 Lakhs citing the Explanation to S. 9 of the Act introduced retrospectively by the Finance Act, 2010, and CBDT Circular No. 7/2009. The AO also referred to Explanation-2 to S. 195(1), inserted by the Finance Act, 2012, to justify the disallowance. The AO observed that the assessee did not obtain a NIL deduction certificate for these payments. The assessee submitted that the payee, a subsidiary engaged in marketing and business development for its call center services, operated outside India with no PE or business connection within the country.
The assessee further submitted that payments were made for services rendered abroad. The assessee relied on Supreme Court and High Court rulings, including CIT vs. Toshoku Limited Ltd and CIT vs. Eon Technology P. Ltd. to substantiate its position. The assessee also submitted that NIL deduction certificates were obtained for similar payments in subsequent years. The CIT(A)observed that the payments were for non-technical services rendered outside India and were an incident of export. Referring to judgments like CIT vs. Farida Leather Company and Faizan Shoes Pvt. Ltd., CIT(A) ruled that such payments were not taxable in India and thus not subject to TDS. On appeal, the revenue argued that the payments fell within S. 195 of the Act and were taxable under the DTAA with the USA. The Tribunal observed that the payments were selling commissions for procuring export orders in foreign territories and there was no evidence of the recipient having a business connection or PE in India. The tribunal referred to the Faizan Shoes Pvt. Ltd. case which held that such payments were not fees for technical services and did not attract TDS under Sec 195. So, the tribunal dismissed the revenue’s appeal and upheld the CIT(A)’s decision. The revenue’s appeal was dismissed.
The copy of the order is as under: