Commission paid to non-residents does not give rise to income chargeable to tax in India: ITAT Ahmedabad
Kiri Industries Ltd. vs. DCIT (ITA No. 2065/Ahd/2025)
Facts:
1. The assessee is a company engaged in business activities and its return of income for A.Y. 2021-22 was subjected to scrutiny assessment under section 143(3) read with section 144B of the Income-tax Act 1961.
2. During the course of assessment proceedings, the Assessing Officer disallowed commission expenditure of ₹88,61,356/- paid to non-resident agents by invoking section 40(a)(i) of the Income Tax Act on the ground that the assessee failed to deduct tax at source under section 195 of the Act.
3. The Assessing Officer held that although the agents rendered services abroad in procuring export orders, the right to receive commission arose in India upon execution of such orders and therefore the income was deemed to accrue or arise in India under section 9(1)(i) of the Income Tax Act.
ITAT Ahmedabad held as below:
1. Commission paid to foreign agents for procuring export orders, where services are rendered outside India and the agents do not have any permanent establishment or business connection in India, does not give rise to income chargeable to tax in India.
2. Once the income is not chargeable to tax in India, the provisions of section 195 of the Act are not attracted and consequently disallowance under section 40(a)(i) of the Act cannot be sustained.
3. Hon’ble Supreme Court in CIT vs. Toshoku Ltd. (125 ITR 525), had held that commission earned by non-resident agents for services rendered abroad cannot be deemed to accrue or arise in India. Similar view has been taken in DCIT vs. Mc Fills Enterprises Pvt Ltd. (101 taxman. com 212, Ahd) and other decisions.
4. Respectfully following the binding precedents in the assessee’s own case, we hold that the disallowance of ₹88,61,356/- is unsustainable and is hereby deleted.
The copy of the order is as under:
