INCOME TAX ACT, 1961

Section 40(a)(i) Section 195

Business disallowance under section 40(a)(i) - Payment without TDS to non-resident - Commission payment to non-resident - Payment not taxable in India

Assessee was admittedly a company manufacturing and selling electrical conductors, insulated electrical wire and cables, high tension insulators and electrical energy. Certain commission payments were made to non-resident parties without TDS. Held: Commission payments made to the non-resident agents did not have any taxability in India, even under the provisions of the domestic law, i.e., section 9. Once one come to the conclusion that the income embedded in these payments did not have any tax implications in India, no fault can be found in not deducting tax at source from these payments or, for that purpose, even not approaching the AO for order under section 195. The assessee, for the detailed reasons set out above, did not have tax withholding liability from these payments. Payer was bound to withhold tax from the foreign remittance only if the sum paid is assessable to tax in India. The assessee cannot, therefore, be faulted for not approaching the AO under section 195 either. As regards the withdrawal of the CBDT circular holding that the commission payments to non-resident agents were not taxable in India, nothing really turns on the circular, as de hors the aforesaid circular, Tribunal had adjudicated upon the taxability of the commission agent's income in India in terms of the provisions of the IT Act as also the relevant tax treaty provisions.

Followed:ITA Nos. 249/Ahd/2015 and 48/Rjt/2015 : 2017 TaxPub(DT) 1184 (Ahd-Trib) in Welspun Corporation Ltd. v. DCIT decided on 3-1-2017 and GE India Technology Centre Pvt. Ltd. v. CIT (2010) 327 ITR 456 (SC) : 2010 TaxPub(DT) 2241 (SC).