No TDS Deductible On Commission Payment To Non-Resident Agent Overseas: Delhi High Court

The Delhi High Court has held that commission payments to non-resident agents overseas are not chargeable to tax and there is no TDS required to be deducted under Section 195 of the Income Tax Act.

The bench of Justice Vibhu Bakhru and Justice Amit Mahajan has observed that there is no material on record to even remotely suggest that the non-resident, who had been paid the export commission, had any permanent establishment in India, carried on any business within the taxable territory in India, or had any business connection in India rendering them liable to pay tax.

Section 195 of the Act provides for the deduction of tax in respect of the income that is chargeable under the Income Tax Act. There is no obligation on the part of an assessee to deduct or deposit tax if the payments made by it to non-residents are not chargeable to tax under the Income Tax Act.

The controversy relates to the disallowance of Rs. 4,13,48,057 under Section 40(a)(i) of the Income Tax Act made by the Assessing Officer (AO) on account of the non-deduction of TDS.

The respondent/assessee had sought a deduction of expenditure, which was the commission paid to agents overseas, but had not deducted the tax at source. According to the AO, the non-deduction of TDS under Section 195 disentitles the assessee to avail of any deduction on that account.

The assessee contended that the commission paid to overseas agents was not chargeable to tax under the Act. Therefore, it had no obligation to deduct TDS.

The ITAT has held that the export commission was paid to agents overseas on account of services rendered overseas. The agents had procured orders abroad and were paid a commission for them. The commission paid did not accrue in India on the purchase orders being serviced by the assessee.

The department has filed an appeal challenging the order passed by the Income Tax Appellate Tribunal.

The department contended that the question of whether any income is chargeable to tax in the hands of a non-resident agent is required to be considered in its assessment, and notwithstanding the question regarding the chargeability of such income, the payer is required to deduct and deposit TDS on any payments made by it.

The court noted that a foreign resident who does not carry on any business operations in the taxable territories in India and has no permanent establishment or business connection is not liable to pay tax under the Act in respect of any amount remitted by the resident assessee.

The court, while dismissing the department's appeal, held that there is also no allegation that the payments made were not bona fide expenses.

Case Title: PCIT Versus Maharani Enterprises

Citation: 2023 LiveLaw (Del) 653

Date: 28/07/2023

Counsel For Appellant: Sanjay Kumar, Easha

Counsel For Respondent: Piyush Kaushik

Click Here To Read The Order