The Income Tax Appellate Tribunal (ITAT), Mumbai Bench held that tax cannot be detected at source on Sales Commission paid to Overseas Agents not having Permanent Establishment (PE) in India.
The assessee, Shamrock Pharmachemi Pvt.Ltd. is engaged in the business of trading activity of import and export of pharmaceutical ingredients, chemicals and intermediates.
The assessee debited a sum of Rs. 4.18 Crores in its profit and loss account towards the export commission paid to overseas agents, who arrange for exports and procure export orders for the assessee.
The assessee pleaded that these overseas agents are not having any permanent establishment (PE) in India and are residents of the respective foreign countries.
The AO did not heed to this contention of the assessee and proceeded to invoke the provisions of Section 40(a)(i) read with section 195 of the Act stating that the said payment required to be subjected to deduction of tax at source, in the absence of which, the said expenditure would be liable for disallowance under section 40(a)(i) of the Act.
The CIT(A) appreciated the contentions of the assessee, that in the instant case, the commission was paid to non-residents situated abroad, who do not have any PE in India and they are covered by Double Taxation Avoidance Agreement (DTAA) entered by the respective countries with India.
The CIT(A) also held that the payment of commission made to non-resident agents is not chargeable to tax in India in terms of section 195 of the Act and hence, there is no requirement to deduct tax at source as no part of income arises in India in the hands of the said non-resident agent.
The Coram consisting of Saktijit Dey and M.Balaganesh clarified that it is not in dispute that the non-resident agents to whom commission was paid by the assessee have rendered services outside India for sale of the goods of the assessee outside India. The said non-resident agents do not have any PE in India and that they are domiciled in the U.K. and U.S.A.
Therefore, the ITAT concluded that there is no income chargeable to tax in India in terms of section 195(1) of the Act in the hands of the non-resident agents and accordingly, the provisions of section 195(2) of the Act would not come into operation at all.
Subscribe Taxscan Premium to view the Judgment
