Commission paid to overseas agents cannot be regarded as for technical services
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Case Details: |
CIT vs. Wheels India Limited |
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Appeal No.: |
Tax Case Appeal No. 448 of 2012 |
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Order pronounced by: |
Madras High Court |
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Date of Order: |
06-08-2021 |
Source: Madras High Court Judgements
Brief Facts:
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The issue before the Hon’ble Court is whether the Tribunal was right in affirming the order passed by CIT(A) deleting the disallowance u/s 40(a)(i) of the Income Tax Act in respect of the payments made by the assessee to a non-resident without deducting tax at source. The Learned A.O. is of the view that the payments were in the nature of fees for technical service and therefore, tax ought to have been deducted at source. On the basis of reference made to Article 13 of Indo South Korean DTAA, the A.O. held that the payments made for managing the sales affairs of the assessee company outside India without deducting tax at source u/s 195 of the Act has to be disallowed under section 40(a)(i) of the Act. |
Observations of the Court:
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After hearing the submissions of the assessee, the CIT(A) perused the copies of the agreement and on the facts, found that the amounts paid by the assessee were sales commission and marketing services to non-resident agents outside India for their services rendered outside India by way of canvassing sales order and none of the entities to whom payments were made by the assessee have a Permanent Establishment [PE] in India. |
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Further, taking note of the relevant Articles in the respective DTAA entered into between India and the respective country, it was held that the income earned is taxable in those countries. In support of the conclusion, the CIT (A) relied upon the decision of the Hon’ble Supreme Court in the case of G.E. Technology (P) Ltd. vs. CIT [327 ITR 456]. Thus, on facts, the nature of services rendered by the non-resident to the assessee was considered by the CIT(A) after perusing the copies of the agreement. This factual finding has attained finality as the appeal filed by the revenue before the Tribunal was dismissed by the impugned order. |
Cases Relied upon by assessee:
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CIT vs. Farida Leather [(2016) 95 CCH 0146 ChenHC] Held sourcing orders abroad, for which payments have been made directly to the non-residents abroad, does not involve any technical knowledge or assistance in technical operations. |
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Commissioner of Income Tax vs. Faizan Shoes Pvt. Ltd. [(2014) 367 ITR 0155 (Mad)]: Held that the commission paid for procuring order for leather business from overseas buyers- wholesalers or retailers cannot be treated as if for technical services. |
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Evolv Clothing Company Pvt. Ltd. vs. ACIT [(2018) 407 ITR 0072 (Mad)] Held that the A.O. accepted that the assessee therein had paid commission charges for the overseas agents and the same cannot be regarded as if for technical services. |
Ruling:
As pointed out, on facts the First Appellate Authority and the Tribunal have already held that what was paid by the assessee to the non-resident was sales commission and cannot be regarded as if for technical services. We find no grounds to interfere with the order passed by the Tribunal. Accordingly, the tax case appeal of the revenue is dismissed.
