Pr. Commissioner of Income Tax - 16 New Delhi v. Maharani Enterprises

1. The Revenue has filed the present appeal under Section 260A of the Income Tax Act, 1961 (hereafter ‘the Act’), impugning an order dated 06.08.2019, passed by the Income Tax Appellate Tribunal (hereafter ‘the Tribunal’). The impugned order is a common order which disposed of two appeals filed by the Revenue impugning two separate orders dated 16.06.2017 passed by the Commissioner Income Tax (Appeals) relating to the assessment years 2013-2014 and 2014- 2015 respectively.

2. The present appeal relates to the dismissal of the appeal relating to the assessment year 2013- 2014.

3. The controversy involved in the present appeal relates to disallowance of ₹4,13,48,057/- under Section 40(a)(i) of the Act made by the Assessing Officer (AO) on account of non-deduction of TDS.

4. The respondent assessee had sought deduction of certain expenditure being the commission paid to agent overseas and had not deducted the tax at source. According to the AO, the non-deduction of TDS under Section 195 of the Act disentitled the assessee to avail of any deduction on that account.

5. It is the assessee’s case that the commission paid to overseas agents was not chargeable to tax under the Act; therefore, it had no obligation to deduct TDS.

6. The learned Tribunal considered the aforesaid controversy and, following the decision in the earlier years – order dated 09.10.2018 (in ITA No.3575/Del./2015) relating to assessment year 2012 – 2013, dismissed the appeal of the Revenue.

7. The learned Tribunal found that the export commission was paid to agents overseas on account of services rendered overseas. The agents had procured orders abroad and were paid the commission for the same. In view of the said finding, the learned Tribunal held that the commission paid did not accrue in India on the purchase orders being serviced by the assessee.

8. It is the Revenue’s contention that the question 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 chargeability of such income, the payer is required to deduct and deposit TDS on any payments made by it.

9. The said contention is unmerited. Section 195 of the Act provides for deduction of tax in respect of the income that is chargeable under the Act. There is no obligation on the part of an assessee to deduct or deposit tax if the payments made by it to nonresidents is not chargeable to tax under the Act.

10. The Hon’ble Supreme Court in the case of Commissioner of Income – Tax, A.P v. Toshoku Ltd.; 1980 125 ITR 525 (SC), had considered a case of payment of commission to a Japanese company, which was appointed as an exclusive sales agent for Tobacco exported to Japan. In the aforesaid context, the Hon’ble Supreme Court has observed as under:

11. The Commissioner Income Tax (Appeals) had, following the aforesaid decision, allowed the assessee’s appeal against the assessment order dated 05.02.2016.

12. It is trite law 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 resident assessee.