Indian Kanoon - Search engine for Indian Law

2.1. Aggrieved over the order passed by the Assessing Officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) (CIT (A)).

2.2. The CIT (A) allowed the appeal by the assessee and deleted disallowance made by the Assessing Officer on the ground that: (a) the agents abroad were non-residents operating outside India; (b) the commission paid relates to services provided outside India; (c) the agents did not have any permanent establishment in India; and (d) the amounts were remitted directly outside India. The CIT (A) also relied on the decision of the Apex Court, reported in (2010) 327 ITR 456 (G.E India Technology Cen. P. Ltd., v. CIT) and held that the commission payments made to the non-residents cannot be treated as income deemed to accrue in India and Section 195 of the Act has no application in such cases. The further findings are that: (a) the non-grant of 'nil deduction certificate' would not entitle the Assessing Officer to proceed for 'non-deduction of tax at source', while making payments; (b) the Assessing Officer had to establish that the payee had tax liability in respect of the income embedded in the impugned payment; (c) the non-resident agents were only procuring orders for the assessee and were not providing any technical services and therefore, the commission payment does not fall under the category of 'fee for technical services' and Explanation 2 to Section 9 (1) (vii) of the Act cannot be invoked. Thereby, the CIT (A) deleted the disallowance of monies paid to foreign agents made by the Assessing Officer, by invoking Section 40 (a) (i) of the Act.

5. The main contention of the learned counsel for the assessee / respondent is that the agency commission / sales commission paid by the assessee to non-resident agents, for the services rendered by them, outside India, in procuring export orders for the assessee, would not attract or partake the character of fees for technical services as explained in the context of 9 (1) (vii) of the Act and therefore, there is no scope for the application of the provisions of Section 195 of the Act (Tax Deducted at Source). It is also contended that as the non-resident agents have neither business connection in India nor they have permanent establishment in India, they are liable to be taxed in India.

10. Further, just because, the payer / assessee has not obtained a specified declaration from the Revenue Authorities to the effect that the recipent is not liable to be taxed in India, in respect of the income embedded in the particular payment, the Assessing Officer cannot proceed on the basis that the payer has an obligation to deduct tax at source. He still has to demonstrate and establish that the payee has a tax liability in respect of the income embedded in the impugned payment.

11. In the instant case, it is seen, admittedly that the non-resident agents were only procuring orders abroad and following up payments with buyers. No other services are rendered other than the above. 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 or other support in respect of any other technical matters. It also does not require any contribution of technical knowledge, experience, expertise, skill or technical know-how of the processes involved or consist in the development and transfer of a technical plan or design. The parties merely source the prospective buyers for effecting sales by the assessee, and is analogous to a land or a house / real estate agent / broker, who will be involved in merely identifying the right property for the prospective buyer / seller and once he completes the deal, he gets the commission. Thus, by no stretch of imagination, it cannot be said that the transaction partakes the character of fees for technical services as explained in the context of Section 9 (1) (vii) of the Act.

12. As the non-residents were not providing any technical services to the assessee, as held above and as held by the Commissioner of Income Tax (Appeals), the commission payment made to them does not fall into the category of fees of technical services and therefore, explanation (2) to Section 9 (1) (vii) of the Act, as invoked by the Assessing Officer, has no application to the facts of the assessee's case.

13. In this case, the commission payments to the non-resident agents are not taxable in India, as the agents are remaining outside, services are rendered abroad and payments are also made abroad.