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2015 (11) TMI 575 - AT - Income TaxNon deduction of tax at source u/s 195 - Disallowance of commission payment to foreign agents by applying the provisions of section 40(a)(i) - Held that:- section 195(1) envisages that tax is to be deducted at source on income which is chargeable under the provisions of the Income-tax Act. The hon'ble Supreme Court while interpreting the expression "chargeable under the provisions of this Act" as employed under section 195(1) of the Act has held in the case of GE India Technology Centre P. Ltd. v. CIT [2010 (9) TMI 7 - SUPREME COURT OF INDIA] that the said expression would mean that the remittance has got to be of a trading receipt, the whole or part of which is liable to tax in India. However, if the payments made to non-residents are not chargeable to tax under the provisions of the Income-tax Act, then, the provisions of section 195 would not apply. The hon'ble Supreme Court further observed that if the scope of section 195 is enlarged to that extent, then, it would result in a situation where, even though, the income will have no territorial nexus with India or is not chargeable in India, the Government would nonetheless collect taxes. In the present case, on a perusal of the assessment order or the order of the learned Commissioner of Income-tax (Appeals), we do not find any conclusive finding given by the authorities concerned that the payments made to non-residents are chargeable to tax under the Income-tax Act. Applying the principles laid down by the hon'ble Supreme Court as aforesaid, it is to be held that the provisions of section 195 would not be applicable to payments made by assessee to non-resident agents. Thus the provisions of section 195 would not be applicable to the commission payments made by the assessee to non-resident Indians, as such income is not chargeable to tax under the provisions of the Act. Consequently, disallowance made under section 40(a)(i) would also not survive. - Decided in favour of assessee.
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