2020 (10) TMI 462 - HC - Income Tax

TDS u/s 195 - disallowance u/s. 40(a)(i) of the Act for non deduction of tax on commission payable to foreign agents - Disallowance of commission to foreign agents assessee was unable to lead evidence to prove the factum of actual rendering of services by such recipients - HELD THAT - As decided in own case 2019 (7) TMI 613 - GUJARAT HIGH COURT the questions of law as proposed by the revenue has no longer integreta in view of the decision of this Court in the case PR CIT Vs. MGM Exports 2018 (5) TMI 1240 - GUJARAT HIGH COURT which has been applied saying that a person paying interest or any other sum to a non resident is not liable to deduct tax if such sum is not chargeable to tax under the Act. Tribunal had not erred in law and on facts in upholding the order of the CIT(A) deleting the addition - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of commission to foreign agents
2. Disallowance under section 40(a)(i) of the Income Tax Act

Issue 1: Disallowance of commission to foreign agents
The Tax Appeal under Section 260A of the Income Tax Act, 1961 was filed by the Revenue against the order of the Income Tax Appellate Tribunal, Ahmedabad Bench, regarding the disallowance of commission to foreign agents. The Revenue raised questions regarding the deletion of disallowance of commission paid to foreign agents without evidence of services rendered and the non-deduction of tax on commission payable to foreign agents. In a similar case of the same assessee for an earlier Assessment Year, the Tax Appeal was dismissed by the Court. The Court highlighted that the principles applied in the previous case were relevant, stating that if the income of the foreign agent is not chargeable to tax in India, then the question of deducting TDS does not arise. The Court dismissed the appeal, emphasizing that no error of law was committed by the Tribunal in deleting the disallowance of commission to foreign agents, as the income was not taxable in India.

Issue 2: Disallowance under section 40(a)(i) of the Income Tax Act
The issue in this case revolved around the disallowance under section 40(a)(i) of the Income Tax Act for non-deduction of tax on commission payable to foreign agents. The Revenue contended that the Appellate Tribunal erred in upholding the order of the CIT(A) deleting the addition made on account of disallowance. The Court referred to a previous decision where it was held that if the sum payable to a non-resident is not chargeable to tax under the Act, then there is no requirement to deduct tax at source. The Tribunal, relying on this precedent, concluded that the commission income in the hands of foreign agents was not chargeable to tax in India. Consequently, the Court found no reason to interfere with the order of the CIT(A) and dismissed the appeal, stating that there were no substantial questions of law involved. The appeal was therefore dismissed, upholding the decision of the Tribunal regarding the disallowance under section 40(a)(i) of the Income Tax Act.