In ITA No. 4595/Del/2015 -ITAT- Commission paid to foreign agents for order procurement not classified as Technical, Managerial, or Consultancy services; No TDS liability under Section 195 of Income Tax Act: ITAT (Delhi)
Members Challa Nagendra Prasad (Judicial) & B.R.R. Kumar (Accountant) [25-07-2023]

Read Order: ACIT, Circle 32 (1) New Delhi v. Alnoor Exports

Chahat Varma

New Delhi, August 2, 2023: The Delhi bench of the Income Tax Appellate Tribunal has delivered a favourable ruling for Alnoor Exports (assessee), stating that the commission paid to foreign agents for procuring orders does not fall under the purview of Technical, Managerial, or Consultancy services. As a result, the assessee was not liable for TDS under Section 195 read with Section 9(1)(vii) of the Income Tax Act.

The issue in brief was that the Assessing Officer had disallowed commission expenses of Rs. 80,32,863 in the assessee’s P&L account of export sales, as the assessee did not deduct TDS under Section 195 of the Income Tax Act. The assessee contended that commission was paid on export sales to foreign agents, and all payments were made through banking channels. The commission was paid for services rendered outside India, and the remittance was made outside the country. The CIT (A) accepted the assessee's explanation and deleted the disallowance.

The bench observed that the CIT (A) had deleted the disallowance of commission paid to foreign agents holding that the assessee was not liable to deduct TDS at source on commission paid to agents located outside India for procuring orders from buyers, all located outside India and not having permanent establishment in India. The provisions of Section 195 of the Act were not applicable on the commission paid by the assessee as the same was not taxable in India as per the provisions of Section 9(1) of the Act and, therefore, deleted the disallowance which was disallowed applying the provisions of Section 40 of the Act for non-deduction of TDS while deleting the disallowance.

The bench held that the issue of whether commission paid to foreign agents for the procurement of orders was liable for TDS under Section 195 read with Section 9(1)(vii) of the Income Tax Act has been settled by the decision of the Delhi High Court in the case of DIT (International Taxation) Vs. Panalfa Autoelektrik Ltd. [LQ/DelHC/2014/2734]. In that case, it has been held that the commission paid to foreign agents for procurement of orders does not fall under the category of Technical, Managerial, or Consultancy services, and therefore, it does not attract the provisions of Section 9(1)(vii) of the Income Tax Act read with Section 195 of the Act.

Consequently, the bench found no reason to interfere with the findings of the CIT (Appeals).