Top Stories Commission Paid to Non-Residents for Services Rendered Outside India Not Taxable Without PE: ITAT [Read Order] Considering the absence of a Permanent Establishment (PE) in India, the ITAT ruled that commission paid to non-residents for services rendered abroad is not taxable By Kavi Priya – On January 20, 2025 2:37 pm – 2 mins read The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) ruled that commission payments made to non-residents for services rendered outside India are not taxable under the Income Tax Act, 1961, in the absence of a Permanent Establishment (PE) or business connection in India. Allsec Technologies Limited, the assessee, paid selling commissions of Rs. 197.18 Lakhs to Allsechtech, USA. TDS was deducted for Rs. 99.55 Lakhs. Still, not for the remaining amount, as the assessee argued that the recipient had no business connection or Permanent Establishment (PE) in India. So, the payments were not chargeable to tax under Section 195 of the Income Tax Act, 1961.

The Assessing Officer (AO) disallowed Rs. 97.62 Lakhs citing the Explanation to Section 9 of the Income Tax Act introduced retrospectively by the Finance Act, 2010, and CBDT Circular No. 7/2009. The AO also referred to Explanation-2 to Section 195(1), inserted by the Finance Act, 2012, to justify the disallowance. The AO observed that the assessee did not obtain a NIL deduction certificate for these payments. The assessee submitted that the payee, a subsidiary engaged in marketing and business development for its call center services, operated outside India with no PE or business connection within the country. Get a Handbook on TDS Including TCS as Amended up to Finance Act 2024, Click Here The assessee further submitted that payments were made for services rendered abroad. The assessee relied on Supreme Court and High Court rulings, including CIT vs. Toshoku Limited Ltd and CIT vs. Eon Technology P. Ltd. to substantiate its position. The assessee also submitted that NIL deduction certificates were obtained for similar payments in subsequent years.

The Commissioner of Income Tax (Appeals) [CIT(A)] observed that the payments were for non-technical services rendered outside India and were an incident of export. Referring to judgments like CIT vs. Farida Leather Company and Faizan Shoes Pvt. Ltd., CIT(A) ruled that such payments were not taxable in India and thus not subject to TDS. On appeal, the revenue counsel argued that the payments fell within Section 195 of the Income Tax Act and were taxable under the Double Taxation Avoidance Agreement (DTAA) with the USA. The two-member bench comprising Manoj Kumar Aggarwal (Accountant Member) and Manu Kumar Giri (Judicial Member) observed that the payments were selling commissions for procuring export orders in foreign territories and there was no evidence of the recipient having a business connection or PE in India. Get a Handbook on TDS Including TCS as Amended up to Finance Act 2024, Click Here The tribunal referred to the Faizan Shoes Pvt. Ltd. case which held that such payments were not fees for technical services and did not attract TDS under Section 195. So, the tribunal dismissed the revenue’s appeal and upheld the CIT(A)’s decision. The revenue’s appeal was dismissed.