Top Stories No TDS Deduction Required on Commission Income earned by Foreign Agents Outside India: ITAT deletes Disallowance [Read Order] By Aparna. M – On March 28, 2024 4:26 pm – 2 mins read The Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT ), after deleting the disallowance made by the assessing officer, held that Tax Deduction at Source ( TDS ) should not be deducted on account of commission income earned by foreign agents outside India. The assessee, Globe Textiles ( India ) P. Ltd., is engaged in the business of manufacturing and exporting textile fabrics/fibre, yarn, and other items.

The assessee made payment of commission to non-residents without deducting any TDS on the same. During the assessment proceedings, the AO held that the amount of commission paid to foreign agents was liable to TDS, and due to the assessee’s failure to do so, all the above amounts of commission paid by the assessee were disallowed in terms of the provisions of section 40(a)(ia) of the Act. Aggrieved by the order, the assessee filed an appeal before the CIT( Appeal ). The CIT(A) dismissed the appeal filed by the assessee.

Thereafter, the assessee filed an appeal before the tribunal. During the appeal proceedings, Dhinal Shah, counsel appearing for the assessee, submitted that where the services on account of which the commission was earned were not rendered in India, the commission cannot be deemed to have accrued or arisen in India. Sanjay Kumar, Counsel for the revenue, argued that the assessee was unable to prove that the commission so paid was for services rendered outside India. The tribunal observed that the assessee had sufficiently demonstrated that services rendered by the foreign agents were all outside India for procuring the sale orders for the assessee, with the agreement clearly pointing out that foreign agents required to account and Annual Audit procure sales from the respective territories outside India for the assessee.

Further, the bench determined that all the documentary evidence placed before us and noted by us have been sufficiently proved. We hold that the agents were remunerated by way of commission for procuring sale orders for the assessee outside India, and that there is no evidence on record to show that any services by these agents were rendered in India. After analyzing the submissions of both parties, the two-member bench of Annapurna Gupta ( Accountant Member ) and Pavan Kumar Gadale ( Judicial Member ) held that commission income earned by the agents cannot be termed to have incurred or arisen in India, and therefore, was not taxable in India. Thus, TDS should not be deducted on account of commission income earned by foreign agents outside India.