TDS Not Required Where Income Not Chargeable To Tax In India: ITAT Ahmedabad

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has upheld the deletion of a Rs. 5.63 crore disallowance made against Jagson Colorchem Limited, holding that commission paid to foreign agents for services rendered outside India is not chargeable to tax in India.

The Bench of Judicial Member T R Senthil Kumar and Accountant Member Narendra Prasad Sinha, observed: “Once the income is not chargeable to tax in India, the question of deducting TDS thereon under the provision of section 195 of the Act and disallowance of the entire payment under the provisions of section 40(a)(i) of the Act does not arise."

The case concerned Rs.5,63,28,206 claimed as commission expenditure for Assessment Year 2018–19. The Assessing Officer had disallowed the amount under Section 40(a)(i), which denies deduction of certain payments made to non-residents if tax required to be deducted at source has not been deducted.

The officer held that the company ought to have deducted tax under Section 195, which requires tax deduction at source on payments to non-residents if such payments are chargeable to tax in India.

The tribunal held that Section 40(a)(i) applies only if the payment is “chargeable under this Act.” It found that no finding was recorded that the commission paid to foreign agents for services rendered outside India was chargeable to tax in India.

Referring to its earlier order in the assessee's own case, the coram reproduced: “The commission being in the nature of income accrued from services rendered outside India, such payments has no tax implications in India in the hands of non-residents… therefore Section 195 has no obligation and consequently Section 40(a)(i) does not get triggered.”

The revenue's appeal was dismissed.