Business expenditure: TDS: Disallowance: S/s. 9, 40(a)(i) and 195: A. Y. 2009-10: Commission paid by the assessee to the non-resident agent for procuring orders for leather business from overseas buyers – wholesalers or retailers: Services rendered by non-resident agent can at best be called as a service for completion of export commitment: Services provided by non-resident agent are not technical services: Assessee is not liable to deduct tax at source when the nonresident agent provides servi<

The assessee is a company engaged in the business of manufacture and export of articles of leather. In the course of business, the assessee entered into an Agency Agreement with a non-resident agent to secure orders from various customers, including retailers and traders, for the export of leather shoe uppers and full shoes by the assessee. As per the terms of the Agency Agreement, the business will be transacted by opening letters of credit or by cash against document basis. The non-resident agent will be responsible for prompt payment in respect of all shipments effected on cash against document basis. The assessee undertook to pay commission of 2.5% on FOB value on all orders procured by the non-resident agent. For the A. Y. 2009-10, the Assessing Officer disallowed the claim for deduction of the said commission relying on the provisions of section 40(a)(i) of the Income-tax Act, 1961 for non-deduction of tax at source u/s. 195 of the Act. The Commissioner(Appeals) and the Tribunal allowed the assessee’s claim. The Tribunal observed that the non-resident agent was only procuring orders for the assessee and following up payments and no other services are rendered, and accordingly held that the nonresident agent was not providing any technical services to the assessee. The Tribunal also held that the commission payment made to non-resident agent does not fall under the category of royalty or fee of technical services and, therefore, the Explanation to section 9(2) of the Act has no application to the facts of the assessee’s case. The Tribunal, therefore held that the commission payments to non-resident agents are not chargeable to tax in India and, therefore, the provisions of section 195 of the Act are not applicable.

On appeal by the Revenue, Madras High Court upheld the decision of the Tribunal and held as under:

“i) T he services rendered by the non-resident agent can at best be called as a service for completion of the export commitment and would not fall within the definition of “fees for technical services”, we are of the firm view that Section 9 of the Act is not applicable to the case on hand and consequently, section 195 of the Act does not come into play.

ii) We find no infirmity in the order of the Tribunal in confirming the order of the Commissioner of Income Tax (Appeals).

iii) I n the result appeal is dismissed.”