(i) Commission paid to UK agent for engaging artists from outside India was not taxable in India as the services were performed outside India and agent had no PE in India. (ii) Reimbursement of expenses to UK agent was not chargeable to tax in India.

(i) Commission paid to UK agent for engaging artists from
outside India was not taxable in India as the services were performed outside
India and agent had no PE in India.

ICo was engaged in the business of entertainment event
management and marketing. It had organised events/performances of renowned
foreign artists/groups in India. For various events/performances of
international artists in India, ICo had entered into agreement with a UK
agent. The UK agent was also acting as an agent for various event management
companies.

Under the agreement, ICo granted limited authority to the
UK agent to act on its behalf; enter into contract with artists; and other
ancillary acts required to be performed outside India. Apart from payment of
fees to artists, ICo agreed to pay certain commission to the UK agent and also
to reimburse expenses incurred by it in connection with visits and
performances of artists in India.

ICo deducted tax from the fee paid to the artist as it was
taxable in India in terms of Article 18 of India-UK DTAA. However, it did not
deduct any tax either from the commission paid, or reimbursement of expenses,
to the UK agent, on the ground that the UK agent had rendered the services
outside India and it did not have PE in India. ICo also did not deduct tax
from reimbursement of artists’ travel and related expenses which ICo had
undertaken to bear in terms of its contract with artists.

The Tribunal held as follows :

(i) Commission paid to the UK agent was not for services of
entertainers/artists. The UK agent had also not taken any part in the events,
nor performed any activities in India. Hence, it was not covered by Article 18
of India-UK DTAA.

(ii) The UK agent did not have any PE in India. Relying on
the Supreme Court’s decision in Carborandum Co. v. CIT, (1977) 108 ITR 335
(SC) and CBDT Circular Nos. 17 (XXXVII) of 1953 at 17th July and 786, dated
February 7, 2001, commission paid to the UK agent was not taxable in India.
Consequently, there was no obligation on ICo to deduct tax as source.

(iii) From the details furnished by ICo, it was clear that
the payments were reimbursement of expenses. The law is well settled that
reimbursement of expense is not chargeable to tax and therefore, there was no
obligation to deduct tax at source.