By Geeta Jani, Dhishat B. Mehta, Chartered Accountants
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Part C — International Tax Decisions
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ITO vs. M/s. Kirtilal Kalidas Diamond Exports
(Mumbai) (Unreported). [ITA No 1868/Mum/2005].
A.Y. : 2001-2002
Sections
40(a)(i), 195, I T Act; India-UK DTAA
Dtd. : 30th
September 2008
Issue
Commission paid to non-resident agent for purchase of raw materials is not
taxable in India, either under I T Act or under India-UK DTAA.
Facts
The
assessee was engaged in the business of export of cut and polished diamonds.
For its business, it was importing rough diamonds. During the relevant year,
it imported rough diamonds through a non-resident agent and paid commission to
that agent. While making payment of commission to the non-resident agent, the
assessee did not deduct any tax at source.
Before the AO, the assessee contended that: the non-resident had rendered the
services outside India; the assessee had paid commission outside India; the
non-resident did not have any establishment in India; and hence, the income of
the non-resident was not chargeable to tax in India.
The
AO held that the assessee was required to deduct tax at source under Section
195 of the Act and since it failed to deduct such tax, provisions of Section
40(a)(i) of the Act were attracted. Accordingly, the AO disallowed the
commission while computing the income of the assessee.
On
appeal the CIT(A) deleted the disallowance.
Held
The
Tribunal observed that the Department had not countered the facts, namely :
(i)
the services were rendered outside India;
(ii) the assessee had paid commission outside India;
(iii) the non-resident did not have any establishment in India. On these
facts, it held that no income accrued to the non-resident in India.
Even under India-UK
DTAA, business profits, cannot be charged to tax in India in absence of
permanent establishment in India.
