By Ashok Dhere, Jagdish D. Shah, Chartered Accountants
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19 DCIT, Hyderabad v.
Hyderabad Industries Ltd.
(2008) TIOL 309 Hyd.
S. 195 of the Act.
A.Ys. : 1996-97 to 2000-01. Dated : 30-5-2008
Issue :
Commission paid to foreign selling agents does not trigger
tax withholding obligation on the payer.
Facts :
The assessee, Indian manufacturer of engineering goods,
exported goods to various foreign countries through its sales agents based in
the foreign countries. The assessee remitted commission to foreign agents
without deducting tax at source.
As a sequel to survey operations, the Department held that
the assessee was liable to deduct tax at source in respect of commission
payment. The Department raised huge demand u/s.201(1) and u/s.201(1A) on the
ground that :
- The assessee ought to have made application u/s.195(2) before taking the view
on non-applicability of TDS;
- The amount was taxable in the hands of the recipient as payment was received
by the agents in India.
Incidentally, the decision has considered only domestic law
provision. It is not clear whether any of the recipients had benefit of a
treaty.
Before the Tribunal, the DR also sought to justify taxation,
on the ground that remittance was in the nature of royalty for commercial
information given by the agent or was in the nature of technical services
rendered by the agent who provided assistance in obtaining LC established or
getting advance payment from customers, etc.
Held :
The Tribunal held that :
- Since the contract between the assessee and the overseas agent did not specify
any mode of payment, the remittance made by the assessee by way of cheque or
draft cannot be regarded as payment made in India to the agent of non-resident
in India.
- The services rendered by the commission agent were commercial services in
respect of sales effected. The commercial information provided or after-sales
services provided to the customers of the assessee were part of the composite
arrangement which the assessee had with the agent.
- The information provided by the commission agent was simple market information
and over which the agent had no exclusive domain. Payment for information can
be termed as royalty only when it is consideration for information concerning
industrial, commercial or scientific experience over which the granter has an
exclusive right. The Tribunal observed :
“The commercial information which the agent in our case is
expected to provide to the assessee is not such over which the agent has an
exclusive domain. It is merely a market information which any Tom, Dick and
Harry can go into the market and obtain it. The definition given in the DTAA
is also in consonance with the definition discussed above. It states that
royalty means payment of any kind received as a consideration for information
concerning industrial, commercial or scientific experience. It simply means
that a person who has an exclusive right over a particular information and
over which no one else in the world is a privy to it, can assign a right to
use such information to the other.”
- The Tribunal also held that the services of commission agent were not
technical in nature.
- In absence of tax liability of the recipient, the remittance made without
deduction of tax at source was held to be justified.
“. . . ., the Circulars of the Board apply with full force
to the facts of the present case and since the payments made to the
non-residents are not income chargeable to tax in India, the assessee was not
liable to deduct at source u/s.195 of the Act”.
