Section 5(2), read with section 9, of the Act – Agency commission received by non resident outside India, for services rendered outside India, is not taxable in India.

Section 5(2), read with section 9, of the Act – Agency commission received by non resident outside India, for services rendered outside India, is not taxable in India.

FACTS

Taxpayer, a company resident in Hong Kong, was a part of a group of companies, and was engaged in distribution of satellite television channels and sale of advertisement air time for the channel companies at global level.

During the year under consideration, Taxpayer received income in the nature of agency commission for distribution of television channels and sale of advertisement air time as an agent of the channel companies. Having noted that the Taxpayer has entered into an international transaction with its associated enterprises (AEs), AO made a reference to the Transfer Pricing Officer (TPO) for the determination of the arm’s length price (ALP).

The TPO while computing ALP noted that out of the global commission received by the Taxpayer from the overseas channel companies, commission fee received towards the services rendered outside India was not offered to tax in India and only the commission fees for services rendered within India was offered to tax in India. The TPO held that the entire income including for services rendered outside India was taxable in India and hence made transfer pricing adjustment to the total income of the Taxpayer. In pursuance to the ALP determined by the TPO, the AO passed a draft assessment order adding the transfer pricing adjustment to the income of the Taxpayer.

Aggrieved, Taxpayer appealed before the Dispute Resolution Panel (DRP) and contended that agency commission received in respect of services rendered outside India, and received outside India, is not taxable in India u/s. 5 and 9 of the Act.

However, DRP rejected the Taxpayer’s contention and held that by virtue of Explanation to section 9(2), entire income is deemed to accrue or arise in India whether or not the non-resident has a residence or place of business or business connection in India or the non-resident has carried on business operations in India. Accordingly, DRP upheld the adjustment made to the ALP by the TPO.

Aggrieved, Taxpayer appealed before the Tribunal.

HELD