September 2012
SKF Boilers and Driers(P.) Ltd., In re (2012) 18 taxmann.com 325 (AAR) Sections 5, 9 of I T Act Decided on: 22 February 2012 Before P.K. Balasubramanyan (Chairman) & V.K.Shridhar (Member)
By Geeta Jani, Dhishat B. Mehta, Chartered Accountants
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Commission payable to non-resident agent on export of goods is taxable in India in terms of section 5(2)(b), read with section 9(1)(i), of I T Act since right to receive the commission arose in India upon execution of the export order.
Facts
The Applicant payer of commission was an Indian company engaged in manufacture and supply of Rice, Par Boiling and Dryer Plants. Through two agents situated in Pakistan, the applicant received order for supply of plant to a Pakistani company. The Applicant exported the plant and, as per the agreement, the commission became payables to the non-resident agents.
The issue before AAR was: whether the income of non-resident agent can be deemed to accrue or arise in India.
According to the Applicant, though CBDT had withdrawn Circular No 786 dated 2nd February 2007, Section 5(2) and Section 9 of I T Act had not undergone any change and accordingly, the commission on exports did not accrue or arise in India. Hence, there was no tax liability in India.
According to the tax authority, income had accrued in India when the right to receive income became vested and hence, it was covered within the ambit of section 5(2)(b) of I T Act.
Held
The Tribunal observed and held as follows.
Sections 5 and 9 of the Act thus proceed on the assumption that income has a situs and the situs has to be determined according to the general principles of law.
The terms ‘accrue’ or ‘arise’ in section 5 have more or less a synonymous sense and income is said to accrue or arise when the right to receive it comes into existence. What matters is the source of income of two non-resident agents. Though the agents rendered services abroad, right to receive commission arose in India when the order was executed by the applicant in India and hence, the place of performance of service was wholly irrelevant for the purpose of determining the situs of their income.
Following ruling of AAR in Rajive Malhotra, In re [2006] 284 ITR 564 (Delhi), in view of the specific provision of Section 5(2)(b) read with section 9(1)(i) of I T Act, the commission income arising to the two non-resident agents was deemed to accrue and arise, and was taxable in India.
