The Delhi High Court observed that Section 195 of the Act stipulates that tax must be deducted from payments to non-residents if their income is subject to taxation under the Act. However, if a payment is not taxable under the Act, there is no obligation to deduct tax.

“It is trite law that a foreign resident who does not carry on any business operations in the taxable territories in India, and has no permanent establishment or business connection, is not liable to pay tax under the Act in respect of any amount remitted by resident assessee”, the Bench comprising Justice Vibhu Bakhru and Justice Amit Mahajan noted.

Advocate Sanjay Kumar appeared for the Appellant/Revenue Office and Advocate Piyush Kaushik appeared for the Respondent/Assessee.

The Appellant filed an appeal under Section 260A of the Income Tax Act, 1961 (Act), challenging the impugned order of the Income Tax Appellate Tribunal (Tribunal). The impugned order was a consolidated order that disposed of two appeals filed by the Revenue challenging two separate orders issued by the Tribunal for the assessment years 2013-2014 and 2014-2015. The Respondent paid an export commission to an overseas agent for services rendered and the Assessing Officer (AO) disallowed the deduction of commission on the grounds that the Assessee had not deducted tax at source (TDS). The Tribunal held that the commission was paid to an overseas agent and therefore did not accrue in India. The Tribunal allowed the deduction.

The Court held that the Respondent paid a commission to a non-resident who had no business operations, permanent establishment, or business connection in India. Therefore, the payment was not taxable under the Act, and the Respondent did not have to deduct tax.

“In the present case, there is no material on record to even remotely suggest that the non-resident, who had been paid the export commission had any permanent establishment in India; had carried on any business within the taxable territory in India; or had any business connection in India rendering them liable to pay tax under the Act. There is also no allegation that the payments made were not bona fide expenses”, the Bench noted.

Accordingly, the Court dismissed the Appeal.

Cause Title: Pr. Commissioner of Income Tax v Maharani Enterprises

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