commission paid to agent for services rendered outside india

COMMISSION PAID TO AGENT FOR SERVICES RENDERED OUTSIDE INDIA WASN’T TAXABLE IF HE DIDN’T HAVE ANY PE IN INDIA

DCIT V. TVS SRI CHAKRA LTD. [CHENNAI ITAT], ITA NO. 501 OF 2015, DATE OF DECISION: JULY 31, 2015

Facts of the Case

The assessee-company was engaged in services of non-resident agents to procure its export orders in various countries. The agreement entered into by the assessee with foreign agents revealed that they have been appointed to act as commission agents outside India in their respective countries.

Accordingly, it claimed certain expenditure under the head ‘commission and discount’ and contended that the said amount was not liable for TDS as the services were rendered outside India.

Decision of the Tribunal

The Appellate Tribunal held that the facts on record clearly suggest that the non-resident agents did not carry out any business operations in India and had acted as selling agents of the assessee outside India.

Therefore, the commission earned by them for services rendered by them outside India cannot be considered as income chargeable to tax in India.  When the commission paid to the non-residents are not chargeable to tax under the provisions of the Act, no deduction of tax is required to be made under section 195(1).

It was further held that since, the amount payable as commission was not liable to tax and as the income is arising or accruing to a foreign concern in India, there is no disallowance under section 40(a)(i) on the ground that the tax was not deducted at source under section 195 or remittances made to a foreign concern. 

INTEREST ON TAX REFUND NOT COVERED BY DEFINITION OF INTEREST UNDER INDIA-ITALY DTAA AND  LIABLE TO TDS AT 40%

Ansaldo Energia SPA v. DDIT  [ITAT Chennai], ITA No. 1496 to 1498 of 2014, Date of Decision: July 17, 2015

Facts of the case

The assessee, an Italy based company, was engaged in the business of designing, building and supplying full range of plant solutions on different types of packages such as turnkey, engineering and individual components worldwide.

The assessee and its subsidiary company Ansaldo Services Pvt. Limited (ASPL) entered into separate contracts with NLC and executed them during the assessment years under consideration. The assessee filed its return of income in India.

During assessment proceedings, the assessee was found eligible for refund of tax. The Assessing Officer  deducted tax at source under section 195(1) at the rate of 42.02 per cent on amount of refund including interest under section 244A.

In appellate proceedings, the assessee raised a plea that in terms of article 12 of India-Italy DTAA, rate of tax deducted at source on interest on refund could not exceed 15 per cent.

Decision of the Tribunal

The Appellate Tribunal held that the interest on refund is not envisaged in the definition of interest under Article 12(4) under India- Italy DTAA.

Being so, the lower authorities are justified in imposing TDS u/s. 244A of the Act, on the income tax refund and the case laws relied on by the Learned Authorized Representatives are not delivered with reference to DTAA between Government of India and Government of Italy. As such, those case laws relied on by the assessee have no relevance.

CO-OWNERSHIP IN SECOND HOUSE DOESN’T LEAD TO DENIAL OF SEC. 54F RELIEF

IT : Where Assessing Officer rejected assessee’s claim for deduction under section 54F on ground that assessee owned more than one residential house property at time of sale of long term capital asset, since assessee was a mere co-owner in one of said residential property, impugned order passed by him deserved to be set aside [2015] (Delhi)HIGH COURT OF DELHI -Commissioner of Income-tax – V

SELLING EXPENSES INCURRED FOR MAKING SALES ARE DISTINCT FROM AMP EXPENSES AND, HENCE, SHOULD NOT BE INCLUDED IN BASE AMOUNT FOR COMPUTING ALP OF AMP EXPENSES

Discovery Communications India v. DCIT  [Delhi ITAT], ITA No. 2931 of 2015, Date of Decision: December 04, 2015

Facts of the Case

The assessee is a subsidiary of Discovery Channel (Mauritius) Pvt. Ltd. with Discovery Communication Inc., USA as the parent company of this group, engaged in the distribution of Discovery Channel, Discovery Travel and Living Channel and Animal Planet Channel in India region and also sale of advertisement inventory on the channels.

The assessee reported six international transactions. The assessee employed Transactional Net Margin Method (TNMM) as the most appropriate method for demonstrating that its first three international transactions were at arm’s length price (ALP).

The remaining three were ‘At cost’ only. On a reference made by the AO for determining the ALP of the international transactions, the TPO accepted the reported international transactions at ALP.
He, however, observed that the assessee incurred AMP (Advertisement, Marketing and Promotion) expenses which were not reported.

For determining the ALP of the international transaction of AMP expenses, he chose certain companies as comparables. In addition to that he noticed that the assessee had not charged any ‘Interest on receivables’ from its AE. The AO, inter alia, made these two additions on account of transfer pricing adjustments.

Decision of the Tribunal

The Appellate Tribunal held that that the Distribution and AMP functions are two separate international activities, which need to be compared with uncontrolled transactions.

Because of their inter-twinning, it is only for the purpose of determining their ALP that both these transactions can be aggregated in the first instance, so that the surplus from one could be adjusted against the deficit from the other in an overall approach.

As the total AMP expenses incurred by the assessee are on account of its own business and also relatable to the creation of marketing intangibles for its AE, the entire expenditure, which also includes advertisement expenses for promotion of channels of its AEs, for which the assessee received 20% of gross receipts, cannot be considered as exclusively relatable to advertisement of channels of its AEs and hence deductible in full.

As admittedly the AMP expenses are one composite amount and there is no separately identifiable advertisement expense relatable to promotion of TV channels of its AEs.

The treatment of the entire amount of AMP expenses as deductible u/s 37(1), would amount to considering the entire AMP spend for business purpose, thereby leaving nothing for the promotion of brand of its AE, which will be contrary to the judgment of the Hon’ble High Court in assessee’s own case for earlier assessment year.

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