ITAT deletes TDS disallowance on export commission paid to non-residents without Indian PE, holding such income not taxable in India under domestic law or tax treaties.
ITAT Upholds Deletion of TDS Disallowance on Export Commission
The Income Tax Appellate Tribunal (ITAT) has deleted a TDS disallowance under Section 40(a)(ia) of the Income Tax Act, 1961, arising from export commission payments made to non-residents having no permanent establishment (PE) in India. The tribunal held that the payments were not taxable in India under either domestic law or applicable Double Taxation Avoidance Agreements (DTAAs).
The department argued that commission paid for securing export orders constituted fees for technical services (FTS) or business profits taxable in India. The ITAT rejected this, noting that the non-residents operated entirely abroad, had no fixed place of business in India, and did not perform any services within Indian territory. The tribunal relied on OECD Commentary principles and Indian judicial precedents, including GE Overseas Services v. DCIT.
"Mere routing of payments through India does not make the income taxable here,"the tribunal stated. The ruling reinforces that cross-border commission arrangements, if structured without PE presence or service delivery in India, are outside the scope of Indian taxation. International businesses should ensure contractual and operational alignment with treaty standards to avoid similar disputes.
