TDS on commission paid to foreign agency

This query is : Resolved

A learner (Querist)
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14 February 2011 Dear All,

Our company is selling airline tickets to international customers through agencies located outside india. These agencies are not selling any tickets to Indian customers and cater to international needs only. They are indepedent agents who collects money from customers on their own.

We give comission/incentive to these foreign agents on selling tickets, but we dont pay them this comission . Rather, we give them credit in our books for this comission which they can use in selling tickets.

Further, we are accounting this incentive in our boks of accounts as comission and paying service tax on THIS COMISSION as well under reverse charge.

MY QUERY IS: Shall we deduct TDS on this comission. Prior to October 2009, this was certainly a tax free transaction as notified via Circular : No. 786, dated 7-2-2000, so we never deducted tax. But post the circular 7 of 2009 dated 22nd October,2009 ( which has withdrawn all earlier circulars) how shall we treat this.

FYI

That foreign agent has no branch or permanent establishment in India.
My view on the same is: since agent has no business connection in india, it should not be taxed in India.

Please suggest , how should we go about it.

Thanks to all.

Best Regards,

"A Learner"

CA. Anuj Gupta

CA. Anuj Gupta (Expert)
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15 February 2011 you may refer to the decision of the Supreme Court in the case of CIT v. Toshuku Ltd: 125 ITR 525 wherein the apex Court, held that the commission earned by the non-residents for services rendered outside India could not be deemed to be income, which had accrued or arisen in India in terms of section 9(1)(i) of the Act [which refers to income from ‘business connection’], on the ground that no operations were carried out in India.

Also the Authority for Advance Rulings (‘AAR’) in the case of Spahi Projects P. Limited.(In Re ): 315 ITR 374 (AAR) held that there could possibly be no controversy that the agent would not be rendering services of a managerial, technical or consultancy nature and, therefore, the liability to tax cannot be fastened on it by invoking the provisions dealing with fee for technical services.

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