Taxability of Non-resident foreign national Individual

This query is : Resolved

CA. Sukhdev Singh (Querist)
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11 May 2010 Mr. X, a Non-resident Foreign National Individual ( of the country with with India has no D.T.A.A.) procured some orders for an Indian Company asseessee. Mr. X no business place / business connection in India. For the purchases orders , the Indian Company paid the comm. to Mr. A.
Whether Mr. A is liable to tax in India for his commission income.

taxindiaconnect

taxindiaconnect (Expert)
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11 May 2010 As per section 9 the income of a resident by way of commission is not treated to deemed to accrue and arise in India, the income will not be taxable in India. The on sales commission income no TDS is required to be deducted. CBDT has also issues a circular on this in the year 2005. The text of the same is reproduced here under for your ready reference.

Non-resident agent operating outside the country - As clarified earlier in Circular No. 23, dated 23-7-1969 (see under section 5), where the non-resident agent operates outside the country, no part of his income arises in India, and since the payment is usually remitted directly abroad, it cannot be held to have been received by or on behalf of the agent in India. Such payments were therefore, held to be not taxable in India. This clarification still prevails, in view of the fact that the relevant sections [section 5(2) and section 9] have not undergone any change in this regard. No tax is therefore deductible under section 195 from export commission and other related charges payable to such a non-resident for services rendered outside India.—Circular : No. 786, dated 7-2-2000.

However this circular has been withdrawn during the FY 2009-10, still one can claim that the TDS is not applicable under section 195 on Sales commission as the income is not accruing and arising to non resident in India. Hope, this clarifies your issue.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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11 May 2010 But the explanation occurring after subsection 2 of section 9 is substituted by the Finance Bill,2010 ( now become Act No.14 of 2010 by virtue of president's assent dated May 8,2010)with retrospective effect from June 1,1976 so as to provide that the income of a non resident shall be deemed to accrue or arise in India and shall be included in the total income of the non resident, whether or not:-
i) the non resident has a residence or place of business or business connection in India or,
ii) the non resident has rendered services in India.

Rajesh Sir is requested to kindly give the answer in view of the substituted explanation.

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taxindiaconnect

taxindiaconnect (Expert)
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25 May 2010 Dear BC, I have replied this query on an another question from Devanshi. For your clarification I am reproducing the same here

I do not agree with our friend BC on this interpretation. The substituted explanation to section 9(2) is applicable to clause (v),(vi) (vii) of the Subsection 1 of section 9 . The text of explanation is reproduced as following -
Explanation:- For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the non-resident, whether or not,-
(i) the non-resident has a residence or place of business or business connection in India; or
(ii) the non-resident has rendered services in India.]20
The clause (v), (vi) and (vii) are also reproduced as following -
(v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films; or
(vi) the rendering of any services in connection with the activities referred to in sub-clauses(i) to 2[(iv), (iva) and] (v).
(vii) income by way of fees for technical services payable by-
(a) --------
(b) ----------
(c) --------
From the perusal of the above this is clear that the these three clauses do not apply for commission income of a non resident. Thus as per section 9 the income of a resident by way of commission for procuring the sales order is not treated to deemed to accrue and arise in India, the income will not be taxable in India. In case if in your case the agency commission is for procuring sales order , then no TDS is required to be deducted. CBDT has also issues a circular on this in the year 2005. The text of the same is reproduced here under for your ready reference.

Non-resident agent operating outside the country - As clarified earlier in Circular No. 23, dated 23-7-1969 (see under section 5), where the non-resident agent operates outside the country, no part of his income arises in India, and since the payment is usually remitted directly abroad, it cannot be held to have been received by or on behalf of the agent in India. Such payments were therefore, held to be not taxable in India. This clarification still prevails, in view of the fact that the relevant sections [section 5(2) and section 9] have not undergone any change in this regard. No tax is therefore deductible under section 195 from export commission and other related charges payable to such a non-resident for services rendered outside India.—Circular : No. 786, dated 7-2-2000.

However this circular has been withdrawn during the FY 2009-10, still one can claim that the TDS is not applicable under section 195 on Sales commission as the income is not accruing and arising to non resident in India as per section 9 . Hope, some clarity is achieved on this issue through this reply. In case of disagreement please let me know.

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