We have paid Export Commission for services provided by service provider outside India and the payment is also made outside India in F.Y. 2008-09. We have not deducted his TDS as per proviso of section 9 any service provided outside India and also paid outside India to a non resident not having any place of business in India is not liable for tax in India. also reading of section 195 which states "any sum chargeable under this act", same also certified in form 15CB by CA on remittance.
Now while assessment the AO has added this export commission quoting section 40(a)(i) as to any payment to a non resident will be liable to deduct TDS.
Earlier I am in my strong stand that reading with 195, 9 we are right but as per the Finance Bill 2010 amendment in section 9 with retrospective effect from 1976 which says the payment is deemed to accrue arise in India whether the non resident have any place of business in India or not.
Now what will be the effect of this amendment on my stand.
07 January 2012
The retrospective amendment as referred by you may have impact in your case had it been established by the department and accepted by you that the commission so paid is covered under consultancy services of the confusing explanation (2) of clause (vii)of Section 9(1). . The confusion about Export Commission's nature as a consultancy service has to be first discussed. . Let us take an example. Had the said payment to a Resident in India been made for providing such services, under which section TDS would have been deducted ??? . 2 Possible Replies- U/s 194H or 194-J. But as special section for TDS on Commission exists... the correct answer would be ... Section 194H. . This clearly shows that Commission paid to NRI is not a consultancy, managerial or a technical fee. . If the amount paid does not lie in the 3 categories of confusing explanation (2), then , like clauses v and vi, clause vii of Section 9(1) also keep commission payments out side the perview of Section 9(1). ( Luckily there is no "any other sum payable" like addenda in clause (vii). and as such the "w.r.e.f."... does not cover the case of the Payer. . Now, applicability of 40(a)(i) is also questionable, more particularly, when Chapter XVIIB's provisions are not applicable. . So, In my view, the Income of NRI is not taxable in India in the circumstances of this case. When Income is not taxable question of withholding tax does not arise. . Experts are envisaged to put their views on this issue. .
09 January 2012
Good lucid explanation by Mr Paras. Agree with him. Ideally you need to prove very strongly that payment is pure commission & no element of any other services were rendered to fall in explanation of sec 9. Further you may put that action of AO is a challenge to CA certificate as Form 15CB is not a report but a certification of remittances that the same are not chargeable to Tax in India.
Keep me posted on further developments on cavishalshah@gmail.com
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