Sales Commission Paid To Overseas Subsidiary For Non-Technical Services Is Not 'FTS', Does Not Attract TDS Liability U/S 195: Bangalore ITAT
Pankaj Bajpai
22 Oct 2024 2:00 PM IST
The Bangalore ITAT deleted the disallowance made by the AO u/s 40(a)(ia) on ground of non-deduction of tax at source on sales commission paid by the assessee company/ respondent to its US based subsidiary as well as other AE on account of selling & marketing services. The Division Bench comprising George George K (Vice-President) and Padmavathy S (Accountant Member) observed...
The Bangalore ITAT deleted the disallowance made by the AO u/s 40(a)(ia) on ground of non-deduction of tax at source on sales commission paid by the assessee company/ respondent to its US based subsidiary as well as other AE on account of selling & marketing services.
The Division Bench comprising George George K (Vice-President) and Padmavathy S (Accountant Member) observed that the sales and marketing services rendered to assessee by its US based subsidiary does not fall within the ambit of FTS as defined u/s 9(1)(vi) of Income tax act or Article 12 of India-US DTAA.
Thus, the liability to deduct tax at source u/s 195 cannot be fastened on the assessee, added the Bench.
Section 9(1)(vi) of the Income tax Act talks states that royalty shall be deemed to be accrued or arise in India.
Further, Section 195 of the Income tax Act pertains to the Tax Deducted at Source (TDS) on payments made to non-residents by individuals or entities in India.
Facts of the case:
The assessee, a domestic company engaged in the business of providing software support and development services including ITES, filed its return declaring loss. The AO however issued SCN alleging that the sales commission paid by assessee to its US-based subsidiary and other subsidiaries, towards selling & marketing services shall constitute FTS in terms of Article 12 of India-US DTAA and liable for deduction of tax at source u/s 195. The assessee objected to the show cause notice stating that no technical services were rendered by US based entity and other AE, whereas, the AO held that payment made by assessee is towards FTS since 85% of the Revenue was generated from exports. The AO thus, made disallowance of the sales commission u/s 40(a)(i) due to non-deduction of tax at source. This decision of AO was reversed by the CIT(A) on appeal.
Observation of the Tribunal
The Bench referred to the Co-ordinate bench decision in assessee's own case for AY 2012-13 to 2015-16, wherein it was held that income received towards sales commission from US based subsidiary does not satisfy the definition of FTS u/s 9(1)(vi) as it is not in the nature of managerial, technical and consultancy services.
Therefore, relying upon the Coordinate bench decision, the ITAT upheld the order of the CIT(A) in holding that there is no liability to deduct tax towards commission paid to US based subsidiary.
Hence, the ITAT deleted the disallowance u/s 40(a)(ia) and dismissed the Revenue's appeal.
Counsel for Appellant/ Revenue: R.N. Siddapaji
Counsel for Respondent/ Assessee: Advocate Narendra Kumar Jain
Case Title: DCIT vs. Algonomy Software
Case Number: ITA Nos. 1196, 1226 & 1229/Bang/2024
