RULINGS
AAR No. 543 of 2001
Decided On: 05.05.2004
Appellants: In Re: Ind Telesoft (P) Ltd.
Vs.
Respondent:
Hon’ble Judges:
Syed Shah Mohammed Quadri, J. (Chairman), K.D. Singh and K.D. Gupta, Members
Subject: Direct Taxation
Acts/Rules/Orders:
Income Tax Act, 1961 – Section 195
Head Note:
INCOME TAX
Advance rulings–Retainer fee/commissionPaid to non-resident companies for securing business from outside India–Deduction of tax at source
Catch Note:
The applicant is engaged in the business of providing software solutions for the telecom industry. It entered into agreements with three non-resident entities for securing business from outside India. The applicant agreed to pay retainer fees and commission to the two companies and only commission to the third company who are staying outside India and none of them have any office or any business operation in India. The applicant-company is, however, earning foreign exchange by export of developed software. After receipt of foreign exchange in India, the non-resident companies would be paid their commission and fees. No tax is deductible at source under section 195 in respect of commission/retainer fee payable to foreign non-resident companies by applicant on securing export business outside India.
Ratio:
No tax is deductible at source under section 195 in respect of commission/retainer fee payable to foreign non-resident companies by applicant on securing export business outside India.
Held:
The Commissioner submitted that the need for deduction of tax at source under section 195 of the Act, would arise if the payment of commission to the non-resident agencies is chargeable to tax in India. Relying on Circular No. 23 of 23-7-1969, of the Central Board of Direct Taxes clarifying that where the non-resident agencies operated outside the country, no part of the income would arise in India and that when the payment was remitted directly abroad, it would not be held to have been received in India. He relies also on the Central Board of Direct Taxes Circular No. 786 dated 7-2-2000, which states, inter alia, that no tax under section 195 of the Act is deductible. He has conceded, relying upon the abovementioned circulars of the Central Board of Direct Taxes, that no tax can be deducted at source on the payment made by the applicant to the three non-resident companies.
The Commissioner reiterated in the said letter that no income arises to the foreign agents in India, and that there may not be any need to deduct tax at source in respect of payments made to them.
Therefore, no tax is deductible at source under section 195 of the Act in respect of the transactions.
Application:
Also to current assessment year.
Decision:
In favour of applicant.
Income Tax Act 1961 s.245Q(1)
Income Tax Act 1961 s.195
Advance rulings–Retainer fee/commissionPaid to non-resident companies for securing business from outside India–Deduction of tax at source
Catch Note:
The applicant is engaged in the business of providing software solutions for the telecom industry. It entered into agreements with three non-resident entities for securing business from outside India. The applicant agreed to pay retainer fees and commission to the two companies and only commission to the third company who are staying outside India and none of them have any office or any business operation in India. The applicant-company is, however, earning foreign exchange by export of developed software. After receipt of foreign exchange in India, the non-resident companies would be paid their commission and fees. No tax is deductible at source under section 195 in respect of commission/retainer fee payable to foreign non-resident companies by applicant on securing export business outside India.
Ratio:
No tax is deductible at source under section 195 in respect of commission/retainer fee payable to foreign non-resident companies by applicant on securing export business outside India.
Held:
The Commissioner submitted that the need for deduction of tax at source under section 195 of the Act, would arise if the payment of commission to the non-resident agencies is chargeable to tax in India. Relying on Circular No. 23 of 23-7-1969, of the Central Board of Direct Taxes clarifying that where the non-resident agencies operated outside the country, no part of the income would arise in India and that when the payment was remitted directly abroad, it would not be held to have been received in India. He relies also on the Central Board of Direct Taxes Circular No. 786 dated 7-2-2000, which states, inter alia, that no tax under section 195 of the Act is deductible. He has conceded, relying upon the abovementioned circulars of the Central Board of Direct Taxes, that no tax can be deducted at source on the payment made by the applicant to the three non-resident companies.
The Commissioner reiterated in the said letter that no income arises to the foreign agents in India, and that there may not be any need to deduct tax at source in respect of payments made to them.
Therefore, no tax is deductible at source under section 195 of the Act in respect of the transactions.
Application:
Also to current assessment year.
Decision:
In favour of applicant.
Income Tax Act 1961 s.245Q(1)
Income Tax Act 1961 s.195
JUDGMENT
Syed Shah Mohammed Quadri, J. (Chairman)
1. None appears for the applicant. The applicant M/s Ind Telesoft (P) Ltd., Bangalore, a resident company, filed application under Section 245Q(1) of the IT Act, 1961 (for short the Act), seeking advance ruling of this authority on the following questions :
“Advance ruling is required for, whether tax at source is to be deducted for the following type of transactions :
(i) Commission payable to above said non-residents on export earnings; and
(ii) Retainer fees payable to above said non-residents apart from commission payable on export earnings”.
2. The applicant states that it is engaged in the business of providing software solutions for the telecom industry. It entered into agreement with three non-resident entities for securing business from outside India. The following three outside agencies are:
(i) Flexifinity S.A.R.L., France
(ii) Hi Tech Ottawa.com, Canada
(iii) TeleSoft Inc., USA
3. The applicant agreed to pay retainer fees and commission to the first two aforementioned companies and only commission to the third company who are staying outside India. It added that none of them have any office or any business operation in India. The applicant-company is however earning foreign exchange by export of developed software. After receipt of foreign exchange in India, the non-resident companies would be paid their commission and fees.
4. Notice of the application was sent to the CIT-1, Bangalore, the jurisdictional CIT, for his comments. By his letter of 11th Oct., 2001, he submitted that the need for deduction of tax at source under Section 195 of the Act, would arise if the payment of commission to the non-resident agencies is chargeable to tax in India. Relying on Circular No. 23 of 23rd July, 1969 of the CBDT clarifying that where the non-resident agencies operated outside the country, no part of the income would arise in India and that when the payment was remitted directly abroad, it would not be held to have been received in India, He relies also on CBDT Circular No. 786 dt. 7th Feb., which states, inter alia, that no tax under Section 195 of the Act is deductible. He has conceded, relying upon the above-mentioned circulars of the CBDT, that no tax can be deducted at source on the payment made by the applicant to the aforementioned three non-resident companies.
5. A letter of the applicant is brought to our notice expressing inability to avail the opportunity of personal hearing afforded to it, it requested that the case be decided on merits. We also find on record a letter, of the CIT, the jurisdictional CIT. It is reiterated in the said letter that no income arises to the said foreign agents in India, and that there may not be any need to deduct tax at source in respect of payments made to them.
6. In view of the plea of the Revenue referred to above on the aforementioned question we rule as follows :
No tax is deductible at source under Section 195 of the Act in respect of the following transactions :
(i) Commission payable to the aforementioned non-resident on export earnings; and
(ii) Retainer fees payable to aforementioned non-residents apart from commission payable on export earnings.