Short Overview: AO had not disputed the fact that the payments made by assessee were business receipts of foreign agents and not in the nature of “fees for technical services” or “royalty”. Since agents had rendered services outside India and had also received payments outside India and did not have any PE in India, the income could not be deemed to have accrued or arisen in India and, therefore, not taxable in India. Accordingly, assessee was not liable to withhold tax under section 195.

Assessee-company claimed deduction of commission paid to agents engaged in foreign countries for following up with its customers for procurement of orders and recovery of payments. AO disallowed deduction for want of TDS under section 195.

It is held that AO had not disputed the fact that the payments made by assessee were business receipts of foreign agents and not in the nature of “fees for technical services” or “royalty”. Since agents had rendered services outside India and had also received payments outside India and did not have any PE in India, the income could not be deemed to have accrued or arisen in India and, therefore, not taxable in India. Accordingly, no disallowance could be made.

Decision: In assessee’s favour