International Tax TDS on Overseas Commission

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After withdrawal of circular No. 786 of 2000, vide CBDT circular 7/2009 there is a lot of confusion in mind of exporters relating to deduction tax at source on commission paid to non-resident agents who operates outside India. Further recent ruling by Authority of Advance Rulings (AAR) against the Applicant in case of SKF Boilers and Driers Pvt Ltd [AAR No 983 -984 of 2010] holding that Export commission paid to a non-resident agent is income deemed to accrue or arise in India and liable for deduction of tax has worsened the problem.

To understand the subject, let first analyze the modus operandi of the transaction. Generally the agents render their services abroad for which they are entitled to receive commission abroad for the services rendered by way of searching prospective foreign buyers / clients. Also, the payment is also received by the foreign agents directly outside India in their country.

Section 195 of the Income tax Act requiring to deduct tax on foreign payments i.e. sum paid by Resident to Non Resident, comes in to force only when the payment made to the Nonresident is his income chargeable under Indian Income tax Law. Therefore TDS liability on such commission is an offshoot from its chargeability to Income tax under Section 5(2) of the Act. See GE India Technology (327 ITR 456)(SC)

Section 5(2), the charging section for taxing nonresident income provides for two conditions. First condition of receipt of income in India is ruled out since payment of commission is made directly outside India. However the second condition viz., income accrues or arises or deemed to accrue or arise requires considered elaboration.

AAR in the ruling in case of SKF Boiliers has stated that the words accrue or arise occurring in Section 5 of the Act have more or less a synonymous sense and income is said to accrue or arise when the right to receive it comes into existence. It also stated that it is undisputed that agents have rendered services abroad and have solicited orders, but observed that the right to receive commission arises in India when the order is executed by the applicant in India. The AAR concluded that the fact that the agents have rendered services abroad in the form of soliciting the orders and the commission is remitted to them abroad are wholly irrelevant for the purpose of determining the situs of their income and accordingly held such commission income of non resident agents as taxable under Section 5(2)(b) read with Section 9(1)(i) of the Act.

On a careful perusal it appears that AAR has applied Section 9(1)(i) without examining the existence concept of business connection before arriving at its decision. It may be noted that for invoking Section 9(1)(i), existence of business connection (Permanent Establishment) is asine qua non and inevitable. Hon’ble Delhi High Court has recently in case of Eon Technology (203 Taxman 266) has rightly held that overseas commission income of foreign agent is not taxable in India in absence of business connection.

In the above context, the term business connection as defined in Explanation 2 to S.9(1) would mean:

“any business activity carried out through a person who, acting on behalf of the non-resident”,

(a) has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the non-resident; or

(b) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or

(c) habitually secures orders in India, mainly or wholly for the non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident:

Provided that such business connection shall not include any business activity carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent having an independent status is acting in the ordinary course of his business

Section 9(1)(i)  provides that income arising out of business connection is chargeable to tax in India only to the extent of income reasonably attributable to the operations carried out in India. As noted earlier, a commission agent working outside India for obtaining export orders does not carry out any business operation in India and therefore no income is stated to accrue or rise in India. in respect of your commission agent. No doubt, the CBDT circulars clarifying this position have been withdrawn. However, it does not change the fundamental principles.

Incidentally, the decision of Supreme Court in the case of CIT vs. Toshoku Limited (125 ITR 525) is worth noting where it was held that the commission agent who does not carry out anybusiness operation  in India and acts as a selling agent outside India is not chargeable to tax in India and that the receipt in India of the sale proceeds remitted by the purchasers from abroad   did not amount to an operation carried out by the non-resident commission agent in India as contemplated by clause (a) of the  Explanation  to Section 9(1)(i)   of the Act. The Supreme Court has categorically held that the commission amounts which were earned by the non-resident for services rendered outside India could not be deemed to be income which had either accrued or arisen in India.

In light of above discussion, it is clear that in absence of any fixed establishment of the foreign agent, his income may not be taxable  in India and accordingly the question to deduct doe not arise. It is possible that department may litigate based on withdrawal of CBDT Circular and the AAR ruling, however it may be confronted by arguing that such ruling is  per incuriam  (not a binding precedent) as it has not considerd the crucial aspect of  business connection . Needless to add findings of ITAT decision in case of  Green Emirates (99 TTJ 988)(Mum.)where it is stated that since AAR is not part of the judiciary hierarchy, it cannot lay down a binding precedent for anyone be it the Revenue, the assessee or the appellate authorities and by no stretch of logic, a ruling given by AAR has any precedent value in general.

I hope this article may prove useful to all members in  practice  and industry at large.

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New FVU 3.6 & FVU 2.133 mandatory for eTDS/eTCS return w.e.f.16.10.2012

New File Validation Utilities – FVU 3.6 & 2.133 has been released pertaining to validation of eTDS & eTCS returns and will be exclusively applicable with effect from 16th Oct 2012. However till then the current versions (3.5 & 2.132) could still be used.

FVU 3.6 will be applicable for quarterly TDS / TCS statements pertaining to FY 2010-11 onwards & FVU 2.133 will be applicable for quarterly TDS / TCS statements pertaining up to FY 2009-10.

Key features of File Validation Utility (FVU) version 3.6

  1. Import of challan file (.csi file): Import of challan file downloaded from the TIN website (Challan Status Inquiry) has been made mandatory at the time of validating the quarterly TDS/TCS statement, if the TDS/TCS is deposited through challan. This will be applicable in case of regular statement and for correction statement in the scenarios as below:
  • Update of challan (C2 correction).
  • Deductee/ Collectee and corresponding challan is updated (C3 correction).
  • Addition of challan (C9 Correction)
  1. Incorporation of sections codes as below:

Section code

Section code to be quoted in Quarterly TDS/TCS Statement

Applicable to TDS/TCS statement Form No.

Remarks

194LB

4LB

27Q

Applicable from FY 2011-12 onwards

194LC

4LC

27Q

Applicable from FY 2012-13 onwards

206CJ

J

27EQ

Applicable from FY 2012-13 onwards

206CK

K

27EQ

Applicable from FY 2012-13 onwards
  • Separate flag has been incorporated for reporting salary details of “Super senior citizen” (individual above the age of 80 years) at Form no. 24Q. This categorization is applicable from FY 2011-12 onwards.
  • Separate flag for categorizing software vendor transaction (as per ITD notification dated 21/2012) in Non salary TDS statements (Form 26Q Section code 194J and 27Q Section code 195). This categorization is applicable from FY 2012-13 onwards.
  • FVU version 3.6 will be mandatory w.e.f October 16, 2012. Upto October 15, 2012 FVU version 3.5 and FVU version 3.6 will be applicable.

Key features of File Validation Utility (FVU) version 2.133ĮՁ¡Æ’Å¡ 

Import of challan file (.csi file): Import of challan file downloaded from the TIN website (Challan Status Inquiry) has been made mandatory at the time of validating the quarterly TDS/TCS statement, if the TDS/TCS is deposited through challan. This will be applicable in case of regular statement and for correction statement in the scenarios as below:

  1. Update of challan (C2 correction).
  2. Deductee/ Collectee and corresponding challan is updated (C3 correction).
  3. Addition of challan (C9 Correction).

 FVU version 2.133 will be mandatory w.e.f October 16, 2012. Upto October 15, 2012 FVU version 2.132 and FVU version 2.133 will be applicable

Download FVU version 3.6 mandatory wef 16.10.2012

Download FVU version 2.133 mandatory wef 16.10.2012


Limitation of Software
:However it has few drawbacks like you can not import old FVU file for correction ,only consolidated files or earlier saved file can be imported ,further no database can be saved in this program ,No 27A form generated etc .But main feature is its free and comply all the mandatory requirement and tested by Govt agency .so Download ETDS return software from tin nsdl now.

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TDS/TCS Compliances for 2nd Quarter of F.Y. 2012-13

 Last date for payment of tax deductions/collections for September – 7th October, 2012

 Last date of filing of TDS/TCS returns for Q2 of F.Y. 2012-13 – 15th October, 2012

 Last date for issuance of the TDS/TCS certificates for Q2 – 30th October, 2012

* The above is applicable for deductors other than the Office of the Government.

TDSMAN (PDS Infotech) has maintained its Number 1 position having the highest acceptance percentage of TDS / TCS correction returns ever since monitoring was introduced. read more

Use TDSMAN Software where you can also prepare accurate correction returns. TDSMAN is competitively priced at Rs. 2500/- and this includes routine updates based on statutory changes and user feedbacks during the course of the year. Click here to Order Now

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Covers all TDS / TCS forms & prints the corresponding certificates

Single package supporting multiple years

Web based updation system for instant delivery of statutory changes

Integrated FVU for file generation

Prints Forms 27A & 27B for submitting the returns

Powerful query based reporting system

Import from EXCEL & Consolidated Statement

Simplified & accurate Correction Returns

Supports unlimited deductors, deductees & employees

Auto download option of Challan (.csi) file during validation

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Application for PAN New Form 49A from June 2012

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Everyone who wants to apply PAN or who is required to apply PAN as per the law of Income Tax shall apply PAN on Application form 49A.

Form 49A – Indian citizens of India, HUFs, company firm, LLP, AOP, Trusts, BOI, Local Authority, or artificial juridical persons can apply through Form 49A. Now Income tax department has issued a new 49A (PAN application Form). Download links form 49A in pdf format, form 49A in excel format and fillable format of form 49A are given below.

Form 49AA– NRI, company, firm, LLP, AOP BOI, local authority, AJP (Not registered in India)will use form 49AA. Download links of form 49AA are given below.

Fill the form 49A with black pen and block letters only. The following document will be attached with form 49A (PAN application form)

Proof of identity

  • Bank account
  • Certificate of identity signed by a MP, MLA or Gazetted Officer, etc.
  • Credit card
  • Degree
  • Depository account
  • Driving license
  • Matriculation certificate
  • Passport
  • Property tax assessment order
  • Ration card
  • School leaving certificate
  • Voter identity card
  • Water bill

Proof of Address

  • Bank account
  • Certificate of address signed by MP, MLA or gazette officer etc.
  • Credit card
  • Depository account
  • Driving licensee
  • Electricity bill
  • Property tax assessment order
  • Ration card
  • Rent receipt
  • Telephone bill

Notes: if applicant is minor then parent or guardian proof of identiy and address will be accepted.

If applicant is NRI then copy of bank statement in country of residence will be accepted.

At the time of opening bank account of minor, PAN of the parents will be specified.

Instructions to Fill Form 49A

  • Form 49A or 49AA can be download from the website of TIN. Please note that download only new PAN application form avoid old application form. It will not be accepted by TIN centers or application centers.
  • Then fill Form 49A with required detail as mentioned in the instructions given on the backside of PAN Application for.
  • Go to TIN center with form 49A and required documents and also Rs. 94 (Fee to apply PAN)
  • Submit it to TIN Center and get the acknowledgement for the same. It will help you to track the status of PAN.
  • It will take up to 15 days to reach PAN card to your address. But you can track status of PAN after 4 days. Sometimes system generate PAN earlier than estimate time.
  • The department will issue laminated PAN card containing name, photo, signature and PA Number.

Please remember and kept your PAN card safe, you are not allowed to apply another PAN. You can apply only one PAN once in a life. If any assessee has more PAN then one, they have to surrender all extra PAN to assessing officers at your ward range of income tax office in the city.

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