PRESENT
Hon'ble Mr. Justice Syed Shah Mohammed Quadri (Chairman)
Mr. K.D. Singh (Member)
Mr. K.D. Gupta (Member)
A.A.R. NO. 543 OF 2001
Name and Address of Applicant
Ind Telesoft Private Limited
104, Koramangala Industrial Estate, Koramangala, V Block, Bangalore-560 095
Commissioner concerned
Commissioner of Income-tax-I Bangalore
Present for the Department
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Present for the Applicant
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RULING
(By Mr. Justice Syed Shah Mohammed Quadri)
None appears for the applicant. The applicant M/s. Ind Telesoft Private Limited, Bangalore , a resident company, filed application under section 245Q(1) of the Income-tax 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:
• Commission payable to above said non-residents on export earnings; and
• 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:
• Flexifinity S.A.R.L.,France
• Hi Tech Ottawa.com , Canada
• 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 Commissioner of Income-tax-I, Bangalore , the jurisdictional Commissioner, for his comments. By his letter of October 11, 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 July 23, 1969 of the C.B.D.T. 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 dated February 7, 2000 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 Commissioner of Income-tax, the jurisdictional Commissioner. 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.
• Commission payable to the aforementioned non-resident on export earnings; and
• Retainer fees payable to aforementioned non-residents apart from commission payable on export earnings.
Pronounced by this Authority on the 5th day of May, 2004.
Sd/-
(JUSTICE S.S.M. QUADRI)
CHAIRMAN
Sd/-
(K.D. SINGH)
MEMBER
Sd/-
(K.D. GUPTA)
MEMBER
F.No. AAR/543/2001 Dated ….
(A) This copy is certified to be a true copy of the advance ruling and is sent to:
• The applicant.
• The Director of Income-tax (International Taxation), Mumbai.
• The Joint Secretary (FT&TR.), M/Finance, CBDT, North Block, New Delhi .
• Guard file.
(B) I n view of the provisions contained in Section 245S of the Act, this order should not be given for publication without obtaining prior permission of the Authority.
(R.K. YADAV)
Addl. Commissioner of Income Tax ( AAR )
