Income Of Non-Resident AE Not Taxable In India If Services Rendered Abroad: Karnataka High Court

Karnataka High Court (Bangalore Bench) in the case of Principal CIT vs Puma Sports, held that income of non-resident AEs cannot be made taxable in India where the AEs rendered services outside India & where they received commission outside India.

The undisputed facts reveal that the purchases by assessee consist of import from related parties and unrelated third parties as well as domestic purchase from the local manufacturers. It identifies the suppliers who can provide the required products as per the specifications and standards required by World Cat Limited, Hong Kong, which is the global sourcing agent for Puma Group and for performing such services, it receives the commission of 3% of FOB price.

The facts of the case make it very clear that the Dispute Resolution Panel proceeded in the matter on the basis of the situs in India because right to receive the commission accrued in India when the assessee receives the imported goods.

The Court noted that the Associated Enterprises have rendered services outside India in the form of placing the orders with manufacturers and the commission to Associated Enterprises was remitted to them abroad.

Generally speaking, the commission that becomes payable after receipt of goods accrued when services were rendered in the form of placing orders with the manufacturers. Therefore, when the matter reached Tribunal, it was held that the income of income of the non-residents by way of commission cannot be considered as accrued or arisen or deemed to accrue or arise in India as the services of such agent were rendered / utilized outside India and the commission was paid outside India.

It is nobody’s case that the Associated Enterprises rendered services inside India in the form of placing orders with the manufacturers.

Undisputedly, the services were rendered outside India and the commission was paid outside India and therefore, the Tribunal was justified in holding that the TDS is not deductible from commission payment to a foreign agency on foreign soil.

The Court therefore opined that the Associated Enterprises has rendered services out of India in the form of placing orders with the manufacturers who are already outside India.

Since the commission was paid to Associate Enterprises out of India, no taxing event has taken place within the territories of India