S. 195/ 40(a)(ia): Controversy whether in view of retrospective amendment to s. 195 to provide that s. 195 applies whether or not the non-resident person has a residence or place of business or business connection in India, even commission to non-resident agents for services rendered outside India is liable for TDS u/s 195 and has to suffer disallowance u/s 40(a)(ia) to be reconsidered by ITAT

The Tribunal took the view (Sesa Resources v. ACIT) that in view of the retrospective amendment to s. 195 to provide that s. 195 applies whether or not the non-resident person has a residence or place of business or business connection in India, commission to non-resident agents for services rendered outside India is liable for TDS u/s 195 and has to suffer disallowance u/s 40(a)(ia). In appeal before the High Court, the assesse contended that the Tribunal has misconstrued Explanation 2 to Section 195 of the Finance Act, 2012 while coming to the conclusion that even in case in which the income of the non- resident is not chargeable to tax in India, the deduction at source would have to be made by the assessee. It was pointed out that the Explanation was not itself relevant to the facts of the case as it is not the case of the department that the commission paid to the non-resident was not chargeable to tax in India. The assessee relied upon the Judgment of in the case of Commissioner of Income Tax-10 v/s. Gujarat Reclaim & Rubber Products Ltd (Income Tax Appeal No.169/2014 dated 08.12.2015). HELD by the High Court:

In Gujarat Reclaim & Rubber Products Ltd it has been, inter alia, held that before effecting deduction at source one of the aspects to be examined is whether such income is taxable in terms of the Income Tax Act. This aspect has not been considered by the Tribunal while concluding that the Appellant has committed a default in not deducting the tax at source. As the said learned Division Bench Judgment was not available while passing the impugned order by the learned Tribunal, we find it appropriate, in the interest of justice, to quash and set aside the impugned order of the learned Tribunal to the extent it holds that the Appellant has defaulted in not deducting tax at source and remand the matter to the Tribunal to examine the said aspect afresh in the light of the judgment of this Court after hearing the parties in accordance with law. All contentions on that count are kept open.