Karnataka High Court holds foreign commission payments not taxable in India, ruling no obligation to deduct TDS under Section 195 where income accrues outside India and isn't deemed to be in India.
No TDS on Overseas Commission: Karnataka HC Grants Relief
The Karnataka High Court ruled in favour of Technotree Corporation, holding that commission income earned by a foreign entity outside India is not taxable in India, and consequently, no TDS is required under Section 195 of the Income Tax Act. The Court relied on binding precedents affirming that income must have a sufficient nexus with India to trigger tax liability.
The Revenue had argued that the services were effectively performed in India due to coordination with local personnel. However, the Court found that the contractual services were rendered entirely offshore, and the activities in India were preparatory or auxiliary. The judgment reaffirmed that mere presence of employees or coordination does not constitute 'business connection' or 'service PE' without sufficient permanence.
"Where services are rendered outside India and the recipient is non-resident, income is not deemed to accrue or arise in India unless specific deeming provisions apply."
This decision strengthens the position of foreign companies receiving cross-border commissions. Taxpayers may rely on judicial precedents to avoid TDS where the performance, control, and risk lie abroad. Legal teams should document service delivery locations and contractual terms to support non-taxability claims.
Citations
- Section 9(1)(i), (vii), Income Tax Act
- CIT v. Azadi Bachao Andolan (2003) 263 ITR 706
