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Non resident agents rendering services outside India & getting payment outside India liable to income tax in India : Advance Ruling

AIT News Network

NEW DELHI. Authority for Advance Rulings (Income-Tax) vide a recent ruling AIT-2006-73-AARhas ruled that non resident rendering services outside India and also getting payment outside India, will be liable to income tax in India on account of his being agent of resident in India when the source in income is situated in India. Further,T.D.S. is to be deducted from payment which will be remitted by resident to the non resident agent.

The Facts: The applicant wanted to appoint agents abroad to furnish information about terms & conditions to foreign participants in respect of their participation in the Food & Wine Show in India and for booking space in the exhibition. The agents would be rendering services abroad in the territory allotted to them and would be entitled to receive commission abroad for the services so rendered to foreign participants. Since the services are rendered by non-resident agents outside India and according to the terms of the agency agreement, the payment is also receivable by the agent abroad, the agent is not liable to tax, in view of the provisions of Section 5(2) read with section 9(1) of the Act. The Agent was to be responsible for planning, directing and executing sales campaign and the services to be provided by the Agent were as follows:

· The Agent will be responsible for liaison with government departments and trade associations to endeavor, where and when appropriate, to obtain National Pavilions / joint participations.

· The Agent will be responsible for distributing to exhibitors the contract forms, invoices for space and shell scheme sales and for the distribution of all relevant materials and application forms for stand fitting, furniture and other on-site services.

· The Agent will attend where appropriate, exhibitor meetings and will ensure that adequate briefings are given to them prior to their departure for India to participate in IFOWS.

· The Agent will provide support to LEMS with regard to all promotional activities related to IFOWS that it may decide to undertake in the Agent’s territory. Particularly, the AGENT will assist LEMS during its meetings with potential exhibitors, government bodies and export promotion bodies taking place in the AGENT’s territory.

· The Agent acknowledges that the exhibitors are required to make all the payments directly to LEMS. The AGENT will assist LEMS and make its best efforts to induce exhibitors to fulfill their contractual obligations with regard to the payments owned to LEMS.

· The Agent will never accept in his favour any payments that exhibitors owe to LEMS unless authorized by LEMS in wirting. Even if the AGENT accepts any payments after having received written authorization from LEMS, such action should not result in any extra cost for LEMS.

· The Agent will assist LEMS and ensure that the exhibitors adhere to the general regulations governing their participation in IFOWS.

· The Agent will ensure that the exhibitors submit the contract form, catalogue entry form and forms for onsite services to LEMS as per the stipulated deadlines.

Questions before Authority:

Question 1: Considering the fact that non resident would be rendering services outside India and also getting payment outside India, whether he will be liable to income tax in India on account of his being agent of resident in India?

Question 2: In case answer to the above is negative, whether T.D.S. is to be deducted from payment which will be remitted by resident to the non resident agent.

Observations of the Authority: Source of income for the agent is participation by the exhibitors in exhibition/food & wine show in India and the agent will not be entitled to receive any commission for services rendered in case the exhibition is not held due to unforeseen circumstances. No doubt the agent renders services abroad and pursues and solicits exhibitors there are in territory allotted to him but the right to receive the commission arises in India only when the exhibitor participates in India international food & wine show to be held in India). And makes full and final payment to the applicant in India. The commission income would, therefore, be taxable under the act in view of the specific provision of section 5(2)(b) read with section 9(1)(i) of the Act. The fact that the agent renders services abroad in the form of pursuing and soliciting the participants and that the commission is remitted to him abroad are wholly irrelevant for the purpose of determining the situs of his income.

Ruling of Authority:

Question 1 : The fact that non-resident would be rendering services outside India and also getting payments outside India , are wholly irrelevant considerations. the source in income being situated in India ,the agent will be liable tax in India under the Act;

Question 2 : Since answer to question No. 1 is negative, tax is required to be deducted at source from payments which will be remitted by the resident applicant to the non-resident agent.

( Click here for full text of ruling AIT-2006-73-AAR )