Sec. 195 of Income Tax Act, 1961—TDS—Before applying Section 195, it was obligatory on the part of AO to establish that the subjected payments were taxable under the provision of the Income Tax Act.

Facts: CIT(A) erred in confirming the disallowance u/s 40(a)(ia) r.w.s 195 on account of non-deduction of TDS for payment made to non-resident having no PE. The disallowance so made & confirmed by the CIT(A), is contrary to the provisions of law and facts.

Held, that before applying Section 195, it was obligatory on the part of AO to establish beyond all reasonable doubts that the subjected payments were taxable under the provision of the Income Tax Act, 1961, then only it could be said that tax at source was deductible w.r.t. such payments. Commission has been paid to various non-resident entities in respect of sales affected by assessee outside of India, the services have been rendered outside of India and the payments have been made outside of India. In light of these undisputed facts, the legal proposition laid down in the aforesaid decision equally applies in the instant case and such commission payment cannot be held chargeable to tax in India. Similarly the exhibition expenses have been paid in respect of participation in various exhibitions held outside of India and even the testing charges have been paid for testing services outside of India. Therefore, these payments will not fall in the category of income which has accrued or arisen or deemed to accrued or arise in India. Further, payments have been made outside of India. Accordingly, we are of the considered view that there was no liability to deduct tax at source u/s 195(1) as these payments are not chargeable to tax and the provisions of section 40(a)(ia) cannot be invoked in the instant case. - JLC ELECTROMET (P.) LTD. V/s ACIT - [2020] 182 ITD 509 (ITAT-JAIPUR)