Disallowance under s 40(a)(ia)

Payment by way of commission, for sales and marketing support outside India, does not constitute income chargeable to tax in India under the Income-tax Act, 1961 and the assessee was not liable to deduct tax at source and no disallowance can be made under s 40(a)(ia) of the Act, as held by DelHC in CIT v EON Technology P Limited — In favour of: The assessee.

When a non-resident agent operates outside the country, no part of his income arises in India and since payment is remitted directly abroad, and merely because an entry in the books of accounts is made, it does not mean that the non-resident has received any payment in India.

Deduction at source — If payment is made in respect of the amount which is not chargeable to tax under the provisions of Act, tax at source (TDS, for short) is not liable to be deducted.

Decided on: 8 November 2011.