Kapil Goel
(ACA Chartered Accountant)
(32 Points)
Replied 03 November 2007
Dear querist,
In relation to your query regarding taxability of commission income, which as per facts stated is going to arise from deal outside India, while being in India, to my understanding we can dwell upon the same in the following manner:
1. For non-residents, in Indian scenario, taxability under Income Tax Law, needs to be ascertained separately from the Domestic Law (Income Tax Act, 1961) and Double Taxation Avoidance Agreement (DTAA) and whichever is beneficial may be resorted by the taxpayer.
From the facts stated in your query, although it is not clear that you are resident of a country with which India has DTAA, same may have material bearing on the present issue. In most of the cases where India has a DTAA, it needs to determined in case of business income (like commission income), whether non resident has a business presence in India in the form of Permanent Establishment (PE) or not. In case you qualify to have any PE in India for instant commission income, then the same may be taxed in India subject to tax credit as available under DTAA.
2. In case you attract some tax implications under DTAA, then provisions of Income Tax Act can be resorted to mitigate/reduce the tax liability.
Coming to Income Tax Act, 1961, in case you remain ‘non resident’ under Indian Income Tax Law (e.g if your physical stay in India is less than 60 days in a financial year), placing reliance on Indian revenue authorities clarification (Circular No. 786 dated 7 February 2000), if commission income arises/accrues from services rendered/provided outside India, then the same may not be taxable in India. Further reference in this regard may be made to Indian Supreme Court ruling reported in 39 ITR 775 which in context of determining where commission income may be said to have accrued has held as under:
Quote:
“. ……The decisions to which we have referred clearly establish that normally the commission payable to the managing agents accrues at the place where the business is actually done, that is, where the services of the managing agents are performed…….”
Unquote
You may besides examining your residential status under section 6 of the Income Tax Act, 1961, can ascertain whether your commission income arises in India or not by applying aforesaid principles.
Further, in India, there is an advance ruling authority, to which you may present your future transactions involving India and know their tax implications in entirety, including your residential status.
Regards
Kapil Goel
Warm Regards
Kapil Goel
CAclubindia
