NEW DELHI: Exporters have asked the finance ministry to clarify that they are not liable to pay tax on royalty or commission paid to foreign clients, arguing that their demand is in line with the Supreme Court's ruling in the Vodafone case.
The income tax department has sent notices to exporters for non-payment of tax deducted at source (TDS) worth several thousand crores of rupees on royalty commissions paid outside the country.
"The law is clear that there is no obligation on exporters to deduct tax on sales commission payment to overseas agents because such services were rendered outside India," Ajay Sahai, secretary general of the Federation of Indian Export Organisations, told ET.
The tax department's notices came after the Central Board of Direct Taxes withdrew a circular that laid down that exporters need not deduct taxes on commission paid to agents operating outside the country in 2009.
The Supreme Court held that Vodafone International Holdings was not liable to pay 11,000 crore demanded by the tax department because the Indian authorities do not have jurisdiction over a transaction carried outside the country.
"With this judgment, the applicability of Section 195 on payments made in the course of exports as foreign agency commissions or royalties would require to be revisited," said Rafeeque Ahmed, a Chennai-based exporter, whose firm is among those that have received the tax notices. "There is no permanent establishment or territorial nexus and the situs of service provided is outside the jurisdiction of tax authorities."
Ahmed, who is president of Fieo, has also taken up the issue with the finance minister.
Fieo had written a letter to CBDT chairman M C Joshi earlier this month on the plethora of litigation on applicability of TDS to foreign agency commissions and professional services and the various rulings in favour of exporters. These include cases filed by Toshuku Ltd, Samsung Electronics and Ishikawajima Harima Heavy Industries Limited.
Source : economictimes.indiatimes.com