February 04, 2026 : The Ahmedabad Bench of the Income Tax Appellate Tribunal has dismissed the Revenue’s appeal against Jagson Colorchem Limited, holding that commission paid to foreign agents for services rendered outside India is not chargeable to tax in India and therefore does not attract tax deduction at source under Section 195 of the Income Tax Act.
In ACIT, Circle-2(1)(1), Ahmedabad v. Ms. Jagson Colorchem Limited (ITA No. 1437/Ahd/2024), the Bench comprising Judicial Member T.R. Senthil Kumar and Accountant Member Narendra Prasad Sinha upheld the order of the Commissioner of Income Tax (Appeals) deleting a disallowance of ₹5.63 crore made under Section 40(a)(i) for Assessment Year 2018–19.
Jagson Colorchem Limited had filed its return declaring total income of ₹12.69 crore. The case was selected for limited scrutiny under CASS on the issue of compliance with TDS provisions on payments made outside India. During assessment proceedings, the Assessing Officer noted that the company had paid commission of ₹5,63,28,206 to foreign agents without deducting tax at source.
The assessee explained that the commission was paid for services rendered entirely outside India in connection with procuring export orders. It was contended that such income was not chargeable to tax in India and therefore no obligation to deduct tax under Section 195 arose.
However, the Assessing Officer disallowed the expenditure under Section 40(a)(i) on the ground that tax had not been deducted at source.
The Tribunal reproduced Section 40(a)(i) and emphasized that disallowance can be made only if tax is deductible at source on a payment chargeable under the Act and such tax has not been deducted.
It observed that the Assessing Officer had applied Section 40(a)(i) mechanically without first determining whether the commission payments were chargeable to tax in India. There was no finding that the foreign agents had rendered any services in India or that any part of the income had accrued or arisen in India.
The Bench noted that in the assessee’s own case for Assessment Year 2013–14, the Tribunal had already held that commission paid to non-resident agents for services rendered outside India does not give rise to taxable income in India.
Relying on the principle that the obligation to deduct tax under Section 195 arises only when the payment is chargeable to tax in India, the Tribunal held that in the absence of such chargeability, disallowance under Section 40(a)(i) cannot be sustained. It categorically observed that once income is not chargeable to tax in India, the question of deducting TDS and consequent disallowance does not arise.
Finding no merit in the Revenue’s grounds, the Tribunal dismissed the appeal and confirmed the deletion of the ₹5.63 crore disallowance. The order was pronounced on 3 February 2026.
The ruling reinforces the settled position that export commission paid to non-resident agents for services rendered abroad is not taxable in India in the absence of a business connection or accrual within India, and therefore does not trigger TDS under Section 195.
