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Commission Earned On Distribution Of Indian Mutual Fund Outside India, Not Taxable: ITAT Mumbai

[10 June 2022] The Mumbai Bench of ITAT has ruled that the commission earned on distribution of Mutual Funds schemes of an Indian fund outside India cannot be taxed in India, if all the operations are carried out by the distributor outside India.
The Bench, consisting of Pramod Kumar (Vice President) and Sandeep Singh Karhail (Judicial Member), held that merely because the Mutual Funds distributed were controlled and regulated by SEBI and RBI in India, the commission earned by the assessee/distributor cannot be taxed in India, since the said income was not ‘reasonably attributable’ to any operation carried out in India.
The ITAT held that an income can be deemed to accrue or arise in India only if the said income is ‘reasonably attributable’ to the operations carried out in India. The ITAT held that since all the operations were carried out by the assessee outside India, therefore, the Offshore Distribution Commission earned by it could not be held to be ‘reasonably attributable’ to any operation carried out in India. The ITAT noted that the Supreme Court in the case of CIT versus Toshoku Ltd. (1980) had ruled that the commission amounts earned by a non-resident assessee for services rendered outside India cannot be deemed to be an income that has either accrued or arisen in India.
The ITAT upheld the order of the CIT(A) that since the assessee conducted portfolio investments in Indian securities in its capacity as a SEBI registered FII/FPI, the Offshore Distribution Commission earned by the assessee was a ‘business income’, and thus, in the absence of a permanent establishment in India, it was not taxable in India. Thus, the ITAT dismissed the appeal filed by the revenue department.


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