Following Supreme Court decision in CIT v. TOSHOKU LTD. [1980] 125 ITR 525 and the source rule principle the Karnataka High Court in [2021] 434 ITR 69 (Kar)held that the associated enterprises who rendered sourcing services outside India in the form of placing orders with the manufacturers outside India and to whom commission was remitted abroad for utilising such services outside India does not yield to any taxing event in India requiring any tax withholding.
Thankfully in this casethere was no mention of any consultancy from the non resident that was utilized in India as in that situation there would be a requirement to withhold tax .
Further drawing reference from other decisions (371 ITR 453 (SC) ) the Court made it certain that it is well- settled that the source based taxation is accepted and applied in inter national taxation law and any diversion from this principle would amount to violation of double taxation treaty.
Source rule is further based on nexus theory so much so that it is in-built in deeming clauses/provisions of section 9 viz a viz payments to non-residents
The deeming clauses in section 9 meaning all clauses get Into effect only on the reason of proof of any business connection or so to say by demonstrating a nexus