2004 (1) TMI 16 - HC - Income Tax

Revenue after a lapse of six years issued notices requiring the assessee to show cause why the remittances made by it to Hewlett Packard (USA) in respect of salaries paid by HP (USA), on behalf of the assessee to four foreign technicians /expatriates, be not treated as fee for technical services and why the assessee should not be treated as an assessee-in-default for not deducting tax from the said payment under section 195 - Considering the documents placed on record and various other documents, the Tribunal has arrived at a conclusion that the remittances were by way of salaries and were not fee for technical services as claimed by the Revenue. - In our opinion, it cannot be said that the Tribunal has committed an error. - there is no substantial question of law - Hence, the revenue s appeal is dismissed.

Summary

Issues:
1. Whether remittances made by the assessee to a foreign company for salaries paid to expatriates should be treated as "fee for technical services" or "salaries" for tax purposes.

Analysis:
The High Court considered the issue of whether remittances made by the assessee to a foreign company for salaries paid to expatriates should be treated as "fee for technical services" or "salaries" for tax purposes. The Income-tax Appellate Tribunal had concluded that the remittances were by way of "salaries" and not "fee for technical services" as claimed by the Revenue. The Tribunal observed that the fee for technology transfer and know-how had already been quantified and separately received by the foreign company. The Tribunal further held that the technicians were deputed to provide services to the assessee, and the payment was rightly considered as salary on which tax had been correctly deducted at source under section 192 of the Income-tax Act, 1961. The Tribunal relied on various documents and material evidence to support its decision.

The Revenue contended that the remittance should be treated as "fees" based on a judgment of the Kerala High Court in a different case. The Kerala High Court had considered the expression "fees for technical services" under the Income-tax Act and concluded that salaries would not fall within this category. However, the High Court in the present case disagreed with the Revenue's argument, stating that the Tribunal had not committed any error in its decision. The High Court found no substantial question of law requiring consideration as the Tribunal's decision was based on the material placed on record. Therefore, the High Court dismissed the appeal.

In conclusion, the High Court upheld the decision of the Income-tax Appellate Tribunal, ruling that the remittances made by the assessee for salaries paid to expatriates should be treated as "salaries" and not "fee for technical services" for tax purposes. The High Court found no error in the Tribunal's decision and dismissed the appeal, stating that there was no substantial question of law to be considered.