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2005 (2) TMI 746 - AT - Income TaxDeduction of tax at source - Assessee in default - interest u/s 201(A) - reimbursement of expenses - commission payment - payments made to other foreign entities other than the Lead Managers - nature of services - Meaning of fees for technical services of Article 113 of the DTA Agreement between India and U.K - HELD THAT - The reimbursement of expenses made by the assessee amount are not taxable as it will not come within the purview of section 9(1)( vii ) of the Income-tax Act. So also the payment to Bankers amounting to Rs. 4, 38, 150 and Rs. 8, 76, 065 and Rs. 6, 85, 654 are all payments for services rendered as they were admittedly paid towards fees and they arise in India and thus liable to be deducted tax at source u/s 195. However in view of DTA with UK is applicable and these payments will not fall within the definition of fee for technical services u/s 134( c ) and hence they are not taxable in India and assessee is not liable to deduct tax from them. Consequently it is not an assessee-in-default u/s 201. Therefore interest u/s 201(A) is not chargeable. Since the assessee has not made application u/s 195(1) of the Income-tax Act to the Department all the payments made by the assessee that are found liable for TDS on the entire lump-sum payment. Thus we hereby find that all the issues raised by the assessee on merits are accordingly answered. Admittedly the assessee has not furnished the required details while filing the return for the year corresponding to the GDR issue in question keeping vacant the relevant Column No. 6 available in the return. Therefore the aspect of when the limitation starts in the absence of any specific direction given in the statute and it will not start unless the taxing authorities came to the knowledge of said issue. It is the contention of the Department that soon after it came to know the issue they have issued show-cause notice stated supra and hence the assessee could not show that the Department has committed any deliberate delay or it has not taken action within reasonable time in the absence of any specific time laid down by the statute. Thus we find that this contention regarding limitation raised by the assessee will not stand for legal scrutiny. Accordingly we hereby up-hold the same finding the issue raised by the assessee as devoid of merits and dismiss the same. In the result the appeal filed by the assessee is disposed off accordingly.
Issues Involved:
1. Obligation of deducting tax on payments to Lead Managers. 2. Timeliness and limitation of orders passed under sections 195, 201(1), and 201(1A). 3. Nature of services rendered by Lead Managers as technical, managerial, and consultancy services. 4. Accrual or arising of underwriting commission and selling concession in India. 5. Assessee in default status under section 201(1) and interest under section 201(1A). 6. Reimbursement of expenses as part of consideration to Lead Managers. 7. Tax deductibility on payments to other foreign entities. 8. Nature of fees for technical services under the DTA Agreement between India and U.K. Issue-wise Detailed Analysis: 1. Obligation of Deducting Tax on Payments to Lead Managers: The Tribunal examined whether the appellant had an obligation to deduct tax on payments made to M/s. Robert Fleming and Co. Ltd., London, and M/s. International Finance Corporation, Washington, referred to as the 'Lead Managers'. The Tribunal upheld the CIT (Appeals) decision, concluding that the services rendered by the Lead Managers fell within the definition of technical, managerial, and consultancy services as per section 9(1)(vii) of the Income-tax Act. Consequently, the appellant was liable to deduct tax under section 195(1). 2. Timeliness and Limitation of Orders Passed: The appellant contended that the orders passed under sections 195, 201(1), and 201(1A) were barred by limitation. The Tribunal found that the statute does not prescribe any specific time limit for passing an order under section 201. Since the appellant had not furnished the required details in the return, the limitation period did not start until the tax authorities became aware of the issue. The Tribunal upheld the CIT (Appeals) decision, dismissing the appellant's contention regarding the limitation. 3. Nature of Services Rendered by Lead Managers: The Tribunal analyzed whether the services rendered by the Lead Managers were technical, managerial, or consultancy services. Referring to the case of Raymond Ltd. v. Dy. CIT, the Tribunal concluded that the services rendered by the Lead Managers fell within the definition of 'technical services' under section 9(1)(vii) of the Income-tax Act. The management and selling commissions were deemed to accrue or arise in India, making the appellant liable to deduct tax under section 195(1). 4. Accrual or Arising of Underwriting Commission and Selling Concession in India: The Tribunal found that the underwriting services were not 'technical services' and therefore, the underwriting commission did not fall within section 9(1)(vii). However, the selling concession and management commission were taxable in India, and the appellant was liable to deduct tax at source under section 195. 5. Assessee in Default Status and Interest Under Section 201(1A): The Tribunal upheld the CIT (Appeals) decision that the appellant was considered an 'assessee in default' under section 201(1) for failing to deduct tax on payments to the Lead Managers. Consequently, the interest charged under section 201(1A) was also upheld. 6. Reimbursement of Expenses: The Tribunal examined whether the reimbursement of expenses constituted part of the consideration to the Lead Managers. It concluded that the reimbursement of expenses was not taxable in India under section 9(1)(vii). Therefore, the appellant was not liable to deduct tax on these reimbursements. 7. Tax Deductibility on Payments to Other Foreign Entities: The Tribunal found that the payments made to other foreign entities aggregating to Rs. 20 lacs were not taxable in India. Therefore, the appellant was not liable to deduct tax on these payments. 8. Nature of Fees for Technical Services Under the DTA Agreement: The Tribunal concluded that the amounts retained by the Lead Managers were in the nature of fees for technical services within the meaning of Article 113 of the DTA Agreement between India and the U.K. However, under the Double Tax Avoidance Agreement with the U.K. (1993), these payments did not fall within the definition of 'fees for technical services' under Article 13.4(c) and hence were not taxable in India. Consequently, the appellant was not liable to deduct tax from these payments and could not be treated as an 'assessee in default' under section 201. Conclusion: The Tribunal upheld the CIT (Appeals) decision on most grounds, concluding that the appellant was liable to deduct tax on certain payments to the Lead Managers, while also recognizing that some reimbursements and payments to other foreign entities were not taxable in India. The appeal filed by the appellant was disposed of accordingly.
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