2005 (1) TMI 598 - AT - Income Tax

Deemed assessee in default - Levy of interest - failure to deduct tax as required u/s 195 - Payments made to several USA based companies - public charitable trust - Providing end to end communication facility to various companies - HELD THAT - The assessee cannot be considered as a public sector undertaking also as the public sector undertakings are set up for commercial consideration and not for charitable objectives the beneficiaries of which are public at large. The status of assessee as charitable trust itself goes against the principle to hold it as a public sector undertaking or a Government Department as Government of India is not beneficially interested in the assessee trust. It is only monitoring the activities of the assessee trust so that the major objectives of Government to grant benefits to units registered with STPI are properly monitored. We accordingly hold that the assessee is not a Government Department or a public sector undertaking so as to obtain necessary approval from the Committee on Disputes. In view of the submissions by both the counsels and in the absence of any contrary decisions respectfully following the order of ITAT in the case of Wipro Ltd. v. ITO 2003 (4) TMI 223 - ITAT BANGALORE-C to which one of us (AM) is a signatory we hold that the assessee was not required to deduct tax u/s 195 in respect of payments made to various USA based companies mentioned above. Accordingly we hold that the assessee is not required to be treated as an assessee in default u/s 201(1) of the Act. Since the assessee is not treated as an assessee in default u/s 201(1) of the Act no interest is also chargeable u/s 201(1A) of the Act. In the result all the appeals are allowed.

Summary

Issues Involved:
1. Requirement of necessary clearance from the Committee on Disputes (CoD).
2. Assessee's obligation to deduct tax at source u/s 195.
3. Levy of interest u/s 201(1A).

Summary:

1. Requirement of necessary clearance from the Committee on Disputes (CoD):
The Departmental Representative contended that the assessee, a public charitable trust registered under the Societies Registration Act, functions like a Government Department and thus required clearance from the CoD to pursue the appeal. This argument was based on various rules and regulations in the Memorandum of Association of the society, indicating significant control by the Government of India. However, the Tribunal held that the assessee, being a public charitable trust benefiting the public at large and not the Government of India, does not require CoD clearance. The Tribunal emphasized that the assessee cannot be treated as a Government Department or a public sector undertaking, as it operates independently with charitable objectives.

2. Assessee's obligation to deduct tax at source u/s 195:
The assessee was held as an assessee in default u/s 201(1) for failing to deduct tax u/s 195 on payments made to several USA-based companies for the use of International Leased Telecom Lines. The Assessing Officer deemed these payments as fees for technical services, thus chargeable to tax in India. However, the Tribunal, following the precedent set in the case of Wipro Ltd. v. ITO, concluded that the payments were not for technical services or royalty and hence not liable for TDS u/s 195. The Tribunal noted that the services provided did not involve making available any technical knowledge, experience, skill, or process to the assessee, thus falling outside the purview of section 9(1)(vii) and the DTAA between India and the USA.

3. Levy of interest u/s 201(1A):
Since the Tribunal held that the assessee was not required to deduct tax at source u/s 195, it consequently ruled that the assessee could not be treated as an assessee in default u/s 201(1). Therefore, no interest was chargeable u/s 201(1A) for the failure to deduct tax.

Conclusion:
The Tribunal allowed all the appeals, ruling that the assessee was not liable to deduct tax at source on the payments made to the USA-based companies and thus not liable for interest under section 201(1A).