2010 (3) TMI 942 - AT - Income Tax

Summary

Issues involved:
Assessment of design and development expenses u/s 40(a)
Existence of permanent establishment of foreign enterprise in India
Obligation to deduct tax u/s 195 on payment to foreign enterprise

Assessment of design and development expenses u/s 40(a):
The Assessing Officer noted payment made to a foreign enterprise for design and development services. The assessee argued that services were rendered outside India and no TDS was required u/s 40(a). However, the Assessing Officer found that services were provided by the foreign enterprise's representative office in New Delhi. The Commissioner of Income-tax (Appeals) upheld the disallowance. The ITAT held that the foreign party had a permanent establishment in India, making the payment taxable. The ITAT also noted that fees for technical services are taxable in India even if the foreign party lacks a permanent establishment. Lack of evidence from the assessee regarding previous years' assessments led to dismissal of the appeal.

Existence of permanent establishment of foreign enterprise in India:
The assessee contended that the foreign enterprise did not have a permanent establishment in India, hence no TDS was required. However, the Assessing Officer provided evidence that services were rendered by the foreign enterprise's office in New Delhi. The ITAT agreed with the Assessing Officer's findings, stating that the presence of a representative office in India established a permanent establishment. The ITAT emphasized that lack of evidence from the assessee to support their claim further weakened their argument.

Obligation to deduct tax u/s 195 on payment to foreign enterprise:
The ITAT ruled that payment for technical services to a non-resident is taxable in India, even without a permanent establishment in India. The ITAT highlighted that TDS is deductible from such payments u/s 195. The ITAT rejected the assessee's argument that lack of disallowance in previous or subsequent years should impact the current assessment, emphasizing that each year's assessment stands on its own and past decisions do not prevent disallowance as per law. The appeal was ultimately dismissed by the ITAT.