2010 (11) TMI 956 - AT - Income Tax

Summary

Issues Involved: Appeal against order u/s 201(1) and 201(1A) of the I.T. Act, 1961 regarding non-deduction of tax at source on payments made to foreign holding company.

Summary:

Issue 1: Background and Initial Proceedings
The appeal was filed by the Revenue against the order of the C.I.T.(Appeals)-X1, Chennai for the assessment year 2003-04 u/s 201(1) and 201(1A) of the I.T. Act, 1961, concerning non-deduction of tax at source on payments to the holding company M/s. Alstom Holdings, France.

Issue 2: Tribunal's Initial Decision
The Tribunal initially ruled in favor of the Revenue, stating that the assessee failed to apply u/s 195(2) for deduction of tax at source on payments to the foreign holding company, reversing the C.I.T.(Appeals) decision.

Issue 3: High Court's Intervention
The assessee appealed to the Hon'ble High Court of Madras under sec. 260-A of the I.T. Act, which set aside the Tribunal's order and remitted the matter back for reconsideration based on the relevant contract terms.

Issue 4: Reconsideration by Tribunal
Upon rehearing, it was established that the payments made by the assessee to its holding company were for networking services provided by a third party, M/s. Equant, UK, and were not subject to TDS as they did not constitute royalty or fees for technical services.

Issue 5: Legal Interpretation
The Tribunal considered the scope of sec. 195(2) in light of the Hon'ble Supreme Court's decision, emphasizing that if the payment does not involve income, there is no obligation to deduct tax at source. The Tribunal analyzed the contract extracts provided by the holding company and concluded that the payments were not for technical services, affirming the C.I.T.(Appeals) decision.

Conclusion:
The Tribunal confirmed the C.I.T.(Appeals) order regarding TDS, dismissing the Revenue's appeal.