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2014 (7) TMI 1156 - AT - Income TaxWithholding of taxes u/s 195 - whether payment made by the assessee to noresident for purchase of new designs of furniture clearly being transfer of special knowledge? - CIT(A) deleted tds liability - Held that - The sole basis of ADIT (International Taxation) holding the advertisement as fees for technical services was the vehement reliance on Hon ble Karnataka High Court judgemnet in the case of CIT vs. Samsung Electronics Co. Ltd. (2009 (9) TMI 526 - KARNATAKA HIGH COURT ). However, the Hon ble Supreme Court in the case of M/s. GE India Technology Centre (P) Ltd. vs. CIT & Anr.(2010 (9) TMI 7 - SUPREME COURT OF INDIA ) reversed this proposition of Hon ble Karnataka High Court (supra). Thus, in our considered view, the advertisement payment made to NRI cannot be held as liable to TDS. We further hold that there is no element of rendering any managerial, technical or consultancy services so as to be termed as fees for technical services. - Decided in favour of assessee.
Issues:
- Whether the assessee was required to deduct tax at source under section 195 of the Income Tax Act on payments made to a non-resident entity for advertisement charges. - Whether the payments made for advertisement could be considered as fees for technical services attracting TDS. Analysis: 1. Issue 1: Tax Deduction at Source (TDS) under Section 195 - The Assessing Officer (AO) held that the assessee was required to deduct tax at source under section 195 of the Act on payments made to a non-resident entity for advertisement charges. - The AO relied on the explanation inserted in the Finance Act, 2010, stating that income shall be deemed to accrue and arise in India even if the non-resident had not rendered any services in India. - The AO also cited Circular N. 23 dated 23rd July, 1969, which clarified the provisions of Section 9 prior to the amendment by the Finance Act 1976. - The AO considered the remittance made by the assessee on account of advertising as fees for technical services under Section 9(1)(ii)(b) of the Act. - The AO raised a demand of tax under section 201(1) and interest under section 201(1A) of the Act. 2. Issue 2: Classification of Payments for Advertisement - The assessee contended that the payments made for advertisement were not for technical services and thus not liable for TDS under section 195. - The assessee argued that the payments were solely for promoting its products and did not involve any managerial, technical, or consultancy services. - The ld. CIT(A) held that the assessee was not liable for TDS as the amounts were not paid for technical services and the payments for advertisement did not fall under fees for technical services. - The ld. CIT(A) referred to judicial precedents and emphasized the requirement for services rendered by the non-resident to be utilized in India for section 195 to be attracted. - The ld. CIT(A) directed the AO to cancel the tax demand and interest under sections 201(1) and 201(1A) of the Act. 3. Judgment and Dismissal of Appeals - The Revenue appealed the ld. CIT(A)'s order before the Appellate Tribunal. - The Tribunal upheld the ld. CIT(A)'s order, stating that the advertisement payment to the non-resident entity could not be considered liable for TDS. - The Tribunal emphasized that there was no element of technical services in the advertisement payments, leading to the dismissal of the Revenue's appeals. - The Tribunal noted the reversal of the proposition by the Supreme Court in a related case, supporting the decision to uphold the ld. CIT(A)'s order. - Consequently, the appeals of the Revenue were dismissed by the Tribunal. This detailed analysis highlights the key issues of tax deduction at source under section 195 and the classification of payments for advertisement charges, along with the arguments, decisions, and judgments involved in the legal proceedings leading to the dismissal of the Revenue's appeals.
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