2012 (4) TMI 625 - AT - Income Tax

Assessee in default u/s 201(1) and that the interest u/s 201(1A) - non deduction of tds - Held that - Assesseee was not liable to deduct tax from the amount representing reimbursement of the salary paid by IDS to Dr. Sundararajan while remitting the same to IDS u/s 195 of the IT Act. The salary paid by the assessee to Dr.Sundararajan has been made the subject of tax deducted at source and the same has been remitted to the Indian Income tax authorities

Summary

Issues:
Revenue's appeal against CIT(A)'s order allowing assessee's claim of not deducting tax at source for payments to foreign companies for employee services.

Analysis:
1. The appeal by the revenue pertains to the assessment year 2006-07, challenging the CIT(A)'s decision regarding the assessee's liability to deduct tax at source for payments to foreign companies for employee services.
2. The assessee, engaged in data processing and IT services, entered into a secondment agreement with a foreign company to secure the services of its employee for work in India. The assessee reimbursed the employee's salary to the foreign company without deducting tax at source under Sec. 195 of the IT Act.
3. The Assessing Officer (AO) held the assessee as an "assessee in default" under Sec. 201(1) and levied interest under Sec. 201(1A) for not deducting tax at source. The CIT(A) considered the secondment agreement, stating that the salary was paid in India and already taxed in the employee's hands, hence not liable for further taxation.
4. The Tribunal reviewed previous decisions supporting the assessee's position, emphasizing that the payment did not constitute fees for technical services. The Tribunal referred to specific clauses in the agreement and distinguished the case from previous rulings, ultimately upholding the CIT(A)'s decision.
5. After hearing both parties, the Tribunal concluded that the assessee's case aligned with previous decisions and rejected the revenue's appeal. The order was pronounced in favor of the assessee on 4th April 2012.

This detailed analysis outlines the key points of the legal judgment, including the nature of the dispute, the arguments presented by both parties, the interpretation of relevant legal provisions, and the final decision rendered by the Tribunal.