2013 (10) TMI 215 - HC - Income Tax

TDS u/s 195 - whether reimbursement of lease line charges does/does not qualify as Royalty under Article 12 of India UK Treaty Amount attributable to PE in India or not Held that - Amount received by the Respondent-Assessee as reimbursement of lease line charges and would not classify either as royalty or as income attributed to a Permanent Establishment in India - Reimbursement of lease line charges received by the Respondent-Assessee is the actual amount which is incurred by it on making payment to the international telecom operator - There is no income earned by Respondent-Assessee which is subject to tax but is only a reimbursement of lease line charges paid by it to international telecom operator Decided against the Revenue.

Summary

Issues:
1. Interpretation of fees for technical services under India UK Treaty.
2. Taxability of amount received for marketing and management services outside India.
3. Attributability of income to Permanent Establishment in India.
4. Classification of reimbursement of lease line charges as Royalty.
5. Tax liability under section 195 of the Act.
6. Qualification of reimbursement of expenses as Fees for Technical services.
7. Attributability of expenses to Permanent Establishment in India.
8. Taxability of amount received on account of sale of contract.

Analysis:

Issue 1:
The Tribunal did not consider Questions (1) & (2) regarding fees for technical services as they were not pressed by the Appellant. The decision was based on a previous ruling related to tax deduction at source provisions.

Issue 2:
Regarding Question (3), the Tribunal upheld that fees for marketing and management services outside India are not taxable in India as they are not attributable to the Permanent Establishment in India. The Revenue argued that force of attraction rules were ignored, but this argument was not raised before the authorities earlier. The Tribunal's decision was based on factual findings and did not warrant interference.

Issue 3:
The Tribunal held in favor of the Respondent that reimbursement of lease line charges does not qualify as royalty or income attributed to a Permanent Establishment in India. The decision was based on the fact that the reimbursement was the actual amount incurred by the Respondent, not income subject to tax.

Issue 4:
Question (6) was deemed covered in favor of the Respondent based on a previous court decision. The Tribunal followed this decision in granting relief to the Respondent, leading to no need to entertain the question.

Issue 5:
Questions (7) & (8) were remanded by the Tribunal to the Assessing Officer for a fresh decision, hence not entertained in the current judgment.

Issue 6:
The appeal was admitted on Question (9) regarding the taxability of the amount received on account of the sale of a contract, indicating further consideration by the Court.