2013 (12) TMI 1096 - AT - Income Tax

Applicability of section 248 Appeal by person denying liability to deduct tax in certain cases - The assessee, after deducting such tax at source, moved before the CIT(Appeals) under Section 248 for a ruling that there was no necessity for deducting tax at source - Held that - There was an employee-employer relationship between the assessee and expatriate employees and withholding of tax on salaries of such employees having been already done by M/s CMS RDC, assessee was not obliged to deduct any tax - Such deputed employees were filing returns in India - Assessee was not required to deduct tax at source on reimbursement of salaries given to M/s CMS RDC - Section 248 does enable an assessee to file an appeal even after deduction of tax at source claiming that no tax was required to be deducted at source since such appeal is only for a declaration regarding tax liability There is no fault with CIT(Appeals) entertaining such appeal of the assessee Decided against Revenue.

Summary

Issues Involved:
1. Whether the CIT(Appeals) was correct in entertaining the assessee's appeal under Section 248 of the Income-tax Act, 1961.
2. Whether the assessee was liable to deduct tax at source on reimbursement of salaries paid to M/s CMS Resource Management Company under Section 195 of the Income-tax Act, 1961.
3. Whether the relationship between the assessee and the expatriate employees deputed by M/s CMS RDC constituted an employer-employee relationship.
4. Whether the payments made by the assessee to M/s CMS RDC were for managerial services and thus fell within the purview of Section 9(1)(vii) of the Income-tax Act, 1961.

Detailed Analysis:

1. CIT(Appeals) Entertaining the Appeal Under Section 248:
The Revenue contended that the CIT(Appeals) erred in entertaining the assessee's appeal under Section 248 of the Income-tax Act, 1961. The Tribunal clarified that Section 248 allows an assessee to file an appeal even after deducting tax at source if they seek a declaration that no tax was required to be deducted. The Tribunal found no fault with the CIT(Appeals) for entertaining such an appeal, thereby validating the CIT(Appeals)'s jurisdiction in this matter.

2. Liability to Deduct Tax at Source on Reimbursement of Salaries:
The core issue was whether the assessee was liable to deduct tax at source on the reimbursement of salaries paid to M/s CMS RDC. The Tribunal referred to its previous order dated 9th February 2012, which dealt with similar disallowances under Section 40(a)(ia) for assessment years 2002-03 to 2006-07. It was held that the payments were reimbursements and not fees for technical services, and hence, no tax was deductible under Section 195. The Tribunal concluded that the assessee was justified in believing that the payments did not attract tax liability in India, thereby supporting the CIT(Appeals)'s ruling in favor of the assessee.

3. Employer-Employee Relationship:
The Tribunal examined whether there was an employer-employee relationship between the assessee and the expatriate employees deputed by M/s CMS RDC. It was noted that the expatriate employees were on the payroll of CMS RDC, which had already deducted tax at source on their salaries. The CIT(Appeals) found that these employees were filing tax returns in India, and there was no direct employer-employee relationship between the assessee and the expatriates. The Tribunal upheld this finding, affirming that the assessee was not required to deduct tax at source on the reimbursements made to CMS RDC.

4. Nature of Payments to M/s CMS RDC:
The Revenue argued that the payments were for managerial services and should be classified under Section 9(1)(vii) of the Act, which pertains to fees for technical services. The Tribunal, however, relied on the agreements and letters provided by the assessee, which indicated that the payments were reimbursements for salaries and associated costs, not fees for technical services. The Tribunal also referenced the Double Taxation Agreement (DTAA) between India and the USA, which necessitates that technical services must be "made available" to the payer. The Tribunal concluded that no technical know-how was transferred to the assessee, and thus, the payments did not fall under Section 9(1)(vii).

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(Appeals)'s decision that the assessee was not liable to deduct tax at source on the reimbursements made to M/s CMS RDC. The Tribunal validated the CIT(Appeals)'s jurisdiction under Section 248 and confirmed that the payments were not for technical services but mere reimbursements, thus not attracting tax deduction under Section 195. The order was pronounced on 14th February 2013 in Chennai.