2014 (4) TMI 68 - AT - Income Tax

Default for non-deduction of TDS - additions u/s 40(a)(i) - Indo-UK DTAA - Deemed income u/s 9(1)vi)/(vii) Assessee in Default u/s 201 for Non-Deduction of tax at Source - assessee did not deduct tax with regard to two phases on the ground that the technical designs and drawings which were prepared in London were to be transported to India - Held that - in case of Ishikawajima-Harima Heavy Industries v. DIT(IT) 2007 (1) TMI 91 - SUPREME COURT stated that that if entire services rendered by foreign company to assessee in respect of phase one and two outside India then same cannot become chargeable to tax in hands of foreign company in India - Unless amount paid by assessee company to foreign company does not become chargeable to tax in India then question of applicability of section 195 does not arise - No liability of assessee to deduct tax at source on payment made by it with respect to work relating to phase one and two - Amount in question paid by assessee to SSA was not taxable in India in hands of SSA either u/s.9(l)(vi) or 9(1)(vii) - Assessee therefore was not liable to deduct tax at source from said amount paid to M/s. SSA and there was no question of disallowing amount by invoking provisions of sec.40(a)(i) - Delete disallowance made by AO u/s.40(a)(i) and confirmed by Ld. CIT (A) - Assessee was not liable for deduction of tax under section 195 of Act Decided in favor of assessee.

Summary

Issues:
1. Jurisdiction of the Assessing Officer in passing the order under section 201/201(1A) of the Income Tax Act.
2. Tax liability of the assessee for non-deduction of tax at source on remittances made.
3. Determination of whether payments made by the assessee were chargeable under the Income Tax Act or the Indo-UK Double Taxation Avoidance Agreement.

Analysis:

Issue 1: Jurisdiction of the Assessing Officer
The appeal challenged the jurisdiction of the Assessing Officer (AO) in passing the order under section 201/201(1A) of the Income Tax Act. The appellant contended that the second order passed by the AO was without jurisdiction and void ab-initio. The Tribunal examined the grounds of appeal and assessed the validity of the AO's actions. The Legal Counsel for the appellant argued that the technical designs and drawings were prepared outside India, and therefore, the payments made by the assessee were not chargeable under the Act. The Tribunal considered relevant legal precedents, including the decision of the Hon'ble Supreme Court in a specific case, to determine the applicability of tax deduction at source in such circumstances. The Tribunal concluded that the AO's order lacked jurisdiction, and the appellant was not liable for tax deduction under section 195 of the Act.

Issue 2: Tax Liability for Non-deduction of Tax at Source
The core issue revolved around the tax liability of the assessee for non-deduction of tax at source on remittances made to a UK company. The AO had held the assessee liable to pay tax and interest under section 201(1A) of the Act. The appellant contested this liability, arguing that the payments made were not chargeable under the Act or the Indo-UK Double Taxation Avoidance Agreement. The Tribunal analyzed the nature of the payments, considering whether they constituted income or reimbursement of expenses. The Legal Counsel for the appellant presented arguments based on legal interpretations and precedents to support the contention that the payments were not taxable in India. The Tribunal ultimately ruled in favor of the appellant, holding that there was no liability for tax deduction at source on the payments made by the assessee.

Issue 3: Payment Chargeability under the Income Tax Act
The Tribunal further examined whether the payments made by the assessee were chargeable under the Income Tax Act or the Indo-UK Double Taxation Avoidance Agreement. The AO and the Commissioner had determined that the payments were taxable in India. However, the appellant argued that the services were rendered outside India, and therefore, the payments were not taxable. The Tribunal considered legal provisions, including relevant treaty clauses and domestic law amendments, to assess the tax liability. Relying on legal principles and precedents, the Tribunal concluded that the payments made by the assessee were not chargeable to tax in India. The Tribunal's decision was based on a comprehensive analysis of the facts and legal interpretations presented during the proceedings.

This detailed analysis of the judgment highlights the key issues raised, the arguments presented by the parties, and the Tribunal's findings on each issue. The judgment provides valuable insights into the application of tax laws, jurisdictional matters, and the interpretation of international taxation agreements in the context of the specific case.