2016 (1) TMI 503 - HC - Income Tax

TDS u/s 194J - procurement of ready study data by the parent company, from another foreign company, and supplying it to the assessee amounts - Non deduction of tds on technical services rendered to a resident - Held that - As the ready study data, purchased by M/s.Alkor Petroo Limited from M/s.Hardi Exploration and Production (Hardi UK), was supplied by them to their subsidiary i.e., the assessee; and the amount paid by M/s.Alkor Petroo Limited to Hardi UK was reimbursed by the assessee four years thereafter in the year 2008. It is evident, therefore, that no services were rendered by the parent company (M/s.Alkor Petroo Limited) to its subsidiary (i.e., the assessee) so as to be construed as technical services rendered to a resident under Section 194-J of the Act. Revenue has also not been able to show how procurement of ready study data by the parent company, from another foreign company, and supplying it to the assessee amounts to services rendered to a resident attracting Section 194-J of the Act. The Tribunal is the final court of facts and, as the finding recorded by it is on the basis of the material on record, the order under appeal cannot be said to be perverse. - Decided in favour of assessee

Summary

Issues:
1. Assessment of TDS liability under Section 194-J of the Income Tax Act on payment for technical data.
2. Interpretation of technical services rendered under Section 194-J of the Act.
3. Application of Section 201(1A) for interest on TDS liability.
4. Consideration of reimbursement of expenses and its impact on TDS liability.

Analysis:
1. The case involved an appeal against the order of the Income Tax Appellate Tribunal regarding the assessment of TDS liability under Section 194-J of the Income Tax Act. The Tribunal held that the payment made by the parent company to a foreign entity for technical data, subsequently reimbursed by the assessee, did not attract TDS as no technical services were rendered by the parent company to the assessee. The Tribunal found that the payment was merely a reimbursement of expenses and not income, thus rejecting the assessing officer's imposition of TDS liability.

2. The Tribunal analyzed the concept of technical services rendered under Section 194-J of the Act. It emphasized that for TDS liability to apply, actual technical services must be provided to the resident. In this case, the Tribunal concluded that the procurement and supply of ready study data by the parent company to the assessee did not constitute technical services under the Act, as no services were directly rendered to the assessee by the parent company.

3. The assessing officer had imposed interest under Section 201(1A) of the Act along with the TDS liability. However, the Tribunal found that since the payment was a reimbursement of expenses and not income, the interest on TDS liability was not applicable. The Tribunal's decision was based on the understanding that TDS obligations arise only when the payment is chargeable to tax under the Act, which was not the case in this scenario.

4. The Tribunal further highlighted the nature of reimbursement of expenses and its impact on TDS liability. It noted that the amount reimbursed by the assessee to the parent company was not treated as income or expenditure in the parent company's books but as a loan. Therefore, the Tribunal concluded that no TDS was required when payments were made as reimbursement of expenses. The Tribunal's decision was upheld, emphasizing that the order was based on factual findings and did not raise any substantial legal questions warranting interference under Section 260-A of the Act. The appeal was dismissed, and pending petitions were also rejected without costs.