2018 (5) TMI 1844 - AT - Income Tax

TDS u/s 195 - Fees for technical services - period of stay in India of trainees - assessee used to get trainers from various countries to visit various places in India for providing necessary training - whether any of the trainers were in India for more than 90 days during the relevant year? - Make Available Test - HELD THAT - A perusal of the assessment order does not show of any of the trainers being in India for more than 90 days. The exact number of days has not been produced by the A.R to establish that the number of days each specific trainer has been in India. Perusal of the agreement between the assessee and its parent organization has also not been placed before us to know whether any technical services have actually been provided and whether the same has passed Make Available Test . In the interest of justice, this issue is restored to the file of AO for readjudication. The assessee shall be at liberty to prove before AO that the days the trainers were in India were less than 90 days and that what has been provided is not fees for technical services. Assessee s appeal are partly allowed for statistical purposes. TDS u/s 194H - commission payment - Agreement between the assessee and M/s.TQ Services, Hyderabad - HELD THAT - A perusal of the agreement between the assessee and M/s.TQ Services, Hyderabad, it was clearly shown that clause 6.6 shows the Methodology of demarcation of the fees collected by M/s.TQ Services. The assessee is to issue invoices to M/s.TQ Services for sharing of income, which is provided in Schedule-A. Thus, clearly the payments made by the assessee to M/s.TQ Services is in no way commission payment, but is in fact, the share of profit with M/s.TQ Services and consequently, the provisions of the section 194H does not apply. Consequently, the disallowance made by ld. Assessing Officer stands deleted. - Decided in favour of assessee.

Summary

Issues involved: Appeal against order of Commissioner of Income-tax (Appeals) for assessment year 2012-13; Disallowance of lecturer cost for non-deduction of TDS; Existence of Permanent Establishment for foreign entity; Disallowance of exam marking and certification fees; Disallowance of travelling expenses; Disallowance of management fees; Disallowance of amount made to services without TDS deduction; Applicability of Sec 201 retrospectively.

Analysis:

1. Disallowance of Lecturer Cost for Non-Deduction of TDS:
The appellant contested the disallowance of lecturer cost amounting to ?1,04,51,762 for non-deduction of TDS under section 40(a)(i) of the Income Tax Act. The appellant argued that the payments made to the foreign entity were exempt under the Double Taxation Avoidance Agreement (DTAA) between India and the UK. The dispute revolved around the duration of stay of trainers in India, with the Assessing Officer holding that the trainers' services constituted technical services and TDS was applicable. However, the tribunal found that the training provided was educational in nature and restored the issue to the Assessing Officer for further verification.

2. Existence of Permanent Establishment for Foreign Entity:
The appellant raised concerns regarding the assumption of Permanent Establishment (PE) for the foreign entity under Article 5 of the DTAA. The tribunal noted that the agreement between the appellant and the foreign entity was primarily for educational training in welding activities. The tribunal directed the issue to be re-examined by the Assessing Officer to determine the actual presence of PE and the nature of services provided.

3. Disallowance of Various Expenses:
The disallowance of exam marking, certification fees, travelling expenses, and management fees was also challenged by the appellant. The tribunal examined the agreements and found that the payments made were not in the nature of commission but rather profit-sharing arrangements between the parties. Consequently, the disallowances were set aside, and the appellant's appeal was partly allowed on these grounds.

4. Applicability of Sec 201 Retrospectively:
The appellant contended that Section 201 was not retrospective and should not apply to their case, citing case laws to support their argument. The tribunal considered the agreements and concluded that the payments made did not fall under the purview of commission, thereby rejecting the disallowance made by the Assessing Officer. As a result, the appeal was partly allowed on this issue as well.

In conclusion, the tribunal partially allowed the appellant's appeal on various grounds related to TDS disallowances, existence of PE, and applicability of specific sections, directing further examination by the Assessing Officer in certain instances for a more thorough assessment.