2016 (8) TMI 1551 - AT - Income Tax

Rectification u/s 254 - ITAT held that the assessee being an AOP is not required to deduct tax at source for making payment to its constituent companies - HELD THAT - Tribunal has given a finding that the assessee being an AOP/JV is not required to deduct tax at source from the payments to the constituents towards their share of work carried out by them. Tribunal thought it fit to direct the A.O. to verify whether Chinese concern has offered its income to tax in India and has also directed the A.O. to bring the same to tax in India if it is found that the non-resident has not offered this amount as part of their taxable income in India. We find that the above observation or direction is only means that the A.O. may take suitable action for bringing the amount to tax in accordance with the provisions of the Act. Whether it is only an observation or a direction in our opinion to take a suitable action A.O. has to follow the relevant provision of law. It is a settled position that before bringing to tax any income of a non-resident the A.O. has to examine as to whether such income is taxable in India. The conditions precedent for bringing to tax such amount have to be satisfied before the A.O. can take recourse to bringing the same to tax in India in the hands of the assessee. Therefore in our opinion there is no mistake committed by the Tribunal in giving such observation/direction but in our opinion it would be in the fitness of the case and justice if the following the words are added at the end of para-12 Only if the said income is chargeable to tax in India . M.As. of the assessee are partly allowed.

Summary

Issues:
Rectification/modification of Tribunal's order under section 254(2) of the I.T. Act, 1961 regarding liability to make TDS for payments to constituent companies.

Analysis:
The assessee, a Joint Venture (JV) formed by two constituents, sought rectification/modification of the Tribunal's order regarding TDS liability for payments to its constituents. The Tribunal had held that the assessee, as an AOP, was not required to deduct tax at source for payments to its constituents. However, the Tribunal directed the Assessing Officer (A.O.) to verify if the Chinese constituent had offered its income for tax in India and to bring it to tax if not. The assessee contended that these were considered directions to the A.O., leading to reopening of assessments. The Tribunal clarified that such direction was not mandatory but meant that A.O. may take suitable action after verifying taxability in India. It emphasized that A.O. must ensure the income is taxable in India before bringing it to tax in the hands of the assessee.

The Tribunal acknowledged the assessee's plea for modification but clarified that the direction to A.O. was not an error. It proposed adding a condition that the income should be chargeable to tax in India before bringing it to tax. This condition aimed to ensure compliance with relevant provisions of law before taxing non-resident income. The Tribunal partially allowed the assessee's miscellaneous applications, emphasizing the importance of verifying taxability in India before taxing the income of non-residents through suitable actions by the A.O.

In conclusion, the Tribunal clarified that its direction to the A.O. regarding taxing the income of the non-resident constituent was not mandatory but contingent upon the income being chargeable to tax in India. This condition was proposed to ensure compliance with relevant provisions of the I.T. Act, emphasizing the need for the A.O. to verify taxability before bringing such income to tax. The Tribunal's decision highlighted the importance of following due process and ensuring tax liability only if the income meets the conditions for taxation in India.