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2015 (5) TMI 1236 - AT - Income TaxTDS u/s 195 - Disallowance u/s 40(a)(i) for non deduction of tax at source - Payment made to non residents - HELD THAT - Fees for technical services paid by a resident in respect of services utilised in a business carried on by the resident outside India or for the purposes of earning any income from any source outside India, does not constitute an income liable to tax under the Act as it falls in the exception to clause (b) of section 9(i)(vii) of the Act. Further, there is no dispute to the fact that rent has also been paid by the assessee in respect of property which is situated in the said country abroad and as per Article 6 of the DTAA with respective country it is taxable in that country and not in India. Accordingly, there is no tax payable by the recipient in India for rent received in respect of property situated abroad. Hence, provisions of section 195 are also not applicable in respect thereof. Considering above facts and also in the light of decision of Hon'ble Apex Court in the case of GE India Technical Centre Pvt. Ltd. 2010 (9) TMI 7 - SUPREME COURT , if payment is not made to a non-resident which is not taxable under the provisions of Income Tax Act, question of making deduction u/s. 195 of Act does not arise. Consequently, no disallowance u/s. 40(a)(i) of the Act could be made. In view of the above, we uphold the order of learned CIT(A) and reject ground No. 1 of the appeal taken by the Department.
Issues Involved:
- Disallowance of expenses under section 40(a)(i) of the Income Tax Act, 1961 for non-deduction of tax at source. Detailed Analysis: 1. The appellant, engaged in software development/ITES with branches in the USA and Japan, faced a disallowance of expenses amounting to Rs. 23.12 lakhs by the Assessing Officer (AO) under section 40(a)(i) for not deducting tax at source from payments made at its foreign branches. The ld.CIT(A) deleted the disallowance, citing a previous decision for AY 2002-03. This led to the revenue appealing against the order. 2. During the hearing, the appellant's representative highlighted a previous Tribunal order that upheld the ld.CIT(A)'s decision for AY 2002-03. This order referenced sec. 9(1)(vii)(b), stating that income from services used in a business outside India is not taxable in India, thus no tax deduction at the source is required. The Tribunal relied on the decision in the case of GE India Technology Centre Pvt Ltd (327 ITR 456) to support this stance. 3. The co-ordinate Bench of the Tribunal, in a similar issue for AY 2002-03, clarified that TDS is only required if the payment is taxable under the Income Tax Act. It emphasized that DTAA provisions prevail over the Act, and payments to foreign suppliers for services abroad are not taxable in India unless the recipients have a permanent establishment in India. The Tribunal also discussed the exemption under section 9(1)(vii)(b) for technical services utilized outside India, supporting the non-applicability of TDS under section 195. 4. The ld. DR did not challenge the arguments presented by the appellant's representative, indicating agreement with the interpretation of the law and the previous Tribunal decisions. 5. Considering the consistency in decisions, the Tribunal upheld the ld.CIT(A)'s order for the current appeal, leading to the dismissal of the revenue's appeal. The Tribunal found no fault in the ld.CIT(A)'s decision based on the legal principles and precedents discussed in the judgment. In conclusion, the Tribunal's judgment reaffirmed the non-applicability of TDS under section 195 for payments made to foreign suppliers for services utilized outside India, in line with previous decisions and legal provisions, resulting in the dismissal of the revenue's appeal.
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