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2018 (2) TMI 2071 - AT - Income TaxTDS u/s 195 - taxability of Business Development Commission - payments effected by the assessee to its principal abroad - whether payments made by the Appellant to US Parent Company towards Business development Commission (marketing services) result in income chargeable to tax in India ? - HELD THAT - Assessee had never raised a plea before the ld. AO regarding application of DTAA between India and USA. In fact, the only finding given by the ld. Assessing Officer was that the payments effected by the assessee to its principal abroad was liable for deduction of tax at source u/s.195 of the Act. There is no specific finding by the ld. AO on the nature of the payments made by the assessee to SGS, USA nor has he given the specific reasons why he considered it to be liable for deduction of tax at source. The nature of the services rendered by its principal to the assessee is not clear from the records. Assessee did not produce the transfer pricing study nor the order of the ld. TPO, before us, which could have given a fair idea of the nature of services rendered by SGS, USA. Further, assessee also did not produce the invoices raised by SGS USA for services rendered by it, nor any communication between the said company and the assessee. Before coming to a conclusion whether services rendered by SGS USA to the assessee was of a nature which required deduction of tax at source as per Section 195 it is required to have a look on all the underlying documents. In our opinion, lower authorities should have made a thread-base study of the invoices, agreements entered between the assessee and its customers and the communication exchanged between assessee and SGS USA as well as assessee and its customers abroad. It was also necessary to verify the cost plus method followed by the assessee for its billing and verify what part of its profit were transferred to SGS USA, and whether such transfer was effectively for shifting of profits camouflaging it as commission. A wholesome view was not taken by any of the lower authorities. Coming to the judgment of Hon ble Apex Court in the case of Hindustan Petroleum Corporation Ltd 2005 (9) TMI 624 - SUPREME COURT relied on by the ld. Authorised Representative, the Revenue in the said case had tried to supplement the finding of the ld. Assessing Officer. In our opinion, this Tribunal being the final fact finding body, cannot be restrained from looking into all the facts that are associated with an issue raised before it, which have a bearing on the ultimate adjudication of such issue. In our opinion, the judgment relied on by the ld. Authorised Representative, will not stop this Tribunal from looking into TP study of the assessee which is very relevant in ascertaining the nature services rendered by the SGS USA. In the fitness of the things, we are of the opinion that the issue requires a fresh look by the ld. Assessing Officer. Ld. Assessing Officer has to go through all the necessary documentations and come to a decision whether the payments made by the assessee to SGS USA required deduction of tax at source under the Act and whether there was any concerted effort to shift profits by camouflaging it as commission on sales. We therefore set aside the orders of the lower authorities and remit the issue back to the ld. Assessing Officer for consideration afresh, de novo , in accordance with law. Ground of the assessee is allowed for statistical purpose Allowance of set off the loss one of the STP unit of the assessee against business income from others - HELD THAT - The issue raised by the Revenue stands settled in favour of the assessee by the judgment of Hon ble Apex Court in the case of CIT vs. Yokogowa India Ltd 2016 (12) TMI 881 - SUPREME COURT we are of the opinion that ld. Commissioner of Income Tax (Appeals) was justified in directing the ld. Assessing Officer to allow the set off loss on the STP unit against income from other units. We do not find any reason to interfere with the order of the ld. Commissioner of Income Tax (Appeals) in this regard.- Decided against revenue.
Issues Involved:
1. Non-taxability of Business Development Commission. 2. Disallowance of Business Development Commission for non-deduction of tax at source. 3. Application of DTAA between India and USA. 4. Set off of loss from one STP unit against business income from other units. Issue-Wise Detailed Analysis: 1. Non-taxability of Business Development Commission: The assessee argued that the non-taxability of the Business Development Commission had been accepted by the department pursuant to an order of the CIT(A) against a TDS order under section 201, and thus should be treated as final. However, the CIT(A) upheld the disallowance of the Business Development Commission, concluding that payments made to the US Parent Company for marketing services resulted in income chargeable to tax in India. The CIT(A) disregarded the legal position that the withdrawal of Circular 23 of 1969 did not alter the law settled by the Apex Court rulings. 2. Disallowance of Business Development Commission for Non-Deduction of Tax at Source: The assessee, engaged in business process outsourcing, paid a sum of ?22,41,69,067 as a business development commission to its parent company in the USA. The Assessing Officer (AO) disallowed this claim under Section 40(a)(i) of the Income Tax Act, 1961, for non-deduction of tax at source as per Section 195. The AO held that the provisions of Section 9(i)(a) required tax deduction on the business provision commission paid. The CIT(A) supported the AO’s decision, stating that the services provided by the parent company were managerial in nature and thus fell under "fees for technical services" as per Section 9(i)(vii) of the Act, requiring TDS under Section 195. 3. Application of DTAA Between India and USA: The assessee contended that the payments could not be considered technical services under the DTAA between India and the USA. They argued that the services provided by the US parent company were purely marketing services and did not involve any technical knowledge, experience, skill, know-how, or processes. The assessee relied on various Tribunal decisions and the judgment of the Hon’ble Apex Court in CIT vs. Toshoku. The CIT(A) dismissed these arguments, emphasizing that the payments were for managerial services and thus taxable under Section 9(i)(vii) of the Act. The Tribunal noted that the nature of services rendered by the parent company was unclear from the records and required a thorough examination of all underlying documents, including the transfer pricing study and invoices. 4. Set Off of Loss from One STP Unit Against Business Income from Other Units: The Revenue's appeal challenged the CIT(A)’s direction to allow the set off of loss from one STP unit against business income from other units. The Tribunal referred to the Hon’ble Apex Court’s judgment in CIT vs. Yokogowa India Ltd, which settled the issue in favor of the assessee. Consequently, the Tribunal upheld the CIT(A)’s decision to allow the set off of loss from the STP unit against income from other units. Conclusion: The Tribunal set aside the orders of the lower authorities regarding the disallowance of the Business Development Commission and remitted the issue back to the AO for fresh consideration. The Tribunal directed the AO to examine all relevant documents to determine whether the payments required tax deduction at source and whether there was any profit shifting. The Tribunal dismissed the Revenue’s appeal regarding the set off of loss from one STP unit against business income from other units. The appeal of the assessee was allowed for statistical purposes, and the Revenue’s appeal was dismissed.
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