2019 (12) TMI 1637 - AT - Income Tax

TDS u/s 195 - payment to non residents - exception to Section 9(1)(vi)(b) and 9(1)(vii)(b) - assessee has made payments to non-residents after grossing up the invoice amount and deducted tax at source as per provisions of Section 195A - Assessee submitted that the CIT (Appeals) has erred in treating the payment to non-resident as royalty and further CIT (Appeals) has not considered the exception to Section 9(1)(vi)(b) and 9(1)(vii)(b) - as payments are made to non-residents and the assessee seeks declaration under Section 248 of the Act under the provisions of Section 206AA of the Act, the rate of 25% is not applicable to assessee for the purpose of grossing up u/s 195A - HELD THAT - We found strength in the submissions of the learned Authorised Representative. On perusal of the order of CIT (Appeals), we find the CIT (Appeals) has dealt on the other grounds of appeal raised before him but there was no specific observation in particular to provisions and Section as envisaged by the learned Authorised Representative. We are of the substantive opinion that there is no finding on this disputed issue as submitted by the learned Authorised Representative by appellate authority. Therefore we considering the submissions of the learned Authorised Representative and findings of the CIT (Appeals) order, consider it appropriate to restore all the disputed issues raised by the assessee in the grounds of appeal to the file of CIT (Appeals) and decided against the assessee, to adjudicate afresh and the assessee should be provided adequate opportunity of hearing to substantiate the case with evidence and shall co-operate in submitting the information for early disposal of appeal and allow the grounds of appeal of assessee for statistical purposes.

Summary

Issues:
Appeals against orders of Commissioner of Income Tax for Asst. Years 2015-16 and 2016-17; Interpretation of interest on refund of TDS as per CBDT Circular No.11 of 2016 and Supreme Court decision in UOI v Tata Chemicals Ltd.; Tax treatment of payments made to non-residents for computer software development; Applicability of Double Taxation Avoidance Agreement (DTAA); Disputed issues under Section 9(1)(vi)(b) and 9(1)(vii)(b) of the Income Tax Act; Restoration of disputed issues to CIT (Appeals) for fresh adjudication.

Analysis:
The appeals were filed against orders of the Commissioner of Income Tax for the assessment years 2015-16 and 2016-17. The primary issue revolved around the interpretation of interest on the refund of Tax Deducted at Source (TDS) in line with CBDT Circular No.11 of 2016 and a Supreme Court decision. The appellant, an Indian company engaged in software development and export, contested the tax treatment of payments to non-residents and sought a declaration under Section 248 of the Income Tax Act that the payments were not taxable under the Act or the Double Taxation Avoidance Agreement (DTAA). The appellant specifically challenged the applicability of Section 9(1)(vi)(b) and 9(1)(vii)(b) of the Act.

During the proceedings, the authorized representative argued that the Commissioner of Income Tax (Appeals) had erred in treating the payments to non-residents as royalty and had not considered exceptions to certain sections of the Income Tax Act. The representative presented evidence to support the contention that the payments were not taxable under the DTAA. In response, the Departmental Representative supported the orders of the Commissioner of Income Tax (Appeals).

Upon hearing the submissions, the Tribunal found merit in the arguments presented by the authorized representative regarding the exceptions under Section 9(1)(vii)(a) and 9(1)(vii)(b) of the Act. It was noted that the Commissioner of Income Tax (Appeals) had not provided specific observations on these critical provisions, leading to a lack of findings on the disputed issues. Consequently, the Tribunal decided to restore all disputed issues to the Commissioner of Income Tax (Appeals) for fresh adjudication, allowing the appellant an opportunity to substantiate their case with evidence.

Additionally, the Tribunal applied the decision in one appeal to several others and directed the restoration of those appeals to the Commissioner of Income Tax (Appeals) for reevaluation. Ultimately, the appellant's appeals were allowed for statistical purposes, emphasizing the need for a comprehensive review of the disputed issues in the assessment of tax liability related to payments made to non-residents for software development services.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved, the arguments presented, and the Tribunal's decision to restore the disputed matters for fresh adjudication, ensuring a fair and thorough assessment of the tax implications related to the payments made by the appellant to non-residents.