2022 (9) TMI 1476 - AT - Income Tax

TDS u/s 195 - payment made to non- resident - payment for royalty and fee for technical services - HELD THAT - The issue in the instant appeal is similar to one as decided in the sister concern namely DCIT vs. M/s Forum Homes Pvt. Ltd. 2021 (10) TMI 356 - ITAT MUMBAI wherein the Co-ordinate Benches held that the conditions under Article 12(4)(a) of the Tax Treaty are not fulfilled and the services are not provided under technical knowledge, skill etc. by utilizing them for future independently nor any drawing, design have been provided to the assessee which can be applied by the assessee independently. We set aside the order of CIT(A) by holding that the payment made to non- resident recipient not having any permanent establishment in India and also that the services provided are not in the nature of royalty and fee for technical services. Accordingly we direct the AO to delete the demand. The appeal of the assessee is allowed.

Summary

Issues:
Appeals against separate orders of CIT(A) for assessment years 2011-12 & 2012-13 - Deduction of tax at source u/s 195 of the Act on payments made to a non-resident company - Applicability of DTAA between India and Singapore - Whether services provided constitute royalty and fee for technical services - Permanent establishment in India - Similarity to a previous case decided by ITAT Mumbai Bench.

Analysis:
1. The appellant raised various grounds challenging the orders passed by the CIT(A) for the assessment years 2011-12 & 2012-13. The primary contention was that the orders were arbitrary, unjustified, and illegal.

2. The facts of the case revolved around the appellant, an Indian company engaged in construction projects, making payments to a non-resident company in Singapore for consultancy services. The Assessing Officer (AO) held that tax should have been deducted at the source under Section 195 of the Act as the payments constituted royalty and fee for technical services under the DTAA between India and Singapore.

3. The CIT(A) upheld the AO's decision, stating that the payments fell within the ambit of Article 12 of the DTAA, making them liable for tax deduction under Section 195 of the Act.

4. The appellant argued that since it did not have a permanent establishment in India and the services were provided solely from Singapore, Section 195 of the Act should not apply. The appellant relied on a decision by the ITAT Mumbai Bench in a similar case involving its sister concern.

5. After considering the arguments, the ITAT Kolkata Bench found that the services provided did not meet the conditions under Article 12(4) of the DTAA. The services were project-specific and did not provide technical knowledge or skills for future independent use by the appellant. Therefore, the payments did not qualify as royalty or fee for technical services.

6. The ITAT Kolkata Bench, following the decision in the sister concern's case, set aside the CIT(A)'s order and directed the AO to delete the tax liability on the appellant. The appeal was allowed for both assessment years.

7. The judgment highlighted the importance of analyzing the nature of services provided, the terms of the agreement, and the applicability of DTAA provisions in determining the tax liability on payments made to non-resident entities without a permanent establishment in India.

8. The decision emphasized the need for a thorough examination of the specific services rendered and their relevance to the definitions of royalty and fee for technical services under the relevant tax treaty to ascertain the tax implications accurately.