2022 (8) TMI 1517 - AT - Income Tax

TDS u/s 195 - disallowance of payment made to an Overseas Entity without withholding tax - Assessee submitted that in absence of any Fee for Technical Services (FTS) clause in the India-Philippines DTAA the payment made by assessee is to be treated as business profit - in absence of a Permanent Establishment (PE) of the payee in India the amount cannot be taxed. HELD THAT - We find the issue is settled in favour of assessee in a number of decisions of the co-ordinate Benches with reference to India-Philippines DTAA itself. In case of ZYNGA GAME NETWORKS INDIA PVT. LTD 2018 (8) TMI 2091 - ITAT BANGALORE payment in the nature of FTS made to Philippines tax resident in the absence of a PE of such tax resident of Philippines in India income is not chargeable to tax in India supports the plea of the assessee in this regard. We therefore hold that the sum in question cannot be taxed as FTS in India. Consequently there was no obligation in the part of assessee to deduct tax at source u/s 195 of the Act. Consequently there cannot be any disallowance u/s. 40(a)(ia). Also see M/s. Paramina Earth Technologies Inc. Philippines 2020 (2) TMI 1276 - ITAT VISAKHAPATNAM M/S. IBM INDIA PVT. LTD. 2018 (11) TMI 1119 - ITAT BANGALORE No contrary decision has been brought to our notice by learned Departmental Representative - Decided against revenue.

Summary

Issues involved: Appeal against order dated 31.06.2019 of Commissioner of Income-Tax (Appeals)-4, New Delhi for assessment year 2015-16 regarding disallowance of payment made to an Overseas Entity without withholding tax under Section 195 of the Act.

Summary:
The assessee, a resident corporate entity engaged in providing business process outsourcing services to overseas Associated Enterprises, filed its return of income for the year under dispute. The assessing officer disallowed a payment made to an Overseas Entity, IQOR Philippines, as business auxiliary services without withholding tax under Section 195 of the Act. The assessee argued that the payment should be treated as business profit due to the absence of a Fee for Technical Services (FTS) clause in the India-Philippines Double Taxation Avoidance Agreement (DTAA). The assessing officer disagreed, considering the payment as FTS and applied domestic law provisions. The Commissioner (Appeals) held that the income should be classified as business profit under Article 7 of the DTAA, and in the absence of a Permanent Establishment (PE), the income is not taxable in India.

Upon hearing both parties and examining the material, the Tribunal found in favor of the assessee based on previous decisions related to the India-Philippines DTAA. The Tribunal upheld the Commissioner (Appeals) decision, citing similar rulings in other cases. No contrary decision was presented, leading to the dismissal of the appeal.

In conclusion, the appeal against the disallowance of payment made to an Overseas Entity without withholding tax under Section 195 of the Act was dismissed by the Tribunal based on the interpretation of the India-Philippines DTAA and the absence of a PE in India for the payee.