2016 (3) TMI 722 - AT - Income Tax

TDS liability - technical knowledge, expertise, knowhow, provided by Foster Wheeler USA - DTAA - Held that - The technical knowledge, expertise, knowhow, provided by Foster Wheeler USA were very much made available to the assessee. Hence, the assessee is liable to deduct tax while making payment. Therefore, the assessee is also liable to pay interest under Section 234A and 234B of the Act. Accordingly, this Tribunal do not find any reason to interfere with the order of the lower authority and the same is confirmed. - Decided against assessee.

Summary

Issues Involved:
1. Liability to deduct tax at source under Section 195 of the Income-tax Act.
2. Classification of payment as "fee for technical services" under the Double Taxation Avoidance Agreement (DTAA) between India and the USA.
3. Applicability of interest under Sections 234A and 234B of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Liability to Deduct Tax at Source under Section 195:
The primary issue was whether the assessee, a non-resident company incorporated in France, was liable to deduct tax at source under Section 195 of the Income-tax Act on payments made to Foster Wheeler USA for technical and engineering services. The assessee contended that the payments were not liable for tax deduction at source due to the provisions of the DTAA between India and the USA. The Assessing Officer disallowed the payments under Section 40(a)(i) of the Act due to non-deduction of tax. The Tribunal examined the nature of services rendered by Foster Wheeler USA and concluded that the payments were indeed liable for tax deduction at source under Section 195, as the services were utilized in India for earning income.

2. Classification of Payment as "Fee for Technical Services" under DTAA:
The assessee argued that the payments made to Foster Wheeler USA did not qualify as "fee for technical services" under the DTAA between India and the USA, as the technical knowledge, expertise, or knowhow was not "made available" to the assessee. The Tribunal analyzed various judicial precedents and the nature of services provided, which included engineering support services, IT services, and sharing best practices. The Tribunal concluded that the technical knowledge, expertise, and knowhow were indeed made available to the assessee, enabling them to utilize such knowledge independently in future projects. Therefore, the payments were classified as "fee for technical services" under the DTAA, making them taxable in India.

3. Applicability of Interest under Sections 234A and 234B:
The assessee contended that as a non-resident, taxes on income chargeable had to be deducted at source, and hence, there was no requirement to pay advance tax, making the provisions of Sections 234A and 234B inapplicable. However, the Tribunal upheld the levy of interest under Sections 234A and 234B, as the assessee failed to deduct tax at source on the payments made to Foster Wheeler USA, resulting in a tax liability.

Conclusion:
The Tribunal dismissed the appeals of the assessee, confirming the disallowance under Section 40(a)(i) of the Income-tax Act and the levy of interest under Sections 234A and 234B. The Tribunal held that the payments made to Foster Wheeler USA were liable for tax deduction at source under Section 195 and classified as "fee for technical services" under the DTAA between India and the USA. The technical knowledge, expertise, and knowhow were made available to the assessee, making the payments taxable in India.