2016 (9) TMI 705 - AT - Income Tax

TDS u/s 195 - P.E. in India - payments made to foreign entities in nature of rent advertisement and exhibition expenses - Held that - The details of payments and TDS as furnished by the assessee that the taxes have been withheld by the assessee after grossing up and taxes so withheld have been deposited into credit of central government. Therefore pre-conditions as mentioned in section 248 of the Act are satisfied. Further it is seen that payments made to foreign entities are in nature of rent advertisement and exhibition expenses and therefore are in the nature of business receipts in hands of payee. Such business receipts are taxable in India only if payee had PE in India within meaning of relevant DTAA. From the facts it has been observed that foreign entities did not have PE in India and therefore payments were not chargeable to tax in India. Accordingly the assessee was under no obligation to deduct taxes at source while making these payments. Accordingly Ld. CIT(A) has rightly held that the taxes were not required to be withheld u/s. 195(1) of the Act on the impugned payments made by the assessee and allow the issue in dispute in favour of the assessee which in my considered opinion does not need any interference on my part hence uphold the order of the Ld. CIT(A) on the issue in dispute - Decided against revenue

Summary

Issues:
1. Whether the assessee was liable to withhold tax on payments made for ground rent, advertisement, and exhibition expenses.
2. Whether the nature of payment and liability to withhold tax falls under the purview of Section 154 of the Act.
3. Whether detailed examination of transactions can be made in proceedings under Section 154 of the Act.
4. Whether income is taxable in the hands of payees.
5. Whether the appeal of the Revenue against the order of the Ld. CIT(A) should be allowed.

Analysis:
1. The Department appealed against the order of the Ld. CIT(A) regarding the liability to withhold tax on payments made by the assessee for various expenses. The Ld. CIT(A) held that the assessee was not liable to withhold tax on these payments as they were in the nature of business receipts in the hands of the payee, and the foreign entities receiving the payments did not have a Permanent Establishment (PE) in India as per the relevant Double Taxation Avoidance Agreement (DTAA). Therefore, the taxes were not required to be withheld under Section 195(1) of the Act. The Ld. CIT(A) allowed the appeal of the assessee, and the Tribunal upheld this decision, dismissing the Revenue's appeal.

2. The Ld. CIT(A) elaborately discussed the issue in dispute and concluded that the taxes were not required to be withheld under Section 195(1) of the Act on the payments made by the assessee. The Tribunal agreed with this finding, emphasizing that the pre-conditions as mentioned in Section 248 of the Act were satisfied, and the payments to foreign entities were not chargeable to tax in India due to the absence of a PE in India. Therefore, the Tribunal upheld the order of the Ld. CIT(A) on this issue, rejecting the grounds raised by the Revenue.

3. The Tribunal noted that the Ld. CIT(A) had thoroughly considered the submissions of the appellant and correctly applied the relevant provisions of the Act. The Tribunal concurred with the Ld. CIT(A)'s finding that the payments made by the assessee did not require tax withholding under Section 195(1) of the Act. The Tribunal found no reason to interfere with the Ld. CIT(A)'s decision, as it was well-reasoned and supported by the facts and law. Consequently, the Tribunal dismissed the appeal of the Revenue.

4. The Tribunal observed that the Ld. CIT(A) had provided a detailed analysis of the payments and TDS furnished by the assessee, concluding that the taxes were withheld and deposited as required by law. The Tribunal agreed with the Ld. CIT(A)'s finding that the payments to foreign entities for rent, advertisement, and exhibition expenses did not attract tax liability in India due to the absence of a PE. Therefore, the Tribunal upheld the decision of the Ld. CIT(A) to allow the appeal of the assessee, as the payments were not subject to tax withholding under Section 195(1) of the Act.

5. In conclusion, the Tribunal dismissed the appeal of the Revenue, upholding the order of the Ld. CIT(A) that the assessee was not liable to withhold tax on the payments made for ground rent, advertisement, and exhibition expenses. The Tribunal found no merit in the grounds raised by the Revenue and affirmed the decision in favor of the assessee, emphasizing the correct application of the relevant provisions of the Act and the absence of tax liability on the payments made to foreign entities.