2016 (10) TMI 7 - AT - Income Tax

TDS u/s 195 - liability of tax deduction at source (TDS) on payment made to foreign constituents - time frame for initiating action u/s. 201(1) against the non-residents - Held that - Having carefully examined the rival submissions and the material on record we find that the legislature has consciously used the word resident in India . Had it been the intention of the legislature to prescribe the time period for the non-residents they would have comfortably used the word payee but they have used the word resident in India . Therefore the intention of the legislature is very clear that they do not want to fix the time limit for initiating action u/s. 201(1) for non-residents. In the light of these facts we are of the view that the assessment is not barred by limitation as no time frame has been specified for initiating action u/s. 201(1) of the Act against the non-residents. We would find from the consultancy agreement that the assessee entered into agreement with the foreign constituent i.e. MJR Consultancy Pte Ltd. a company incorporated in Singapore we find that the Consultant was required to render consultancy services on different issues by applying his technical know-how and whatever services are rendered advisories were issued to the assessee the Consultant shall immediately assign and transfer the rights in that consultancy services to the assessee and the assessee would be able to use that services for its enduring benefit in the succeeding years without any assistance of the Consultant. Though it has not been spelt out the specific nature of the consultancy services rendered by the Consultant but from a careful perusal of this agreement and documents available on record it appears that whatever consultancy services were rendered by the Consultant it was made available to the assessee for its enduring benefit and the same consultancy advisories opinions or services received by the assessee can be used by the assessee for its business purposes in the succeeding years without any aid and assistance of the Consultant. Therefore in the light of these facts we are of the view that the consultancy services having been made available to the assessee the Revenue has rightly held that the Singapore company as a Consultant has made available to the assessee company technical knowledge in the form of expertise in the operation of its business which was in its possession along with experience and know-how and the same technical know-how can be used by the assessee for its enduring benefit and thus since the assessee has made the payment for fees for technical services it was required to deduct tax at source and for non-deduction of the same he can be declared to be an assessee in default. Accordingly we confirm the order of the CIT(Appeals) and dismiss the appeals of the assessee.

Summary

Issues Involved:
1. Liability of tax deduction at source (TDS) under Section 195 of the Income Tax Act, 1961.
2. Classification of payments as fees for technical services under Section 9(1)(vii) of the Act and Article 12 of the Double Taxation Avoidance Agreement (DTAA) between India and Singapore.
3. Timeliness of the order passed under Section 201(1) of the Act.

Detailed Analysis:

1. Liability of Tax Deduction at Source (TDS) under Section 195 of the Income Tax Act, 1961:
The core issue revolves around the liability of the appellant to deduct TDS on payments made to M/s. MJR Consultancy Pte Ltd., Singapore. According to Section 195 of the Act, any person making a payment to a non-resident that is chargeable under the Act must deduct income tax at the rates in force. The Assessing Officer (AO) held the appellant in default for not deducting tax on payments made to the Singapore company, classifying these payments as fees for technical services.

2. Classification of Payments as Fees for Technical Services:
The AO classified the payments as fees for technical services under Section 9(1)(vii) of the Act and Article 12 of the DTAA between India and Singapore. The appellant argued that the payments were not for technical services but were business profits of the Singapore company, which had no permanent establishment in India and thus were not taxable in India. The CIT(Appeals) upheld the AO’s decision, noting that the Singapore company provided technical knowledge, expertise, and skill to the appellant, which was retained by the appellant even after the agreement expired. This was supported by various judicial pronouncements that emphasized the enduring benefit derived by the recipient of the technical services.

3. Timeliness of the Order Passed under Section 201(1) of the Act:
The appellant contended that the order under Section 201(1) was barred by limitation, citing that no order deeming a person to be an assessee in default could be made after seven years from the end of the financial year in which the payment was made. However, the Tribunal noted that this time limit applied only to residents in India and not to non-residents. The legislature’s intention was clear in not fixing a time limit for non-residents, thus the assessment was not barred by limitation.

Conclusion:
The Tribunal upheld the CIT(Appeals)' decision, confirming that the payments made to M/s. MJR Consultancy Pte Ltd., Singapore, were indeed fees for technical services. The appellant was required to deduct tax at source, and for failing to do so, was rightly deemed an assessee in default under Section 201(1) of the Act. The appeals of the appellant were dismissed, affirming the liability for TDS on the payments made to the Singapore company.