2017 (3) TMI 30 - AT - Income Tax

TDS u/s 195 - TDS liability - Held that - Undisputedly made for acquiring certain equipments and appliances for the purpose of research. This aspect of the matter is beyond any dispute or controversy in the light of invoice dated 20.05.2010, a copy of which is placed before us at page no.16 of the paper Book. It is also not the case of the Revenue that this invoice is a sham invoice or that the description given in the invoice is incorrect. Yet, the stand of the Revenue authorities is that since the payment was made under an agreement which was aimed at carrying out research activities on behalf of the assessee, the payment must be treated as royalty. That argument does not appeal to us. While examining taxability of income in the hands of the recipient, embedded in foreign remittance, all that is required to be seen is whether or not that particular income is taxable in India. In the present case, the payment is made for purchase of equipments and appliances and these equipments and appliances under the agreement belonged to the assessee and clearly, therefore, the income embedded in these payments is not exigible to tax in India in the absence of permanent establishment of the vender on such equipments and appliances. While it is true that the contract for the purpose of which these equipments and appliances were purchased, relates to a taxable activity i.e. royalty, it is equally correct that no such taxable event i.e. carrying out of research activity has taken place during the course of this transaction. In this view of the matter, in our considered view, authorities below were completely in error in holding that the income embedded in the remittance of NOK 7,50,000 which was beyond any dispute or controversy for the purpose of purchase of equipments and appliances for research, was not taxable in India. We, therefore, vacate the orders of the authorities below and hold that the assessee was not liable to deduct any tax from this payment. Since we have cancelled the impugned tax withholding liability itself, all other points such as grossing up or invocation of section 206AA or even interest liability under section 201(1A) are not more than academic. These grievances must be dismissed as infructuous.

Summary

Issues:
1. Tax liability on remittances to a foreign company under section 201(1) read with section 195 of the Income Tax Act, 1961.
2. Applicability of tax deduction at source at the rate of 20% under section 206AA.
3. Applicability of provisions of S.139A(8) r.w.r 114C(1) to a nonresident company.
4. Levying of surcharge and education cess on TDS while calculating demand u/s 201(1) of the Act.
5. Demand raised under section 201(1A) of the Act.
6. Quantification of interest u/s. 201(1A).
7. Breach of law and Principles of Natural Justice by lower authorities.

Analysis:

Issue 1:
The appeal was filed against the order upholding the demands raised on remittances to a foreign company under section 201(1) read with section 195 of the Income Tax Act, 1961. The Assessing Officer treated the payments made by the assessee to the foreign company as royalty, leading to tax withholding demands. The CIT(A) confirmed this stand based on the nature of the work under the agreement and provisions of the Double Taxation Avoidance Act. The tribunal, however, found that the payments were made for acquiring equipment and appliances for research, which did not constitute taxable income in India. Therefore, the tribunal held that the assessee was not liable to deduct any tax from this payment.

Issue 2:
The CIT(A) had confirmed the action of the Assessing Officer in holding the appellant liable to deduct tax at source at the rate of 20% under section 206AA on alleged royalty payments. However, the tribunal found that since the payment was for purchasing equipment and appliances for research purposes, it was not taxable income in India, and therefore, the appellant was not required to deduct any tax at the source.

Issue 3:
The tribunal addressed the contention that the provisions of S.139A(8) r.w.r 114C(1) were not applicable to the nonresident company, HMR Invest AS, from Norway. The tribunal's decision on the primary issue of tax liability on the remittances made to the foreign company rendered this issue moot.

Issue 4:
The tribunal noted that the Assessing Officer had erred in levying surcharge and education cess on TDS while calculating the demand under section 201(1) of the Act. However, since the tribunal ruled in favor of the assessee on the primary issue, this aspect became irrelevant.

Issue 5:
The tribunal also addressed the demand raised under section 201(1A) of the Act. The tribunal found that since the tax withholding liability itself was canceled, all other related points, including the demand under section 201(1A), were dismissed as academic and infructuous.

Issue 6:
Regarding the quantification of interest under section 201(1A), the tribunal found that the interest amount was erroneous and excessive. However, this issue became immaterial once the tribunal ruled in favor of the assessee on the primary issue.

Issue 7:
The tribunal acknowledged the appellant's argument that the lower authorities had passed orders without properly appreciating the facts and had ignored submissions and information provided by the appellant. The tribunal found in favor of the appellant on the primary issue, rendering this argument moot.

This comprehensive analysis of the judgment highlights the key issues involved and the tribunal's findings on each issue, providing a detailed understanding of the legal implications and reasoning behind the decision.