2017 (5) TMI 909 - AT - Income Tax

TDS u/s 195 - disallowance for want of non deduction of tax at source on interest payments to M/s. Reliance Capital Limited - Held that - assessee has filed a certificate dated 09.01.2017 from Chartered Accountants as prescribed in first proviso to Sec. 201(1) of the Act. This certificate says that M/s. Reliance Capital Limited had taken into account interest paid by the assessee for computing their taxable income. In my opinion first proviso to Sec. 201(1) of the Act did not prescribe therein any specific time limit for furnishing such a certificate. It may be true that assessee had not produced this certificate before lower authorities. However, if payee had taken into account the interest paid by the assessee while computing their taxable income and had filed their return, then in my opinion assessee cannot be visited with rigours of Sec. 40(a)(ia) of the Act, by virtue of first proviso therein. Accordingly question regarding liability of the assessee to deduct tax on the interest payments made to M/s. Reliance Capital Ltd, requires a revisit by ld. Assessing Officer. - Decided in favour of assessee for statistical purpose. Non TDS on commission payment to the non-resident marketeer - addition u/s.40(a)(i) - Held that - Assessee was not obliged to deduct tax at source on the commission paid by it to the non-resident marketeer. Question of getting a certificate from the Assessing Officer under Section 195(2) of the Act will be applicable only where the assessee considers only a part of the payment as liable for deduction of tax at source and not the whole. Disallowance of A10,35,967/- made u/s.40(a)(i) of the Act stands deleted. See CIT Versus M/s. Farida Leather Company 2016 (2) TMI 798 - MADRAS HIGH COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of interest paid to M/s. Reliance Capital under Section 40(a)(ia) of the Income Tax Act.
2. Disallowance of commission paid to foreign agents under Section 40(a)(i) of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Interest Paid to M/s. Reliance Capital:
The first issue concerns the disallowance of ?9,67,348 paid as interest to M/s. Reliance Capital due to non-deduction of tax at source. The assessee argued that the interest was accounted for by the payee (Reliance Capital) in its taxable income, supported by a Chartered Accountant's certificate as per the first proviso to Section 201(1) of the Act. The assessee contended that this should exempt them from the rigours of Section 40(a)(ia) of the Act. The Departmental Representative countered that this claim was not presented before the lower authorities and should not be entertained at this stage.

Upon review, the Tribunal found that the Chartered Accountant's certificate, dated 09.01.2017, confirmed that Reliance Capital had included the interest in its taxable income. The Tribunal noted that no specific time limit was set for furnishing such a certificate under the first proviso to Section 201(1). Therefore, it directed the Assessing Officer to re-examine the issue based on the certificate provided, setting aside the disallowance of ?9,67,348 and remitting the issue back for fresh consideration.

2. Disallowance of Commission Paid to Foreign Agents:
The second issue pertains to the disallowance of ?10,35,967 paid as commission to M/s. Freedom Leather, Italy, without deducting tax at source. The assessee argued that the commission was for services rendered outside India by a non-resident agent with no permanent establishment in India, thus not attracting Section 195(1) or Section 9(1)(vii) of the Act. The Departmental Representative argued that the services rendered were managerial/consultancy services, falling under "technical services" as defined in Explanation 2 to Section 9(1)(vii), thereby necessitating tax deduction at source.

The Tribunal referred to the case of CIT vs. Farida Leather Company (2016) and other relevant judgments, concluding that the services provided by M/s. Freedom Leather did not qualify as "technical services" under Section 9(1)(vii). It was noted that the services involved procuring orders and following up on payments, which did not require technical knowledge or expertise. Thus, the commission paid was not taxable in India, and the assessee was not obliged to deduct tax at source. Consequently, the disallowance of ?10,35,967 under Section 40(a)(i) was deleted.

Conclusion:
The Tribunal allowed the appeal of the assessee pro-tanto, directing the Assessing Officer to reconsider the disallowance of interest paid to M/s. Reliance Capital based on the Chartered Accountant's certificate and deleting the disallowance of commission paid to the non-resident agent. The order was pronounced on 3rd May 2017 at Chennai.