2018 (4) TMI 866 - AT - Income Tax

TDS u/s 195 - Withholding tax on reimbursement of expenses made to IBS America Inc. u/s 201 - main contention of the assessee s Counsel is with regard to reimbursement of expenditure pertaining to salary and overhead costs in relation to IBS Projects and does not include any element of profit so as to deduct TDS u/s. 195 - Held that - The assessee has not substantiated the veracity of the claim by producing the agreement entered into with IBS, America. It is the primary duty of the assessee to show that it is a reimbursement of expenditure. The assessee has not produced the relevant documents to prove that it was reimbursement of expenditure. Therefore, in the interest of natural justice, we remit this issue to the file of the Assessing Officer for fresh consideration with a direction to the assessee to prove the same. Hence, this ground raised by the assessee is remitted to the file of the Assessing Officer for fresh consideration. Withholding taxes on marketing support charges paid to Avient Solutions Limited UK u/s. 201 - Held that - As such the assessee cannot be called upon to comply with the provisions not in force at the relevant time but introduced later by retrospective amendment so as to deduct TDS on the impugned payments. In our opinion, the assessee cannot be required to comply with the provisions as this was not in the statute book at the time of incurring the impugned payments. To that extent, the Ld. AR s argument is justified. However, if the services are rendered in India or payee has residence or business or business connection in India or services utilized in India, then the assessee is liable to deduct TDS. There is no finding in the order of the lower authorities whether the service is rendered in India or utilized in India with regard to the impugned payments. Withholding tax on payment of legal representation charges to Simpson & Grierson, New Zealand u/s. 201 - Held that - In our opinion the assessee has to prove that the services were rendered outside India and the same was utilized outside India and the payee is having no business or business connection in India. Hence in the interest of natural justice, we remit this issue to the file of the Assessing Officer for fresh consideration.

Issues Involved:
1. Withholding tax on reimbursement of expenses to IBS America Inc.
2. Withholding tax on marketing support charges to Avient Solutions Limited, UK.
3. Withholding tax on legal representation charges to Simpson & Grierson, New Zealand.
4. Levy of interest under Section 201(1A) of the IT Act.

Issue-wise Detailed Analysis:

1. Withholding Tax on Reimbursement of Expenses to IBS America Inc.
The first issue concerns the CIT(A)'s computation of withholding tax on reimbursements made to IBS America Inc., amounting to ?2,20,28,620/-. The assessee argued that these payments were reimbursements for expenses incurred by IBS America on behalf of IBS India and did not include any income element, thus not attracting TDS under Section 195. The assessee cited the ITAT Mumbai Bench decision in Mahindra and Mahindra Ltd. v. DCIT, which held that reimbursements without profit elements are not liable for withholding tax.

The Revenue countered that the assessee failed to provide sufficient evidence, such as agreements or detailed debit notes, to substantiate that these payments were purely reimbursements. The Tribunal observed that the assessee did not produce the necessary documents to prove the nature of the expenses. Consequently, the issue was remitted to the Assessing Officer (AO) for fresh consideration, directing the assessee to provide the requisite proof.

2. Withholding Tax on Marketing Support Charges to Avient Solutions Limited, UK
The second issue involved the CIT(A)'s computation of withholding tax on marketing support charges paid to Avient Solutions Limited, UK, totaling ?3,15,75,700/-. The assessee contended that these charges were for marketing consultancy services aimed at generating income from sources outside India and thus not taxable under Section 9(1)(vii)(b) of the IT Act. The assessee also argued that the retrospective amendment to Section 9(1) introduced by the Finance Act 2010 should not apply to TDS obligations for payments made before its enactment.

The Revenue argued that the services provided by Avient included technical consultancy and were thus taxable in India. The Tribunal noted that there was no finding on whether the services were rendered or utilized in India. The matter was remitted to the AO for fresh consideration to determine the nature and utilization of the services.

3. Withholding Tax on Legal Representation Charges to Simpson & Grierson, New Zealand
The third issue dealt with the CIT(A)'s computation of withholding tax on legal representation charges paid to Simpson & Grierson, New Zealand, amounting to ?5,93,70,042/-. The assessee argued that these payments were for legal services rendered outside India and should be covered under "Article 14 - Independent Personal Services" of the India-New Zealand tax treaty, thus not taxable in India. The Revenue contended that the services were technical/consultancy in nature and taxable under Article 12(4) of the India-New Zealand DTAA and Section 9(1)(vii) of the IT Act.

The Tribunal observed that the assessee needed to prove that the services were rendered and utilized outside India and that the payee had no business connection in India. The issue was remitted to the AO for fresh consideration.

4. Levy of Interest Under Section 201(1A) of the IT Act
The other grounds raised by the assessee pertained to the levy of interest under Section 201(1A) of the IT Act, which were deemed consequential and did not require separate adjudication.

Conclusion:
The appeal filed by the assessee was partly allowed for statistical purposes, and the stay petition was dismissed as infructuous. The Tribunal remitted the key issues back to the AO for fresh consideration, directing the assessee to provide necessary evidence to substantiate their claims. The order was pronounced in the open court on April 12, 2018.

← Previous Next →