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2018 (10) TMI 239 - AT - Income TaxTDS u/s 195 - business connection in India - bearings purchased from foreign companies on which TDS has not been deducted - payments been made to the nonresident which is a foreign company - DTAA provisions - PE in India of the US based company - Held that - It is clear from the order of the Ld. CIT(A) that he has considered various circulars and case laws and DTAA between USA and India. The assessee is not liable for the deduction of TDS as per section 195 as alleged by the Assessing Officer. Therefore, in view of the above findings of the Ld. CIT(A) the AO was not justified to make addition of ₹ 1,06,53,926/-u/s 40(a)(i) of the Income Tax Act, 1961. - Decided in favour of assessee.
Issues Involved:
1. Whether the assessee was required to make TDS deduction under section 195 of the Income Tax Act, 1961 on the payment made to M/s Timken. 2. Whether the payment made to M/s Timken was chargeable to Income Tax in India, necessitating TDS deduction. 3. Whether the Ld. CIT(A) erred in deleting the disallowance made by the AO under section 40(a)(i) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Requirement of TDS Deduction under Section 195: The revenue contended that the assessee was required to deduct TDS under section 195 on the payment of ?1,06,53,926/- made to M/s Timken. The assessee argued that the payment was for the purchase of goods from foreign companies, and as such, the provisions of section 195 were not applicable. The AO, however, was not satisfied with this explanation and disallowed the payment under section 40(a)(i) of the Income Tax Act, citing that the payment was chargeable to tax in India due to the business connection and permanent establishment of M/s Timken in India. 2. Chargeability of Payment to Income Tax in India: The AO argued that M/s Timken had a permanent establishment in India, as evidenced by the presence of offices and plants in various locations within the country. Therefore, the income from the transaction was chargeable to tax in India, necessitating TDS deduction. The assessee countered this by stating that the purchases were made from Timken Singapore Pte Ltd. and Timken Wuxi Bearings Co. Ltd., which did not have any permanent establishment in India. The assessee further supported their stance by referencing the Delhi High Court judgment in CIT vs Van Oord ACS India (P) Ltd., which opined that the obligation to deduct tax at source arises only when the payment is chargeable under the provisions of the Income Tax Act. 3. Deletion of Disallowance by Ld. CIT(A): The Ld. CIT(A) deleted the addition made by the AO, concluding that the assessee was not liable for TDS deduction under section 195. The CIT(A) considered various circulars, case laws, and the Double Taxation Avoidance Agreement (DTAA) between the USA and India. The CIT(A) relied heavily on the Supreme Court judgment in GE India Technology Centre Pvt Ltd v. CIT, which clarified that tax at source is deductible only from sums chargeable under the Act. Additionally, the CIT(A) referenced the non-discrimination clause in the DTAA, which mandates that the taxation on a permanent establishment of a foreign enterprise should not be less favorable than that levied on enterprises of the host country. The CIT(A) also examined the legal provisions under section 40 and section 195 of the Income Tax Act, concluding that the payments made by the assessee for the purchase of goods were not subject to TDS. The CIT(A) further emphasized that the AO's reliance on the Karnataka High Court decision in Samsung Electronics was misplaced, as it was overruled by the Supreme Court in GE India Technology Centre Pvt Ltd v. CIT. Conclusion: The ITAT upheld the order of the Ld. CIT(A), dismissing the revenue's appeal. The tribunal agreed with the CIT(A) that the assessee was not liable for TDS deduction under section 195, as the payments made for the purchase of goods from foreign companies were not chargeable to tax in India. The tribunal also noted that the AO's reliance on the Supreme Court decision in Transmission Corporation of A.P. Ltd. was distinguishable on the facts of the present case. Consequently, the appeal of the revenue was dismissed, and the order pronounced in the open court on 01/10/2018.
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