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2019 (2) TMI 223 - AT - Income TaxTDS u/s 195 - payments made by the assessee to its UK and Singapore Subsidiaries as fall within the ambit of Fees for Technical Services - disallowance u/s 40(a)(i) - PE in India - Held that - As decided in assessee s own case BATLIVALA AND KARANI SECURITIES (INDIA) PVT. LTD. VERSUS DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-5, KOLKATA. 2016 (7) TMI 580 - ITAT KOLKATA as per Article 7 of UK and Singapore Treaty, in the absence of PE in India, the business income also would not get taxed in India. Hence we hold that the payment made by the assessee to its subsidiaries is not chargeable to tax in India in the hands of the subsidiaries in India. The provisions of section 195(1) of the Act mandates a requirement that the income should be chargeable to tax in India to assume jurisdiction in India. In the instant case, it is proved beyond doubt that the subsidiaries do not have any income chargeable to tax in India - we have no hesitation in directing the Learned AO to delete the disallowance made u/s 40(a)(i) of the Act in respect of payments made to foreign subsidiaries. - Decided in favour of assessee
Issues Involved:
1. Delay in filing the appeal by the Revenue. 2. Whether payments made by the assessee to its UK and Singapore subsidiaries fall within the ambit of 'Fees for Technical Services' (FTS). 3. Applicability of disallowance under Section 40(a)(i) of the Income Tax Act, 1961. Detailed Analysis: 1. Delay in Filing the Appeal: At the outset, there was a delay of 2 days in filing the appeal by the Revenue. The delay was condoned due to the concession given by the learned Authorized Representative (AR), and the appeal was admitted for adjudication. 2. Payments to UK and Singapore Subsidiaries: The core issue was whether the payments made by the assessee to its UK and Singapore subsidiaries could be classified as 'Fees for Technical Services' (FTS) and whether disallowance under Section 40(a)(i) of the Act was applicable. Facts and Agreements: - The assessee, a stockbroker company, made payments to its wholly-owned subsidiaries in the UK and Singapore for marketing and research services. - A 'Representation Agreement' was entered into with the UK subsidiary, and a 'Business Services Agreement' with the Singapore subsidiary. The agreements included lump sum payments and reimbursements with a mark-up of 29% on costs. - The assessee deducted TDS on service fees but not on reimbursements, arguing that reimbursements were not income. Assessing Officer's View: - The Assessing Officer (AO) held that TDS should have been deducted on the entire payment, viewing it as FTS taxable in the hands of non-residents. - The AO relied on the decision of Transmission Corporation of A.P. Ltd. v. CIT, arguing that tax should be deducted on gross payments. CIT(A)'s Decision: - The CIT(A) upheld the AO's view, stating that payments were for services and TDS should be deducted on the gross amount, not just the income element. Tribunal's Findings: - The Tribunal found that the services rendered by the subsidiaries were marketing support services, not technical services as defined under the DTAA with the UK and Singapore. - The Tribunal referred to previous decisions and the Memorandum of Understanding (MoU) to the DTAA between India and the USA to interpret the term 'fees for technical services'. - The Tribunal concluded that the payments did not make available any technical knowledge, experience, skill, or processes to the assessee, which is a requirement under the DTAA for the payments to be classified as FTS. - The Tribunal held that the payments were business income for the subsidiaries, taxable in India only if there was a Permanent Establishment (PE), which was not the case here. Legal Provisions and Case Laws: - The Tribunal referred to Section 90(2) of the Act, which allows the provisions of the DTAA to prevail if they are more beneficial to the assessee. - The Tribunal also referred to the retrospective amendment in Explanation 2 to Section 9(1)(vii) of the Act by the Finance Act 2010, stating that the law prevailing at the time of payment should be considered. - The Tribunal relied on the decision of GE India Technology Cen. (P) Ltd. v. CIT, which supports the assessee's case that no TDS is required if the payment is not chargeable to tax in India. 3. Disallowance under Section 40(a)(i): - The Tribunal held that since the payments were not FTS, they would not attract disallowance under Section 40(a)(i) of the Act. - The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order that there were no changes in facts compared to earlier years (Assessment Years 2008-09 and 2009-10). Conclusion: The Tribunal dismissed the Revenue's appeal and directed the AO to delete the disallowance made under Section 40(a)(i) of the Act, concluding that the payments made by the assessee to its UK and Singapore subsidiaries did not fall within the ambit of 'Fees for Technical Services' and were not chargeable to tax in India.
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