2019 (4) TMI 1677 - HC - Income Tax

TDS u/s 195 - financial services, for providing services such as Global coordinator and Lead Manager to the GDR offer - income deemed to accrue or arise in India - fees for technical services - Tribunal came to the conclusion that services rendered by Amas Bank were purely of a commercial nature and bore the character of income arising to it wholly outside India. Such services were neither rendered in India nor utilized in India - scope of explanation inserted by the Finance Act of 2010 w.r.e.f. 1.6.1976 in Section 9(1) - HELD THAT - Through this explanation, thus, the legislature desired to delink the question of income deemed to have accrued or arisen in India from the requirement of the non-resident having a residence or place of business or business connection in India. This, however, did not imply that the basic requirement of income having arisen in relation to the activity in India and having connection to the consumption of such services in India was totally done away with. It provides that for the purpose of the said Section, the income of a non-resident would be deemed to accrue or arise in India under clauses (v),(vi) and (vii) of sub-section (1) and would be included in the total income of the non-resident whether or not such non-resident has a residence or place of business or business connection in India, or, the non-resident has rendered services in India. We are conscious that subsequent explanation which replaced the previous one by the Finance Act of 2010 has somewhat widened the scope of applicability of Section 9. The question of non-resident having rendered services in India is quite different from such services having been consumed by the assessee in India. - The appeals are dismissed

Summary

Issues Involved:
1. Obligation to deduct tax at source under Section 195 of the Income Tax Act, 1961.
2. Characterization of payments as fees for technical services under Section 9(1)(vii) of the Income Tax Act, 1961.
3. Applicability of explanations to Section 9 inserted by Finance Acts of 2007 and 2010.

Detailed Analysis:

1. Obligation to Deduct Tax at Source under Section 195:
The primary issue was whether the assessee was required to deduct tax at source under Section 195 of the Income Tax Act, 1961, on payments made to Amas Bank Middle East Ltd for services related to the issuance of Global Depository Receipts (GDRs). The Revenue argued that these payments constituted fees for technical services and thus were subject to tax deduction at source. The Tribunal and the High Court concluded that the services rendered by Amas Bank were purely commercial, performed and utilized outside India, and therefore did not attract the provisions of Section 195 for tax deduction at source.

2. Characterization of Payments as Fees for Technical Services:
The Tribunal examined whether the payments to Amas Bank fell under the definition of fees for technical services as per Section 9(1)(vii) of the Act. The Tribunal found that the services provided by Amas Bank did not qualify as technical services because they were commercial in nature and were neither rendered nor utilized in India. The High Court upheld this view, agreeing that the income from these services arose outside India and did not partake the character of fees for technical services.

3. Applicability of Explanations to Section 9:
The Revenue stressed the importance of the explanations to Section 9 inserted by the Finance Acts of 2007 and 2010, which aimed to clarify that income deemed to accrue or arise in India would be taxable regardless of whether the non-resident had a place of business or rendered services in India. However, the High Court noted that these explanations did not eliminate the fundamental requirement that the income must arise from activities connected to India. The High Court referenced the Supreme Court's decision in GE India Technology Centre P Ltd Vs. CIT, which established that tax deduction at source under Section 195 is only required if the payment is chargeable to tax in India.

Conclusion:
The High Court upheld the Tribunal's decision, concluding that the services provided by Amas Bank were commercial, performed, and utilized outside India, and thus did not attract the provisions of Section 195 for tax deduction at source. The appeals by the Revenue were dismissed, affirming that the payments made by the assessee to Amas Bank were not liable to tax in India.