2019 (8) TMI 157 - HC - Income Tax

TDS u/s 195 - alleged that amount paid to its parent company attracted provisions of Section 40(a)(ia) r.w.s. 9(1)(vii) - FTS in DTAA with USA - HELD THAT - In view of Section 90(2) of the Act and clause 4(b) of Article 12 of the Treaty, the provisions of this Act would stand applicable only where fees for included services taxable only if there is a make available technical knowledge. In the case in hand finding of fact that has been returned by the ITAT, there is no make available of the technical knowledge, therefore, the provisions of the Income Tax Act would not stand attracted in the transactions in question. The issue stands squarely covered by the decision of the Hon'ble Apex Court in the case of Union of India Vs. Azadi Bachao Andolan 2003 (10) TMI 5 - SUPREME COURT It is also undisputed that a notification under Section 90 towards implementation of the terms of the DTAs has been issued by the Central Government, in the case in hand. In view of the above, the question as raised for adjudication is answered in negative and the appeal accordingly fails and stands dismissed. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of TDS under Section 40(a)(ia) read with Section 9(1)(vii)
2. Applicability of double taxation avoidance agreement under Section 90(2) of the Act

Analysis:
1. The primary issue in this case was whether the ITAT was correct in deleting the disallowance of TDS amounting to ?3,63,95,888 made by the Assessing Officer. The respondent argued that due to the existence of a double taxation avoidance agreement under Section 90(2) of the Act, the income was not chargeable to tax in India. The respondent contended that as per clause 4(b) of Article 12 of the Treaty, the provisions of the Income Tax Act would only apply if there was a make available technical knowledge, which was not the case here. Citing the decision in Union of India Vs. Azadi Bachao Andolan (2003) 132 Taxman 373 (SC), it was emphasized that the provisions of the double taxation avoidance agreement would override the Income-tax Act in case of any inconsistency.

2. The second issue revolved around the applicability of the double taxation avoidance agreement under Section 90(2) of the Act. It was established that a notification had been issued by the Central Government towards the implementation of the terms of the DTAs. As per the agreement and relevant clauses, it was concluded that the income in question was not chargeable to tax in India, and therefore, the provisions of the Income Tax Act did not apply. The Court relied on the decision in Union of India Vs. Azadi Bachao Andolan to support this conclusion, emphasizing the significance of notifications issued under Section 90 for implementing the terms of double taxation avoidance agreements.

In light of the above analysis, the High Court held that the question raised for adjudication was answered in the negative. Consequently, the appeal was deemed unsuccessful, and it was dismissed accordingly.