2020 (3) TMI 392 - AT - Income Tax

TDS u/s 195 - Payment made to non residents - as per AO payment to M/s Korea Search is the fees for technical services and thus liable for tax deduction at source - interest charged u/s 201(1A) - HELD THAT - Detailed job description is provided by the assessee company to M/s. Korea Search which has a data base of profiles of various eligible candidates. After examining the profile and matching it with the clients job description candidates are referred to the assessee company with guarantee that if the candidates so recruited leaves the job for first 90 days from the date of employment suitable replacement will be made at no additional cost. There is no specification for any technical expertise which the assessee company has sought from M/s. Korea Search. From all the angles the agreement shows that M/s Korea Search (which is a foreign company) have no permanent establishment in India is working only as a placement services having data base of various persons who want job. M/s. Korea Search has various clients based across the globe who need such experts who are well versed and expert in their fields. M/s. Korea Search after matching requirement of the client with the job profile of the candidate refers it to the client after charging fees as agreed. Whether the candidate who is referred by M/s Korea Search is technical expert or not in the particular field is on the sole discretion of the assessee company who interview and test the candidate and appoints as an employee for the period and conditions to be decided or it requests for replacement. As far as Section 9(1)(vii) Explanation 2 provides that fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction assembly mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head Salaries . After examining the agreement nature of services provided by M/s. Korea Search to the assessee and the provisions of Section 9(1)(vii) we are of the considered view that the services taken by the assessee company from M/s Korea Search do not fall under the category of technical services and it is merely fee paid for placement services which by no canon require any technical expertise. Therefore since the services in question provided by M/s. Korea Search to the assessee company do not fall in the category of fees for technical services as provided under Section 9(1)(vii) there was no liability of the assessee to deduct tax at source u/s 195 - set aside the order of both the lower authorities and direct the Revenue authorities to delete the demand raised for default of deduction of tax at source. Interest levied u/s 201/201(1A) also deserves to be deleted being consequential in nature. Ground No.1 raised by the assessee is allowed.

Summary

Issues:
- Whether the assessee was liable to deduct tax at source under Section 195 of the Income Tax Act for payments made to a non-resident company.
- Whether the services provided by the non-resident company fell under the category of technical services as per Section 9(1)(vii) of the Act.

Analysis:

Issue 1: Liability to Deduct Tax at Source
The assessee, engaged in manufacturing welding electrodes, made payments to a South Korean company, M/s Korea Search, for services related to providing engineers for new product development. The Assessing Officer (A.O) held that these payments were for technical services and thus, liable for tax deduction at source under Section 195 of the Act. The A.O grossed up the payment amount and calculated the default of tax deduction at Rs. 1,55,009, levying interest under Section 201(1A) at Rs. 22,718. The assessee appealed to the CIT(A) but was unsuccessful, leading to an appeal before the Tribunal.

Issue 2: Nature of Services Provided
The Tribunal analyzed the agreement between the assessee and M/s Korea Search, which outlined the terms of service provision, payment structure, and guarantees. The Tribunal also examined Section 9(1)(vii) of the Act, which defines fees for technical services. The agreement indicated that M/s Korea Search primarily offered placement services without a requirement for technical expertise. The Tribunal concluded that the services provided did not fall under the category of technical services as per Section 9(1)(vii) of the Act. Therefore, the assessee was not liable to deduct tax at source under Section 195, and the demand raised by the authorities was unjustified. Consequently, the Tribunal directed the Revenue authorities to delete the tax deduction demand and the interest levied.

In conclusion, the Tribunal allowed the appeal of the assessee, finding that the payments made to M/s Korea Search were not subject to tax deduction at source under Section 195 of the Act. The services provided were deemed to be placement services rather than technical services, as per the provisions of Section 9(1)(vii) of the Act.