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2020 (9) TMI 773 - HC - Income TaxTDS u/s 195 - payments made to Opportunity International as Fees for Technical Services - disallowance under Section 40(a)(ia) - provisions of Section 90 of the Income Tax Act read with the Double Taxation Avoidance Agreement between India and USA - HELD THAT - Admittedly, the issue relating to Section 90 of the Income Tax Act read with Double Taxation Avoidance Agreement between India and United States of America has not been raised before the Assessing Officer or before the CIT (Appeals) or before the ITAT. But for the first time, the appellant/assessee has raised the issue before this Court and the said issue has also been raised in the substantial questions of law - There is no occasion to decide this issue viz., as to whether the disallowance under Section 40(a)(ia) without considering the provisions of Section 90 of the Income Tax Act read with Double Taxation Avoidance Agreement between India and USA, is correct or not, since the said point has not been discussed before the authorities below. The contention of the appellant/assessee is that as per Section 90 of the Act, the assessee is not liable to deduct the tax at source as the assessee did not make available any technical knowledge and therefore, the payment need not be treated as Fees for Technical Services. Admittedly, this point has not been raised before any of the authorities below, but for the first time, this point is raised as substantial question of law, hence, there is no occasion to deal with the said issue in this Tax Case Appeal. This is a fit case for remitting the matter back to the Assessing Officer for considering the issue by taking into account the claim made by the assessee. Assessing Officer, after giving due opportunity to the appellant, shall decide the matter in accordance with law.
Issues Involved:
1. Entitlement to raise the issue relating to Section 90 of the Income Tax Act and Double Taxation Avoidance Agreement (DTAA) between India and USA for the first time before the court. 2. Classification of payments made to Opportunity International as Fees for Technical Services and the applicability of Section 40(a)(ia) without considering Section 90 and DTAA. 3. Classification of payments as fees for technical services under Section 9(1)(viii) read with DTAA. 4. Tribunal's power to direct the assessing officer to examine TDS deduction and consider disallowance under Section 40(a)(ia) for issues not in appeal. 5. Tribunal's direction to the assessing officer to examine TDS deduction on part of the expenditure not in appeal and to disallow if not deducted. Issue-wise Detailed Analysis: 1. Entitlement to Raise the Issue Relating to Section 90 and DTAA for the First Time: The court noted that the issue concerning Section 90 of the Income Tax Act read with the Double Taxation Avoidance Agreement (DTAA) between India and the USA was not raised before the Assessing Officer, CIT (Appeals), or the Income Tax Appellate Tribunal (ITAT). The appellant/assessee raised this issue for the first time before the High Court. Consequently, the court found no occasion to decide this issue since it had not been discussed before the lower authorities. 2. Classification of Payments as Fees for Technical Services and Applicability of Section 40(a)(ia): The Tribunal held that the payments made by the appellant to Opportunity International were in the nature of Fees for Technical Services (FTS) and affirmed the disallowance under Section 40(a)(ia). The Tribunal found that the services provided were managerial and technical, falling within the purview of FTS covered under Section 9(1)(vii). The ITAT dismissed the appeal with a direction to claim deduction for the year of payment by remitting the withholding tax and grossing it up. 3. Classification of Payments as Fees for Technical Services under Section 9(1)(viii) and DTAA: The appellant contended that the payments should not be classified as fees for technical services under Section 9(1)(viii) read with the DTAA. The appellant argued that the services did not make available any technical knowledge, experience, skill, know-how, or processes to the person acquiring the services. However, this issue was not raised before the lower authorities, and thus the High Court did not decide on this matter but left it open for the Assessing Officer to consider upon remand. 4. Tribunal's Power to Direct the Assessing Officer on TDS Deduction for Issues Not in Appeal: The Tribunal directed the Assessing Officer to examine whether tax was deducted at source and consider disallowance under Section 40(a)(ia) for parts of the issue not in appeal. The High Court did not explicitly address the Tribunal's power in this regard but implied that the matter should be reconsidered by the Assessing Officer in light of the appellant's contentions. 5. Tribunal's Direction to Examine TDS Deduction on Part of the Expenditure Not in Appeal: The Tribunal directed the Assessing Officer to examine whether tax had been deducted in respect of part of the expenditure not in appeal and to disallow the same if tax had not been deducted. The High Court remitted the matter back to the Assessing Officer to consider the appellant's claims, including the applicability of Section 90 of the Income Tax Act read with the DTAA. Conclusion: The High Court remitted the matter back to the Assessing Officer to consider the appellant's claims regarding Section 90 of the Income Tax Act read with the DTAA. The appellant is at liberty to make their submission before the Assessing Officer, who shall decide the matter in accordance with law after giving due opportunity to the appellant. The substantial questions of law raised by the appellant are left open for the Assessing Officer to deal with. The Tax Case Appeal was disposed of with the above direction, with no costs.
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