2021 (9) TMI 715 - HC - Income Tax

TDS u/s 195 - payments made to two companies non resident - Tribunal was right in deleting the disallowance made by the AO holding that the amendment to Section 9(1)(vi) introduced by Finance Act, 2012 with retrospective effect from 01.06.1976 is not applicable and therefore no TDS needs to be deducted? - HELD THAT - Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited v. Commissioner of Income Tax and another 2021 (3) TMI 138 - SUPREME COURT has held in favour of the assessee. Deduction u/s 10A - expenses incurred in relation to travel in foreign country and communication charges are to be allowed both from the Export turnover and Total turnover which is contrary to the Statute - unrealized foreign exchange was to be allowed both from the Export turnover without making corresponding deduction from the total turnover - HELD THAT - Question answered against the Revenue in the case of Commissioner of Income-tax, Central-III v. HCL Technologies Ltd. 2018 (5) TMI 357 - SUPREME COURT As held that the definition of 'total turnover' given under Sections 80HHC and 80HHE cannot be adopted for the purpose of Section 10A as technical meaning of total turnover, which does not envisage reduction of any expenses from total amount, is to be taken into consideration for computing deduction under Section 10A; when meaning is clear, there is no necessity of importing meaning of 'total turnover' from other provisions. - Decided against the Revenue.

Summary

Issues involved:
1. Interpretation of Section 9(1)(vi) of the Income Tax Act, 1961 regarding TDS deduction.
2. Determining the applicability of TDS on payments made to non-resident companies with permanent establishments in India.
3. Classification of payments for use of customer network as Royalty under Section 9(1)(vi).
4. Requirement of TDS deduction under Section 195 of the Income Tax Act for payments made to certain companies.
5. Allowability of expenses related to foreign travel and communication charges from Export turnover and Total turnover.
6. Treatment of unrealized foreign exchange in relation to Export turnover.

Analysis:
1. The High Court considered the appeal filed by the Revenue against the order of the Income Tax Appellate Tribunal regarding the deletion of disallowance due to an amendment to Section 9(1)(vi) with retrospective effect. The Court referred to a Supreme Court decision favoring the assessee in similar cases, leading to a ruling against the Revenue on substantial questions of law 1 to 4.

2. The Court addressed the issue of TDS applicability on payments to non-resident companies with permanent establishments in India. Citing the Supreme Court's decision, it concluded that such payments did not constitute royalty for the use of copyright, thus relieving the persons from TDS deduction under Section 195.

3. Regarding the classification of payments for the use of the customer network as Royalty under Section 9(1)(vi), the Court followed the Supreme Court's interpretation, ruling against the Revenue on substantial questions of law 1 to 4.

4. The Court analyzed the requirement of TDS deduction under Section 195 for payments made to certain companies. Following the Supreme Court's decision, it held that TDS was not required in such cases, aligning with the ruling against the Revenue on substantial questions of law 1 to 4.

5. In relation to the allowability of expenses like foreign travel and communication charges from Export turnover and Total turnover, the Court referred to a Supreme Court decision emphasizing the technical meaning of total turnover for computing deductions. Consequently, it ruled against the Revenue on substantial questions of law 5 and 6.

6. Finally, the Court dismissed the Tax Case Appeal, answering the substantial questions of law against the Revenue based on the interpretations and precedents discussed in the judgment. The Court's decision aligned with the Supreme Court's rulings and interpretations of relevant provisions of the Income Tax Act.