2022 (9) TMI 824 - AT - Income Tax

TDS u/s 195 - disallowance u/s 40(a)(i) - assessee has paid management fees to company in Australia - assessee made application for granting certificate for Nil rate of TDS - HELD THAT - DCIT (International Taxation) passed order u/s 195(2) of the Act, after taking note of the agreement entered into between the assessee and the Australian entity for providing administration/business support services, came to the conclusion that assessee is not liable for tax in India as per Article 12(3)(g) of DTAA as the support services intended to be provided by the Australian entity to the assessee does not result in making available any technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or design. DCIT (International Taxation) also held that the said services are also not liable to be taxed under Article 7 read with Article 5 of India Australia DTAA, as the Australian entity doesn t have any PE in India. Accordingly, assessee was directed to withhold taxes at Nil under section 195(2) while making payment to Cover More Insurance Services Pty Ltd, during the financial year 2016 17. We find that similar Nil withholding tax certificates were issued by the Competent Authority relevant for assessment years 2018 19, 2019 20, 2020 21 and 2021 22. Hon ble Supreme Court of India in GE India Technology Cen. (P.) Ltd. 2010 (9) TMI 7 - SUPREME COURT held that section 195(2) provides a remedy by which a person may seek a determination of the appropriate proportion of such sum so chargeable , where a proportion of the sum so chargeable is liable to tax. Once, the assessee has sought the remedy provided under the Act and the Competent Authority of the Income Tax Department after consideration of the facts, which are similar to the facts for the year under consideration, came to the conclusion under section 195(2) of the Act that Nil tax is liable to be withheld, in such a situation submission of the Revenue that assessee has failed to deduct tax at source on the payment made to the Australian entity is completely contrary to its own determination of such liability in the case of assessee. In view of the above, we find no infirmity in the impugned order passed by the learned CIT(A). Accordingly, all the grounds raised by the Revenue are dismissed.

Summary

Issues Involved:
1. Deletion of disallowance under section 40(a)(i) read with section 195 of the Income Tax Act, 1961.
2. Classification of payment as fees for technical services under the India-Australia DTAA.
3. Obligation to follow certificates issued under section 195(2) of the Act.

Detailed Analysis:

1. Deletion of Disallowance under Section 40(a)(i) Read with Section 195:
The Revenue challenged the deletion of disallowance amounting to Rs. 5,40,49,783 made under section 40(a)(i) read with section 195 of the Income Tax Act, 1961. The assessee, engaged in providing internet-based services, paid management fees to an Australian entity, Cover-More Insurance Services Pty Limited. The Assessing Officer (AO) disallowed this payment, treating it as fees for technical services, and held that the assessee should have deducted tax at source under section 195, as the payment was chargeable to tax in India under Article 12 of the DTAA and section 9(1)(vii) of the Act.

2. Classification of Payment as Fees for Technical Services:
The AO classified the payment as fees for technical services, arguing that the services rendered were technical in nature and made technical knowledge available to the assessee. However, the assessee contended that the services were merely support services and did not involve the transfer of any technical knowledge, skill, or know-how. The Commissioner of Income Tax (Appeals) [CIT(A)] agreed with the assessee, noting that the services were routine business support services and did not fall within the scope of Article 12(3)(g) of the India-Australia DTAA.

3. Obligation to Follow Certificates Issued under Section 195(2):
The CIT(A) emphasized that the AO was obliged to follow the certificates issued under section 195(2) of the Act, which determined the withholding taxes at Nil for the payments made to the Australian entity. These certificates were issued for subsequent years and were based on the same agreement between the assessee and the Australian entity. The CIT(A) noted that the principle of consistency should be adhered to, as held by the Supreme Court in the case of Radhasoami Satsang v. CIT. The certificates indicated that the payments were for support services without any technicalities involved and did not require TDS.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal. It noted that the Revenue failed to provide evidence that the certificates issued under section 195(2) had been modified or cancelled. The Tribunal found no change in facts between the year under consideration and the subsequent years for which the certificates were issued. It concluded that the AO's disallowance was contrary to the Department's own determination of the tax liability. Therefore, the Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's grounds of appeal.

Order Pronouncement:
The appeal by the Revenue was dismissed, and the order was pronounced in the open Court on 12/09/2022.