2023 (3) TMI 422 - HC - Income Tax

TDS u/s 195 - payments made by the assessee for marketing services to the US Company as taxable in India as FTS Fee for Technical Services - US Company does not have any permanent establishment in India - order under Section 201(1) 201(1A) - India- USA DTAA - Revenue s case is payments made to the US Company for marketing services take the character of FTS and chargeable to tax in India - according to the Revenue the royalties and fees for included services may also be taxed in the Contracting State - Tribunal held that the services received by the assessee cannot be considered as Royalty or Fee for included services to deduct TDS - HELD THAT - In the case on hand, the services have been rendered in USA. In contradistinction in the case of GVK Industries Limited 2015 (2) TMI 730 - SUPREME COURT the advice of a Company called NRC Non-Resident Company was taken by GVK Industries for financial structure and with its advice GVK Industries had approached Indian Financial Institutions with IDBI Industrial Development Bank of India Bank acting as lead financier for its Rupee loan requirement and for a part of its foreign currency. In view of the admitted fact that the services were utilized in USA, we are persuaded to accept the authority in Lufthansa s Case 2015 (5) TMI 873 - DELHI HIGH COURT Therefore, in our considered opinion, the findings returned by the ITAT do not call for any interference. Decided against revenue.

Summary

Issues:
1. Interpretation of Sections 201(1) and 201(1A) regarding time limits for exercising powers.
2. Determination of whether payments made to a non-resident entity constitute 'Royalty' or 'Fee' for included services.
3. Assessment of conditions for invoking Sections 201(1) and 201(1A) in the case of the assessee.

Analysis:

Issue 1:
The appeal raised questions regarding the time limits for exercising powers under Sections 201(1) and 201(1A) of the Income Tax Act. The Tribunal's decision was challenged based on the argument that the Memorandum of Finance Bill 2009 did not prescribe any time limits for these sections due to challenges in recovering taxes from Non-Resident Indians (NRIs). The court analyzed the legislative intent and noted that no time limits were specified in the sections in respect of payments made to Non-Residents. The court considered the arguments presented and the challenges in administering tax recovery from NRIs before making a decision.

Issue 2:
The second issue involved whether the payments made by the assessee to a US Company constituted 'Royalty' or 'Fee' for included services, leading to the deduction of Tax Deducted at Source (TDS). The Tribunal's decision was challenged by the Revenue, arguing that the payments should be considered Fee for Technical Services (FTS) under the Act and the Double Taxation Avoidance Agreement (DTAA) with the USA. The court examined the nature of the services provided by the US Company and the relevant clauses in the DTAA to determine the taxability of the payments. The court considered the arguments presented by both parties and assessed the conditions for invoking Sections 201(1) and 201(1A) in this context.

Issue 3:
The final issue revolved around the conditions for invoking Sections 201(1) and 201(1A) in the case of the assessee. The Tribunal had held that the conditions were not satisfied, while the Revenue contended otherwise. The court analyzed the services provided by the US Company, the applicability of technical knowledge or consultancy services, and the implications under Section 9(1)(vii) of the Act. The court examined the relevant clauses in the DTAA and previous judicial decisions to determine the tax liability of the payments made by the assessee. After considering the arguments and authorities cited by both parties, the court concluded that the findings of the ITAT did not warrant interference, leading to the dismissal of the appeals in favor of the assessee.

In conclusion, the court's detailed analysis and interpretation of the legal provisions, agreements, and services provided by the non-resident entity led to the dismissal of the appeals and a ruling in favor of the assessee, highlighting the importance of thorough examination and understanding of the relevant tax laws and international agreements in such cases.