2023 (5) TMI 472 - AT - Income Tax

TDS u/s 195 - non deduction of TDS on expenses paid/remitted abroad - AO who treated the payment made outside India as Fee for Technical Services (FTS) as defined u/s 9(1)(vii)(b) - HELD THAT - The assessee has submitted copies of invoices of payment made to non resident service providers which is placed at pages 12-32 of the Paper Book to substantiate its claim that the payments have been made on account of ad film production services. The payments made by the assessee to the foreign service providers are thus not in the nature of FTS within the meaning of explanation 2 to section 9(1)(i) of the Act and not chargeable to tax in India. The assessee characterised these services as contract work under section 194C of the Act and therefore it is to be treated as business income of the non-resident which is not taxable in India in the absence of a Permanent Establishment (PE) in India of the said service providers in terms of Article 7 of the relevant Double Taxation Avoidance Agreement (DTAA) between India and the respective countries of the non-resident service providers. The assessee therefore is not required to withhold tax from the payments made to the non-resident service providers. We agree with the finding of the Ld. CIT(A) that services provided by the non-resident service providers are not in the nature of managerial technical or consultancy services within the meaning of explanation 2 to section 9(1)(vii) of the Act. These are to be characterised as contract work under section 194C of the Act and thus partakes the nature of business income which is not taxable in India in the absence of a business connection or PE of the non-resident service provider in India. We endorse the findings of the Ld. CIT(A) that the payments made to the non-resident service providers by the assessee are not chargeable to tax in India and thus no disallowance under section 40(a)(ia) of the Act is called for on account of non-deduction of tax at source thereof - Appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Business connection in India.
2. Applicability of Section 9(1)(vii) to ad film production services.
3. Nature of director fees paid to Mr. Jean Carlier.
4. Deletion of additions made by AO under Section 40(a)(i).

Summary:

1. Business Connection in India:
The Revenue contended that the Ld. CIT(A) erred in observing no business connection in India despite the assessee entering into specific service agreements with non-residents. The Tribunal upheld the CIT(A)'s finding that the non-residents did not have a Permanent Establishment (PE) in India, and the services were rendered and utilized outside India. Therefore, the income of the non-resident service providers was not taxable in India.

2. Applicability of Section 9(1)(vii) to Ad Film Production Services:
The Revenue argued that the provisions of Section 9(1)(vii) applied to ad film production services. The Tribunal agreed with the CIT(A) that the services provided were commercial in nature, involving logistic arrangements such as arranging shooting locations, obtaining permits, and coordinating licenses. These services did not qualify as technical services under Explanation 2 to Section 9(1)(vii) and were thus not chargeable to tax in India.

3. Nature of Director Fees Paid to Mr. Jean Carlier:
The Revenue claimed that the director fees paid to Mr. Jean Carlier were of a technical nature. The Tribunal endorsed the CIT(A)'s finding that the payment for directing the ad film was covered under Article 15 of the India-Malaysia DTAA as "Professional Services" and could not be termed as technical services under Explanation 2 to Section 9(1)(vii).

4. Deletion of Additions Made by AO under Section 40(a)(i):
The Revenue was aggrieved by the deletion of the disallowance of Rs. 1,58,85,633/- on account of expenses paid/remitted abroad without withholding tax. The Tribunal upheld the CIT(A)'s decision, noting that similar services procured in previous and subsequent assessment years had not resulted in any additions. The payments were characterized as business income of the non-resident service providers, not taxable in India due to the absence of a PE.

Conclusion:
The Tribunal dismissed the Revenue's appeal, endorsing the CIT(A)'s findings that the payments made to non-resident service providers were not chargeable to tax in India, and no disallowance under Section 40(a)(i) was warranted.