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2023 (6) TMI 731 - AT - Income TaxTDS u/s 195 - Addition u/s 40(a)(ia) - remittance made towards fee for technical services chargeable to tax u/s.9(1)(vii) - assessee has debited an expenditure paid to sister concerns under the head HS Pure Power Programme on which tax was not deducted at source - HELD THAT - The Indian facility of the assessee company was not established in its full strength during the period and it was necessary to get the hardware parts as specified in the agreement. In order to get this work done, the assessee company approached its sister concern TASE India, which was well equipped with the necessary facilities for carrying out the manufacturing work. The invoices were raised by the TASE USA and then re-imbursement of first phase expense of Pure Power Project was made. Thereafter, certain costs were incurred by TASE USA on the said project but subsequently, when the contract got terminated by Hamilton Sundstrand Corporation in the year 2011, the balance amount lying with TASE USA was refunded to the assessee. Looking into these transactions with the angle of the application of Section 195 we notice that in the alleged payments made by the assessee to its sister concern TASE USA, there is no element of income and it is purely reimbursement of expenses and as held in the case of GE India Technologies Pvt. Ltd. 2010 (9) TMI 7 - SUPREME COURT obligation to deduct tax at source u/s 195 does not arise at the moment the payment is made to a non-resident but arises only when such remittances is a sum chargeable to Income Tax u/s 4, 5 and 9 the same ratio applies on the facts of the instant case and, therefore, no tax was deductible by the assessee company on the alleged payments. CIT(A) was justified in deleting the addition/disallowance made - Appeal of the revenue is dismissed.
Issues Involved:
1. Validity of the CIT(A)'s order. 2. Deletion of disallowance under Section 40(a)(ia) by CIT(A). 3. Applicability of TDS provisions under Section 195 for payments made to non-residents. Summary: 1. Validity of the CIT(A)'s Order: The Revenue contended that the order of the CIT(A) was contrary to law and facts. The CIT(A) had deleted the disallowance made by the Assessing Officer (AO) under Section 40(a)(ia) of the Income-tax Act, 1961, which pertains to non-deduction of tax at source for payments made towards fees for technical services chargeable to tax under Section 9(1)(vii) of the Act. 2. Deletion of Disallowance under Section 40(a)(ia): The assessee filed its return for the assessment year 2012-13, declaring a loss. The AO observed that the assessee had debited an expenditure under the "HS Pure Power Programme" without deducting tax at source, which was paid to a non-resident for engineering design costs, product development, and engineering support. The AO invoked Section 195 and disallowed the expenditure under Section 40(a)(ia). The CIT(A), however, deleted this disallowance, noting that the payments were not for technical services but for product manufacturing by the sister concern, and thus were not liable for tax deduction at source. 3. Applicability of TDS Provisions under Section 195: The Revenue argued that the payment made to the assessee's sister concern in the USA was towards technical services and thus required tax deduction under Section 195. The CIT(A) concluded that the payment did not include any income component chargeable to tax in India, referencing the Supreme Court decision in GE India Technologies Pvt. Ltd., which states that TDS obligations under Section 195 arise only when the payment is chargeable to tax in the hands of the non-resident. The Tribunal upheld the CIT(A)'s decision, noting that the payments were reimbursements for expenses and not income, thus no tax was deductible. Conclusion: The Tribunal dismissed the Revenue's appeal, affirming that the CIT(A) was justified in deleting the disallowance under Section 40(a)(ia) as the payments to the non-resident sister concern did not attract TDS provisions under Section 195. The Tribunal found no infirmity in the CIT(A)'s order and upheld the same.
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