2023 (9) TMI 97 - AT - Income Tax

TDS u/s 195 - disallowance u/s 40(a)(i) for want of TDS on certain payments made to its Singapore-associated entity - payment towards general training services to the non-resident - HELD THAT - We find that similar issue stood decided in assessee s favor for AY 2014-15 2022 (12) TMI 175 - ITAT CHENNAI wherein held ervices are availed by the assessee for its employees to improve their soft skill in the areas of leadership and general management which is not specific to functions being performed by the employees. This training may improve the skills of the employees but it does not involve transfer of any technology which is made available to the assessee for its future use, thus since there was no transfer of technology but it was a case of rendering the general training services, the make available clause was not satisfied. Admission of additional ground of appeal - assessee seeks application of India-UK Tax Treaty rate for dividend while determining Dividend Distribution Tax (DDT) liability for the assessee - DR opposed admission of additional ground at this stage of proceedings and submitted that the facts of the issue are not available on record - HELD THAT - As decided there was no bar for appellate authorities to admit new claims. Therefore, we admit the additional ground for both the years and remand the same for adjudication to the file of Ld. AO with a direction to the assessee to substantiate its claim. The cited decision of Total Oil India Private Ltd. ( 2023 (4) TMI 988 - ITAT MUMBAI (SB) ) shall also be considered by Ld. AO. The additional grounds of appeal stands partly allowed for statistical purposes in both the years.

Summary

Issues Involved:

1. Disallowance of expenditure towards general training services under section 40(a)(i) of the Income Tax Act, 1961.
2. Additional grounds of appeal regarding deduction of education cess and application of India-UK Tax Treaty rate for Dividend Distribution Tax (DDT) liability.

Summary:

1. Disallowance of Expenditure Towards General Training Services:

The primary issue in both appeals for AY 2013-14 and 2014-15 was the disallowance of expenditure on general training services amounting to Rs.92,24,879/- paid outside India under section 40(a)(i) of the Income Tax Act, 1961. The CIT(A) confirmed the AO's order, treating the payment to the non-resident entity (SCB, Singapore) as taxable in India and thus requiring TDS deduction. The assessee argued that the payment was not taxable in India as the services were rendered outside India, and the non-resident entity did not have a Permanent Establishment (PE) in India. The CIT(A) also classified the expenditure as Fees for Technical Services (FTS), which the assessee contested, arguing that the training services for soft skills, leadership, and general communication do not qualify as technical services under the Act or the Double Taxation Avoidance Agreement (DTAA). The Tribunal found that similar issues were decided in favor of the assessee for AY 2014-15, where it was held that such training services do not involve the transfer of technology and thus do not qualify as FTS. Consequently, the Tribunal allowed the appeals for both years, deleting the disallowance.

2. Additional Grounds of Appeal:

The assessee also filed additional grounds of appeal for both years, seeking deduction of education cess and application of the India-UK Tax Treaty rate for DDT liability. The assessee did not press the ground regarding education cess due to statutory amendments. However, the assessee pressed the ground regarding the application of the Tax Treaty rate for DDT liability. The Tribunal admitted the additional grounds based on legal precedents, including the Supreme Court's decision in National Thermal Power Corporation Ltd. vs. Commissioner of Income Tax, which allows consideration of new legal claims if relevant facts are on record. The Tribunal remanded the issue to the AO for adjudication, directing the AO to consider the Special Bench decision in DCIT vs. Total Oil India Private Ltd.

Conclusion:

Both appeals were partly allowed. The Tribunal deleted the disallowance under section 40(a)(i) for both years and remanded the additional grounds of appeal to the AO for further adjudication.