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2023 (9) TMI 1036 - AT - Income TaxTDS u/s 195 - non-deduction of tax at source on payment made to Italian company non-resident company for supply of manufacturing plant of tissue paper - liability u/s 201(1) and 201(1A) - Whether business income was taxable in India under the DTAA? - HELD THAT - The entire plant was supplied in movable packages and assembled with the help of two local contractors engaged by the assessee. No documentary evidences are presented by the Assessing Officer or ld CIT(DR) to establish that plant was assembled or commissioned by the non-resident in India. In the absence of any such documentary evidence, no income can be accrued or arisen or deemed to have accrued or arisen to the non-resident in India under the provisions of the Act. CIT(A) examined the taxability of the non-resident under the provisions of the DTAA between India and Italy. The AO, in the Remand Report, had proposed that business income had arisen to the non-resident. However, there was no evidence to suggest that the Italian company had established a permanent establishment in India under the DTAA. Consequently, no business income was taxable in India under the DTAA. In conclusion, as no income accrued to the non-resident either under the Act or the DTAA, the assessee was not obligated to comply with Section 195(1) of the Act - Decided in favour of assessee.
Issues Involved:
1. Justification of deleting demand under Section 201(1) for short deduction of tax. 2. Justification of deleting demand under Section 201(1A) for non-payment of tax. 3. Admission of fresh evidence in appellate proceedings in violation of Rule 46A. 4. Determination of income arising from supplies and services under the contract as per Indian and Italian tax laws and DTAA. Summary: Issue 1 & 2: Justification of deleting demand under Section 201(1) and 201(1A): The Revenue challenged the deletion of the demand raised under Section 201(1) and 201(1A) for non-deduction of tax at source on payments made to an Italian company for the supply of a tissue paper manufacturing plant. The Assessing Officer (AO) considered the contract as a "composite contract" involving supply and works, thus liable for TDS under Section 195. The AO held the assessee as "assessee-in-default" and raised liability under Sections 201(1) and 201(1A). However, the Ld. CIT(A) concluded that the contract was primarily for the supply of the plant, with installation services carried out by Indian contractors, and no income accrued to the non-resident in India. The Ld. CIT(A) also noted that the non-resident company did not have a permanent establishment in India, thus, under the DTAA between India and Italy, no business income was taxable in India. The Tribunal upheld the Ld. CIT(A)'s order, dismissing the Revenue's grounds. Issue 3: Admission of fresh evidence in violation of Rule 46A: The Revenue alleged that the Ld. CIT(A) admitted fresh evidence in violation of Rule 46A. However, the Tribunal found no reference to any fresh evidence in the Ld. CIT(A)'s order and noted that the AO, in the Remand Report, confirmed that no new facts were brought during appellate proceedings. Consequently, this ground was deemed infructuous and dismissed. Issue 4: Determination of income arising from supplies and services under the contract: The Tribunal examined whether the contract for the supply of the manufacturing plant should be classified as a composite contract, including installation services. It was found that the entire service related to the supply was provided from outside India, and the plant was assembled in India by local contractors. No documentary evidence was presented by the AO to establish that the plant was assembled or commissioned by the non-resident in India. Thus, no income accrued to the non-resident in India under the Act or the DTAA. The Tribunal upheld the Ld. CIT(A)'s order, confirming that the assessee was not obligated to comply with Section 195(1) of the Act. Conclusion: The Tribunal dismissed both appeals filed by the Revenue, upholding the Ld. CIT(A)'s well-reasoned order on all issues. The order was pronounced in the open Court on 20/09/2023.
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