2024 (2) TMI 265 - AT - Income Tax

Rate of tax on assessed income of Non-Resident assessee - Partner in Joint Venture - Claim of Benefit of DTAA - to settle the matter at rest, the assessee is willing to offer the income subject to settlement of tax liability at the rate at which TDS has been deducted - Withheld tax on the payments made towards technical know-how fee and financial commitment fee at the rate of 10% and 15% respectively - HELD THAT - JV had approached the TDS Officer u/s 195 of the Act seeking a direction regarding the rate of TDS on the aforesaid payments. In response to the application filed by the JV, TDS officer has issued an order under section 195 of the Act, wherein he has directed the JV to deduct tax at the rate of 10% on technical know-how fee and at the rate of 15% on financial commitment fee. The aforesaid rates were applied by the TDS Officer treating the technical know-how fee as FTS and the financial commitment fee as interest income. The rate of TDS was determined in terms with the rate of tax for FTS and interest income as per the treaty provisions. Whereas, the Assessing Officer has taxed the entire receipts by applying the normal rate of tax as per the provisions of domestic law. There is no dispute that the assessee has willingly offered the entire receipts to tax in India. The dispute is only with regard to applicable rate of tax on such receipts. Since, the assessee is resident of Canada and is entitled to get benefit under India Canada DTAA, in our view, the assessee must get benefit of the tax rate provided under the DTAA. In fact, being conscious of this factual position, the TDS Officer has issued an order u/s 195 of the Act directing the payer to deduct tax at 10% and 15% respectively. Thus, on overall consideration of facts and circumstances of the case, we do not find any infirmity in the decision of learned first appellate authority on the issue. Accordingly, we dismiss the grounds.

Summary

Issues involved:
The issues involved in this judgment are related to the deletion of addition of Rs. 69,93,54,377/- in the assessment year 2010-11. The first issue pertains to the CIT(A) deleting the order of the Assessing Officer that charged the income of the assessee to tax at normal rates applicable to non-residents. The second issue concerns the reliance by CIT(A) solely on the order passed by the TDS officer under section 195(2) in the case of Continental Foundation Joint Venture. The third issue revolves around the CIT(A) holding that the technical know-how fee was taxable at 10% and financial commitment fee at 15%. The fourth issue questions the CIT(A) holding the income of the assessee as taxable at reduced rates without sufficient material on record. The fifth issue relates to the CIT(A) admitting additional evidence in violation of Rule 46A without giving the Assessing Officer an opportunity to examine them.

Details of the Judgment:
The judgment arises out of cross appeals from an order of the Commissioner of Income Tax (Appeals)-42, New Delhi, for the assessment year 2010-11. The Revenue's appeal focused on the deletion of the addition of Rs. 69,93,54,377/- made by the Assessing Officer. The assessee, a non-resident corporate entity incorporated in Canada, was engaged in a joint venture with an Indian entity for a specific project. The dispute arose when the Assessing Officer added back certain receipts to the assessee's income, as the assessee had not filed a return of income for the assessment year. The first appellate authority allowed the assessee's claim to be taxed as per the rate provided under the India-Canada Double Taxation Avoidance Agreement (DTAA). The Revenue appealed this decision.

Upon considering the submissions and evidence, the ITAT found that the assessee had received certain amounts from the joint venture, on which the JV had already deducted tax at specified rates under section 195 of the Act. The TDS Officer had directed the deduction of tax at 10% and 15% on the technical know-how fee and financial commitment fee, respectively. The ITAT held that since the assessee was a resident of Canada, it was entitled to the benefits under the India-Canada DTAA, and thus, the assessee should be taxed at the rates provided in the DTAA. The ITAT upheld the decision of the first appellate authority and dismissed the Revenue's appeal.

The assessee also filed an appeal challenging the validity of the reopening of assessment under section 147 of the Act. However, since the ITAT had already confirmed the order of the Commissioner (Appeals) in the Revenue's appeal, the issues raised in the assessee's appeal became academic, and the appeal was dismissed as infructuous. Ultimately, both appeals were dismissed by the ITAT.