2024 (11) TMI 812 - AT - Income Tax

TDS u/s 195 - addition u/s 40(a)(i) - assessee being resident corporate assessee is stated to be engaged in semi-conductor IC assembling and testing - Payment of marketing fees to entity without deducting tax at source - same was in pursuant to Marketing and Sale agreement as entered into by the assessee with that entity - income taxable in India u/s 9(1)(i) Article-7 of respective DTAAs or not? HELD THAT - Upon perusal of clauses of the relevant agreements, it would appear that impugned payments are for marketing and sales services. The assessee has paid marketing fees to the payees. In such a case, in our opinion, the make available condition would not be applicable at all. The arguments of Ld. AR are multifold i.e., these services do not constitute Fees for Technical services since these are more of commission agent services which have been rendered in foreign territory. Since both the payees do not have any PE in India, the same would not be taxable in India in terms of cited judicial decisions. Another argument of Ld. AR is that the impugned payments would be business profits for the payees and therefore, the same, as per the terms of applicable DTAAs, would be taxable in Singapore and US only. The terms of DTAA or the provisions of the Act, whichever are more beneficial to the assessee, would apply. All these arguments as stated by Ld. AR need to be re-examined by lower authorities. The terms of the agreement, nature and place of services rendered would be decisive factors to ascertain the nature of payment. Beside this, the finding that whether the payees have PE in India or not, would also be vital to adjudicate the issue. Therefore, we set aside the impugned order and restore the impugned issue back to the file of Ld. AO for de novo adjudication in terms of various arguments as advanced by Ld. AR. All the issues are kept open. The assessee is directed to substantiate its case.

Summary

Issues:
Disallowance made by Ld. AO u/s 40(a)(i) for want of TDS on certain payments.

Detailed Analysis:

Issue 1: Payment to M/s Natronix Semiconductor Technology Pvt. Ltd., Singapore
- The assessee paid marketing fees to NSTPL without deducting tax at source, as per Marketing and Sale agreement.
- Ld. AO held the payment fell under 'Fees for Technical Service' under Sec. 9(1)(vii) and disallowed it u/s 40(a)(i) for want of TDS.
- Assessee argued that NSTPL was a commission agent and had no PE in India, citing Faizan Shoes Pvt. Ltd. case.
- Ld. CIT(A) endorsed Ld. AO's stand, relying on Regan Powertech Pvt. Ltd. decision.
- Ld. AR contended payments were to foreign agents for marketing, not taxable in India u/s 9(1)(i) & DTAA Article-7.
- Tribunal set aside the order, directing re-examination by Ld. AO considering nature of services and PE presence.

Issue 2: Payment to M/s SPEL America Inc. USA
- Similar payment made to US entity under Marketing Service Agreement.
- Ld. AO disallowed payment u/s 40(a)(i) for want of TDS.
- Ld. CIT(A) upheld the disallowance, stating services were critical to assessee's business in India.
- Ld. AR argued payments were for marketing, not taxable in India, citing relevant DTAA clauses.
- Tribunal directed re-examination by Ld. AO, considering terms of agreement and nature of services provided.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, emphasizing the need for a detailed re-evaluation by the Assessing Officer based on the arguments presented by the assessee's representative. The decision highlighted the importance of analyzing the terms of the agreements, nature of services, and the presence of Permanent Establishment to determine the taxability of the payments under the relevant provisions and DTAA clauses.