2015 (10) TMI 384 - AT - Income Tax

Disallowance u/s 40(a)(ia) - liability to make TDS before making payment to the non-resident holding company - Fees for Technical Services - Held that - AO has only considered the applicability of the definition of the term Fees for Technical Services u/s 9(1)(vii) of the Income-tax Act and has not considered the applicability of the definition of Fees for Technical Services under the DTAA between India and Singapore and has not examined as to which of the provisions is beneficial to the assessee. It has been held by various courts that where there is a DTAA between India and the country in which the other transacting company is located and there is a variance between the provisions of the DTAA and the Indian Income-tax Act, then the provisions which are beneficial to the assessee are to be applied. As regards the appeal before the CIT(A), we find that the CIT(A) has only gone on the premise that mention of the word design in the invoice proved that the holding company has provided designs to the assessee and therefore, it satisfies the phrase of make available in the definition of Fees for Technical Services in the treaty between India and Singapore. Before us, the assessee has filed documents to claim that no services relating to design were rendered by the holding company to the assessee. In our opinion, all these documents need verification by the AO. Further, the additional grounds raised by the assessee are also legal grounds which need adjudication on the basis of facts on record. Before us, no facts are available to come to a conclusion as to whether the payment is reimbursement of expenses or payment for services rendered by the holding company. As regards the applicability of TDS provisions only on payment basis also, we find that no facts are available on record. In view of the same, we are of the opinion that the issue needs re-consideration by the AO in the light of the details available in the records of the AO as well as those filed before us and the judicial precedents on the issue. The issue is, therefore, set aside to the file of the AO with a direction to examine the applicability of the definition of Fees for Technical Services under the DTAA between India and Singapore and apply the same in accordance with law. The AO shall also consider the additional grounds of appeal raised by the assessee as well as the additional evidence filed by the assessee before us and decide the issue in accordance with law. Needless to mention that the assessee shall be given a fair opportunity of hearing. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Whether the assessee is liable to make TDS before making payment to the non-resident holding company under sec.40(a)(ia) of the Income Tax Act, 1961.

Analysis:
The appeal was filed by the assessee against the order of the CIT(A)-III, Bangalore, for the assessment year 2008-09. The dispute arose when the AO held that the assessee should have deducted tax at source before making payments to its non-resident holding company, invoking sec.40(a)(ia) of the Act. The CIT(A) upheld this decision, leading to the appeal before the ITAT Bangalore.

The assessee, engaged in manufacturing and installation of structural glazing works in India, had a management services agreement with its holding company. The AO considered the payment made to the holding company as 'Fees for Technical Services' and demanded TDS, resulting in a dispute.

The assessee argued that the services received did not fall under 'Fees for Technical Services' as per the DTAA between India and Singapore. The counsel highlighted the need to consider treaty provisions favoring the assessee, especially regarding the term 'made available' in defining technical services.

The ITAT observed that the AO did not consider the DTAA provisions and failed to determine which provisions were beneficial to the assessee. The CIT(A) based its decision on the mention of 'design' in an invoice, concluding that technical services were provided. However, the assessee presented evidence contradicting this claim, emphasizing the need for verification by the AO.

The ITAT set aside the issue to the AO for reevaluation, directing a thorough examination of DTAA provisions, additional grounds raised by the assessee, and evidence submitted. The AO was instructed to decide the matter in accordance with law, ensuring the assessee's right to a fair hearing.

Ultimately, the ITAT allowed the assessee's appeal for statistical purposes, emphasizing the need for a comprehensive reassessment by the AO based on all available information and legal precedents.

This detailed analysis of the judgment highlights the intricate legal arguments, the importance of treaty provisions, and the necessity for a thorough examination of facts and evidence in resolving the TDS dispute between the assessee and the tax authorities.