2015 (10) TMI 466 - AT - Income Tax

Withholding of taxes u/s 195 - payments made by the assessee to non-resident for purchase of new designs of furniture - whether CIT(A) erred holding no withholding of tax being transfer of special knowledge and in ignoring the fact that Circular No. 786 dated 07/2/2000 has been withdrawn with retrospective effect by circular No. 7/2009 dated 22/10/2009? - Held that - The assessee exported granite to USA and paid commission of ₹ 85,21,582/- on export sale made to M/s Amshum & Ash, USA and also paid ₹ 12,61,181/- towards advertisement charges to M/s BNP Media USA for advertisement of its product in an international monthly magazine Stone World printed and published in USA. The recipient of commission rendered services outside the India and claimed as business income. The recipient of commission is non-resident and had no permanent establishment in India. No income had accrued or arisen to the non-resident U/s 9 of the Act in the India. We upheld the order of the learned CIT(A) and held that no TDS U/s 195 of the Act is liable to be deducted. - Decided against assessee.

Summary

Issues:
1. Whether withholding of taxes is required under section 195 on payments made by the assessee to non-resident for purchase of new designs of furniture?
2. Whether the payments made by the assessee to non-residents on account of sales commission and advertising without withholding tax comply with the provisions of Section 195 of the Income Tax Act, 1961?
3. Whether the payments made by the assessee fall under the definition of "Fees for Technical Services" as per Section 9(1)(vii)(b) of the Act?
4. Whether the income earned by non-residents from the assessee is deemed to accrue or arise in India, making it liable for withholding tax under Section 195 of the Act?

Analysis:

1. The Revenue appealed against the order of the CIT(A) regarding withholding taxes under section 195 on payments to non-residents for new furniture designs. The Assessing Officer held that the assessee did not comply with the provisions of Section 195 for withholding tax on remittances to non-residents. The contention was that the payments were for services provided outside India and not chargeable to tax in India. The Assessing Officer relied on various case laws to support withholding tax under Section 195.

2. The CIT(A) allowed the appeal, stating that the payments for sales commission and advertising did not fall under managerial, technical, or consultation services, hence not attracting withholding tax under Section 195. The CIT(A) emphasized that the foreign commission agents did not provide managerial services, relying on case laws to support the decision. The CIT(A) also mentioned that the double taxation avoidance agreement prevails over the Income Tax Act.

3. The Revenue argued that the recipients provided services in India and the income earned was covered under "Fees for Technical Services" as per Section 9(1)(vii)(b) of the Act. However, the assessee argued that since the goods and services were exported and payments made outside India, Section 195 was not applicable. The ITAT upheld the CIT(A)'s decision based on the fact that no income accrued or arose in India as per Section 9 of the Act, following a previous decision on a similar issue.

4. The ITAT concluded that since the recipients were non-residents with no permanent establishment in India, and the services were provided outside India, no income accrued in India under Section 9. Therefore, the withholding tax under Section 195 was not applicable. The ITAT dismissed the Revenue's appeal based on the findings and upheld the decision of the CIT(A) in favor of the assessee.