2015 (12) TMI 968 - HC - Income Tax

Disallowance under Section 40 (a) (i) - ITAT deleted the addition - whether the services rendered by the agents to the Assessee were in the nature of fee for technical services - Held that - ITAT has analysed the agreements in question entered into by the Assessee with the foreign entities (agents) and concluded that the services rendered by the agents were purely in the nature of advancement of the business of the Assessee which could not be categorized as managerial/technical or consultancy services. Consequently, it was held that the consideration paid by the Assessee to such agents could not be classified as fee for technical services. The Court finds that the view taken by the ITAT on the interpretation of clauses of the agreements in question was a plausible one. It is also consistent with the decision of this Court in DIT v. Pan Alfa Auto Elektrik Ltd. 2014 (9) TMI 706 - DELHI HIGH COURT and the decision of CIT v. M/s. Grup ISM (2015 (6) TMI 10 - DELHI HIGH COURT). Consequently, this Court finds no substantial question arises for determination on this issue.- Decided in favour of assessee. Whether the payments could have been made by the Assessee to the foreign entities towards tour expenses without deduction of TDS? - Held that - The CIT (A) has held against the Revenue on this issue. Where the recipient of the payment is not liable to tax in India, the question of deducting tax at source on payments made to such entity does not arise. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of payment made by the Assessee under Section 40 (a) (i) of the IT Act in AY 2007-08.
2. Whether payments made to foreign entities towards tour expenses require TDS deduction.

Analysis:

1. The first issue in this case pertains to the disallowance of payment made by the Assessee under Section 40 (a) (i) of the IT Act in AY 2007-08. The Revenue contended that the services rendered by the agents to the Assessee were fee for technical services. However, the ITAT analyzed the agreements between the Assessee and the foreign entities and determined that the services provided by the agents were for the advancement of the Assessee's business, not technical services. The Court found the ITAT's interpretation of the agreements to be plausible and consistent with previous decisions. Therefore, no substantial question arose for determination on this issue.

2. The second issue raised was whether the Assessee could make payments to foreign entities towards tour expenses without deducting TDS. The CIT (A) ruled against the Revenue on this matter, stating that if the recipient of the payment is not liable to tax in India, there is no requirement to deduct tax at source on payments made to such entities. Consequently, the appeals were dismissed by the Court.

In conclusion, the High Court upheld the ITAT's decision regarding the nature of services provided by the agents to the Assessee and the requirement of TDS deduction on payments made to foreign entities for tour expenses. The judgment provides clarity on these issues and affirms the decisions made by the lower authorities.