2017 (5) TMI 1638 - HC - Income Tax

TDS liability on reimbursement of expenditure - TDS u/s 192 - salary expenditure of four employees deputed to the assessee for providing assistance in the area of management, to setting up of business, property selection and retail operations etc. - as held by the AO to be fee for technical services as per the provisions of the DTAA - Held that - There was a service agreement drawn up and for providing such assistance between these two companies. It was essentially a joint venture. Having noted all the clauses in the agreement, the Tribunal rendered a finding of fact that there is no rendering of service within the meaning of the double tax avoidance treaty. This was a clear case of deputing the officials / employees for the promotion of the business of the assessee which is Indian arm of M/S. Marks & Spencer PLC, UK. Since the said payment to the employees is already subjected to tax in India, therefore there is no question of treating the assessee in default for non deduction of tax at source. Once the facts were clear, as these, there was no illegality in the order of the Commissioner of Income Tax (Appeals) which was maintained by the Tribunal. The appeal of the Revenue was rightly dismissed by the Tribunal.

Summary

Issues:
1. Whether the payment made by the Respondent Company to Marks & Spencer's PLC London was subject to tax deduction at source.
2. Whether the payment made by the Respondent Company was fee for technical services as per the provisions of the Double Tax Avoidance Agreement (DTAA).
3. Whether the Tribunal's decision to dismiss the Revenue's appeal was justified.

Analysis:
1. The Assessing Officer noted that the Respondent Company made a payment to Marks & Spencer's PLC London without deducting tax at source. The company argued that these payments were reimbursement of expenditure, while the AO considered it as a fee for technical services under the DTAA. The first appellate authority and the Tribunal found that the payment was towards salary expenditure for employees deputed to assist in various business operations. The Tribunal concluded that since the payments were already taxed in India, there was no default in tax deduction at the source. The Tribunal's decision was based on a joint venture agreement and the nature of services provided, leading to the dismissal of the Revenue's appeal.

2. The Tribunal's analysis focused on the service agreement between the companies, clarifying that the payment was for deputing officials for business promotion rather than technical services under the DTAA. The Tribunal's detailed examination of the agreement and the nature of services provided led to the conclusion that the payment did not fall under the category of technical services as per the DTAA. The Tribunal upheld the Commissioner's order, emphasizing that the payment was already taxed in India, thereby justifying the dismissal of the Revenue's appeal.

3. The High Court, consisting of S. C. Dharmadhikari and Prakash D. Naik, JJ., reviewed the Tribunal's decision and found no perversity or legal error. The Court concurred with the Tribunal's findings that the payment was not subject to tax deduction at source and that the Commissioner's order was legally sound. Consequently, the High Court dismissed the Revenue's appeal without any costs, upholding the Tribunal's decision and concluding the legal proceedings on the matter.