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2020 (9) TMI 668 - AT - Income TaxTDS u/s 195 - payments made for services provided by SII, USA were in the nature of technical services liable for deduction of tax at source - income deemed to accrued or arise in India - CIT(A) confirming the action of ITO that services provided by System Integration Inc. USA are covered as fees under the India-USA double taxations avoidance agreement (DTAA) and hence taxable under Article 12 of DTAA - HELD THAT - Payment made by the assessee to Non resident company SII is not for any fee for technical services and the payment was only towards commission for procurement of orders and reimbursement of incidental charges incurred. Since the payment was not for fees for technical services and further the payment was made to the Non residential company having no permanent establishment or business connection in India, the alleged payment for procurement of orders are not subject to deduction of tax at source u/s 195. CIT(A) erred in confirming the action of the Ld. A.O. - alleged payments to SII in USA during Financial Year 2014-15 and 2015-16 respectively are only towards the charges for procurement or orders and reimbursement of expenses and are not in the nature of fees for technical services and thus do not fall in the ambit of Section 9 of the Act and thus Section 195 of the Act is not applicable in these payments - Decided in favour of assessee.
Issues Involved:
1. Applicability of Section 195/201 of the Income Tax Act. 2. Taxability of services under the India-USA Double Taxation Avoidance Agreement (DTAA). 3. Classification of services as "fees for technical services" under Section 9 of the Income Tax Act. 4. Determination of whether services provided by System Integration Inc. USA involved making technology available. 5. Non-deductibility of TDS on payments made to System Integration Inc. USA. Issue-wise Detailed Analysis: 1. Applicability of Section 195/201 of the Income Tax Act: The primary issue was whether the payments made by the assessee to System Integration Inc. USA (SII) were subject to tax deduction at source (TDS) under Section 195 of the Income Tax Act. The assessee argued that the payments were not liable for TDS as they were for procurement of orders and not for technical services. The Income Tax Officer (ITO) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that the payments were for technical services and thus liable for TDS under Section 195/201. 2. Taxability of Services under the India-USA Double Taxation Avoidance Agreement (DTAA): The CIT(A) confirmed the ITO's decision that the services provided by SII were taxable under Article 12 of the India-USA DTAA as fees for technical services. The assessee contended that the services were not technical but were merely for order procurement, which should not be taxed under the DTAA. 3. Classification of Services as "Fees for Technical Services" under Section 9 of the Income Tax Act: The ITO and CIT(A) classified the payments as "fees for technical services" under Section 9 of the Income Tax Act, which includes managerial, technical, or consultancy services. The assessee argued that SII did not provide any technical services but acted as a liaison and procurement agent. The Tribunal found that SII only procured orders and did not provide any technical or managerial services, thus the payments did not qualify as "fees for technical services." 4. Determination of Whether Services Provided by System Integration Inc. USA Involved Making Technology Available: The CIT(A) held that the services provided by SII involved making technology available to the assessee. However, the Tribunal found that SII merely procured orders and did not make any technology available to the assessee. The Tribunal relied on the certificate issued by SII stating that they only acted as a liaison and procurement agent and did not provide any technical or managerial services. 5. Non-deductibility of TDS on Payments Made to System Integration Inc. USA: The Tribunal concluded that the payments made to SII were not for technical services but were for procurement of orders and reimbursement of expenses. As such, these payments were not subject to TDS under Section 195 of the Income Tax Act. The Tribunal directed the revenue to delete the demand for default of TDS and interest levied under Section 201(1A) of the Act. Conclusion: The Tribunal allowed the appeals of the assessee, holding that the payments made to SII were not for technical services and thus not subject to TDS under Section 195. The Tribunal set aside the findings of the CIT(A) and directed the revenue to delete the TDS demand and interest levied. Order Pronounced: The order was pronounced in the open Court on 16.09.2020.
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