2020 (11) TMI 901 - AT - Income Tax

TDS u/s 195 - TDS on salary as per provisions of section 40(a)(i) - payment made from India to the employees of Head Office - assessee is a company registered in Netherlands - DTAA between India and Netherelands - as per asseseee that the salary has been paid abroad by the foreign company to its employees and the head office has apportioned a part of the salary expenses to the assessee which the assessee has debited and has reimbursed the Head Office without any mark up - HELD THAT - Since the facts of the instant case are identical to the facts of the case decided by MOTHER DAIRY FRUIT, VEGETABLE (P) LTD. 2010 (10) TMI 852 - DELHI HIGH COURT therefore, respectfully following the said decision we hold that the assessee is not liable to deduct tax at source from the salary paid to the non resident and has not committed any default in not deducting tax at source from the reimbursement to the head office on account of salary expenses. Accordingly the order of the Ld. CIT(A) is set aside and the grounds raised by the assessee are allowed. Non deduction of tax at source, on professional fees etc - payment being reimbursement of technical expenses, in turn remitted to foreign professionals located outside India, paid outside India - taxation under Article of 14 of India- Netherlands DTAA - HELD THAT - As decided in M/S GRANT THORNTON INDIA LLP 2019 (7) TMI 1719 - ITAT DELHI Since the assessee has made the payment outside India to independent professionals, therefore, in view of Article 14 of India Netherlands DTAA the assessee is not liable to deduct any tax from such payment. Therefore, the order of the Ld. CIT(A) is set aside and the grounds raised by the assessee are allowed. Addition being income on account of consultancy services as FTS u/s 9(1) (vii) r.w. Article 12(5) of subject DTAA and taxed the same at 10% - HELD THAT - A perusal of the order of CIT(A) shows that despite his asking to provide the details of key professional staff/consultants who had worked on the DMIC Project and to explain whether services were rendered from the existing project office for the PSRBDB and the manner in which the services were rendered to the DMRC Project and to furnish the breakup of expenses in the said project, the assessee failed to produce the same before the CIT(A). Considering the totality of the facts of the case and in the interest of justice we deem it proper to restore the issue to the file of the CIT(A) with a direction to give one more opportunity to the assessee to file the above documents and to decide the issue afresh and in accordance with law after giving due opportunity of being heard to the assessee. While doing so, he shall also keep in mind the alternate argument of Ld. Counsel for the assessee to tax the receipt @ global profit rate and not the entire amount as added by the AO and upheld by CIT(A). The grounds raised by the assessee are accordingly allowed for statistical purposes.

Summary

Issues Involved:
1. Non-deduction of tax at source on salary expenses.
2. Non-deduction of tax at source on professional fees.
3. Taxability of consultancy services provided to a Netherlands company.

Issue-wise Detailed Analysis:

1. Non-deduction of Tax at Source on Salary Expenses:
The assessee, a company registered in the Netherlands, established a project office in India and claimed salary expenses of ?73,17,159/- without deducting tax at source. The Assessing Officer (AO) disallowed this amount, arguing that the salary paid to employees for services rendered in India is taxable in India and thus required TDS under Section 40(a)(i). The assessee contended that the salaries were paid by the head office in the Netherlands and not in India, invoking Article 7 of the DTAA between India and the Netherlands, asserting that the employees did not stay in India for more than 183 days. The CIT(A) upheld the AO's decision, emphasizing that the services were rendered in India and the remuneration was borne by the project office in India. The Tribunal, however, referred to the Delhi High Court's decision in Mother Dairy Fruit & Vegetables (P) Ltd. vs. CIT, which held that salaries paid to non-residents for services rendered outside India are not taxable in India. Consequently, the Tribunal ruled in favor of the assessee, setting aside the CIT(A)'s order and allowing the grounds raised by the assessee.

2. Non-deduction of Tax at Source on Professional Fees:
The AO disallowed ?48,34,669/- paid to two non-resident professionals without TDS, treating it as Fees for Technical Services (FTS) under Section 40(a)(i). The assessee argued that the payments were reimbursements for services rendered outside India and were not taxable under Article 14 of the India-Netherlands DTAA. The CIT(A) upheld the AO's decision, stating that the services were ancillary and subsidiary to the consultancy services provided in India, thus falling under FTS. The Tribunal, however, observed that the services rendered by the non-residents were independent professional services, not FTS, and thus not subject to TDS under Article 14 of the DTAA. The Tribunal followed its earlier decisions and held that the assessee was not liable to deduct tax on such payments, setting aside the CIT(A)'s order and allowing the grounds raised by the assessee.

3. Taxability of Consultancy Services Provided to a Netherlands Company:
The AO taxed ?12,00,414/- received by the assessee from Kuiper CompagnonRuintellike, a Netherlands company, for consultancy services provided for the Delhi-Mumbai Industrial Corridor (DMIC) project, treating it as FTS under Section 9(1)(vii) r.w. Article 12(5) of the DTAA. The assessee contended that the payment was made by a Netherlands company to another Netherlands company without involving the Indian project office and thus not taxable in India. The CIT(A) upheld the AO's decision, noting that services were rendered from the project office in India. The Tribunal, however, found that the CIT(A) did not properly consider the assessee's submissions and the relevant documents. Therefore, the Tribunal remanded the issue back to the CIT(A) for a fresh decision, directing the CIT(A) to consider the assessee's arguments and documents, and also to evaluate the alternative argument regarding the application of the global profit rate.

Conclusion:
The Tribunal allowed the appeal filed by the assessee for statistical purposes, setting aside the orders of the lower authorities on the grounds of non-deduction of tax at source on salary and professional fees, and remanding the issue of taxability of consultancy services for fresh consideration.