2023 (5) TMI 157 - AT - Income Tax

TDS u/s 195 - Payment chargeable to tax in India or not DTAA with USA - Payment made to non-residents u/s 40(a)(i) - DRP held that the services provided by the non-residents were received and utilised by the assessee in connection with its business operations in India - AR submitted that the payment made to the non-residents in lieu of the services rendered by them is not chargeable to tax in India and therefore, no TDS was deducted u/s 195 - HELD THAT - We are of the considered opinion that for disallowance u/s 40(a)(i) of the Act the AO has to establish that the sums remitted outside India come within the purview of interest, Royalty, Fees for Technical Services or other sums chargeable under this Act, which exercise in the present case has not been undertaken by the any of the lower authorities. We find that in GE India Technology Centre Private Ltd 2010 (9) TMI 7 - SUPREME COURT remitted the case to the Hon ble High Court for de novo consideration on merits and fresh adjudication on the issue of whether the amount paid give rise to any income taxable in India. Thus, in view of the aforesaid findings, we deem it appropriate to remand the matter to the file of the AO to decide whether the payment made by the assessee to the aforesaid non-resident entities is taxable in India. It is only thereafter the issue of deduction of tax at source under section 195 of the Act and disallowance under section 40(a)(i) of the Act arises. Decided in favour of assessee for statistical purposes. Short grant of credit of TDS - This issue is restored to the file of the AO with the direction to grant TDS credit, in accordance with the law, after conducting the necessary verification

Summary

Issues Involved:
1. Disallowance of payment made to non-residents under section 40(a)(i) of the Act.
2. Short grant of credit of TDS.
3. Levy of interest under section 234C of the Act.

Summary:

Disallowance of Payment Made to Non-Residents (Grounds No. 1-8):
The assessee, a US-based company with a project office in India, challenged the disallowance of Rs. 4,86,45,310 made to non-residents without TDS under section 40(a)(i) of the Act. The AO disallowed the payments, arguing that the assessee should have applied for determination of taxability under section 195. The DRP upheld the AO's decision, asserting the payments were chargeable to tax in India. The ITAT found that the AO did not conduct a detailed enquiry into the taxability of the payments under respective tax treaties. The ITAT remanded the matter back to the AO to decide on the taxability of payments to non-residents, emphasizing that disallowance under section 40(a)(i) requires establishing that the sums are chargeable under the Act.

Short Grant of Credit of TDS (Ground No. 9):
The issue of short grant of credit of TDS was restored to the AO for necessary verification and granting of TDS credit in accordance with the law.

Levy of Interest Under Section 234C (Ground No. 10):
The levy of interest under section 234C of the Act was deemed consequential and allowed for statistical purposes.

Conclusion:
The appeal by the assessee was allowed for statistical purposes, with directions to the AO for fresh adjudication on the taxability of payments to non-residents and verification of TDS credits.