2024 (3) TMI 611 - AT - Income Tax

TDS demand and interest u/s 201(1) / (1A) - assessee failed to deduct Tax at source (TDS) on certain foreign payments - AR submitted that these payments include reimbursements of expenses which do not require any TDS and all these payees are covered under DTAA which has independent professional service clause in their DTAA - HELD THAT - Considering the plea of Ld. AR and keeping in mind the fact that the issues raised by the assessee, in this regard, were not addressed by Ld. CIT(A), we set-aside the impugned order and restore the issue back to the file of Ld. AO qua disallowance against impugned payment - AO is directed to consider this claim of the assessee and revise the TDS demand and interest u/s 201(1) / (1A), if required, after meeting the plea raised by Ld. AR. The assessee is directed to substantiate its case.

Summary

Issues involved:
The issues involved in this case are the demand raised by the Assessing Officer (AO) under section 201(1) / 201(1A) of the Income Tax Act for Assessment Year (AY) 2016-17 due to the failure of the assessee to deduct Tax at source (TDS) on certain foreign payments.

Summary of Judgment:

Issue 1: Demand raised u/s 201(1)
The appellant contested the demand raised under section 201(1) by the AO, arguing that the services availed from outside India fall under specific provisions of 'Independent professional services' as per the Double Taxation Avoidance Agreement (DTAA) with respective countries. Although the appellant's arguments were not considered by the Commissioner of Income Tax (Appeals) [CIT(A)], the Tribunal set aside the order and directed the AO to reconsider the claim and revise the TDS demand if necessary.

Issue 2: Computation of interest u/s 201(1A)
In a separate appeal, the appellant challenged the computation of interest under section 201(1A) against the TDS demand. The Tribunal found that the issues raised by the appellant were not addressed by the CIT(A) and directed the AO to reconsider the claim and revise the interest amount if required. The appeal related to this issue was deemed infructuous.

The Tribunal noted that the appellant had made payments to non-residents without deducting TDS, claiming that the services were legal in nature and did not fall under 'Fees for Technical Services' (FTS). The AO held that the services constituted 'fees for technical services' under Sec. 9(1)(vii)(b) and raised a demand against the appellant. However, the Tribunal found that the AO did not consider the appellant's argument regarding the 'independent professional services' clause in the DTAA with certain countries, and therefore, directed the AO to reevaluate the claim.

The Tribunal allowed the appeal related to the demand raised under section 201(1) for statistical purposes and dismissed the appeal regarding the computation of interest under section 201(1A) as infructuous.

This judgment highlights the importance of considering the specific provisions of DTAA and the nature of services rendered in determining the applicability of TDS on foreign payments. The Tribunal emphasized the need for assessing officers to thoroughly review all relevant arguments and clauses before making a decision on TDS demands and interest computations.