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2024 (8) TMI 426 - AT - Income TaxTDS u/s 195 - reimbursement of expenses - Addition u/s 40(a)(i) the amounts paid to QAI Singapore Pte. Ltd. and KCS Hong Kong Ltd. in relation to services rendered for earning income from outside India which specifically falls under the exclusionary provision of Section 9(1)(vii)(b) - HELD THAT - The assessee had utilized the services of QAI Singapore Pte. Ltd. and KCS Hong Kong Ltd. in order to deliver the SCAMPIA appraisal services to its clients in Vietnam. The services have been rendered in Vietnam for the purpose of earning income from a source which is outside India. Therefore, the services rendered by QAI Singapore Ltd. and KCS Hong Kong Ltd. have been utilized in Vietnam i.e. outside India and the payment which has been made to QAI Singapore Ltd. and KCS Hong Kong Ltd. is for the purpose of earning income from a source outside India which specifically falls under the exclusionary provisions of Section 9(1)(vii)(b) of the Act Thus, disallowance made by the AO and the CIT(A) u/s 40(a)(i) of the Act is unwarranted and liable to be deleted. Decided in favour of assessee. Payments to Carnegie Mellon University and Call Centre School LLC - HELD THAT - The transaction entered into by the assessee nowhere falls within the definition of Fee for Technical Services. Therefore, the addition made by the AO by holding such amount as Fee for Technical Services is absurd and without any basis and is thus liable to be deleted. In the present case, trademarks have been used for imparting trainings to the employees of assessee s clients outside India and for the purpose of earning an income from a source outside India. No defect or discrepancy has been pointed out by the AO or the ld. CIT(A) in the chart furnished by the assessee. It is also not the case of the AO or the ld. CIT(A) that the details mentioned in the chart are vague or arbitrary. Thus, the income was even otherwise not taxable in the hands of the recipient in view of the specific exclusionary provisions of Section 9(1) (vi)(b) of the Act - Thus disallowance made by the AO and the ld. CIT(A) u/s 40(a)(i) of the Act is unwarranted and liable to be deleted. Payments to the APM Group for purchase of course material -HELD THAT - From a plain reading of the above section, it is clear that the transaction entered into by the assessee nowhere falls within the definition of Fee for Technical Services. Therefore, the addition made by the AO by holding such amount as Fee for Technical Services is absurd and without any basis and is thus liable to be deleted. Payments to the British Computer Society - disallowance u/s 40(a)(i) r.w.s. 195 - HELD THAT - Transaction entered into by the assessee do not postulate any kind of services in the nature of technical, managerial or consultancy As per DTAA, simple rendering of services is not sufficient for a service to qualify as Fee for Technical Service when the expression Make Available is used within the definition of Fee for Technical Services. Rather, the provision of services should enable the recipient to make use of the technical knowledge etc. by himself without taking help from the provider of the services - Thus addition made by the AO by holding such amount as Fee for Technical Services is absurd and without any basis and is thus liable to be deleted. Payments to RADTAC - services rendered for earning income from outside India which specifically falls under the exclusionary provision of Section 9(1)(vii)(b) - HELD THAT - Disallowance made by the AO and the ld. CIT(A) u/s 40(a)(i) of the Act is unwarranted and liable to be deleted. Payments to Mr. Tejinder Pal Singh - payment made to individuals for professional services - HELD THAT - Income derived by an individual being resident of a contracting state is taxable in that contracting state only i.e. country of domicile except where such individual has a fixed base in other contracting state or period of stay of such individual in other contracting state exceeds 90 days in the relevant taxable year. The fact reveals that Mr. Tejinder Pal Singh does not have a fixed base in India nor does his stay in India has exceeded a period of 90 days.Thus, the income earned by Mr. Tejinder Pal Singh is taxable in the country of his residence i.e. USA and not chargeable to tax in India. Therefore, no TDS u/s 195 ought to have been deducted by the assessee on making such payment to Mr. Tejinder Pal Singh. Appeals of assessee allowed.
Issues Involved:
1. Validity of the CIT(A)'s order. 2. Disallowance of payments to Intertec Systems LLC and Invico Capital Corporation AG. 3. Disallowance of payments to QAI Singapore Pte. Ltd. and KCS Hong Kong Ltd. 4. Disallowance of payments to Carnegie Mellon University and Call Centre School LLC. 5. Disallowance of payments to The APM Group. 6. Disallowance of payments to Call Centre Industry Advisory Council and The British Computer Society. 7. Disallowance of payments to RADTAC Ltd. 8. Disallowance of payments to Mr. Tejinder Pal Singh. 9. Application of Double Taxation Avoidance Agreement (DTAA). Detailed Analysis: 1. Validity of the CIT(A)'s Order: The assessee challenged the CIT(A)'s order as being bad in law and on facts. The Tribunal did not find any specific arguments or evidence to support this general ground, hence it was not separately adjudicated. 2. Disallowance of Payments to Intertec Systems LLC and Invico Capital Corporation AG: The assessee paid Rs. 53,73,994/- to Intertec System LLC and Rs. 86,88,215/- to Invico Capital Corporation AG for various services, which included employment visas, salary administration, and other statutory compliances. The Tribunal held that these payments constituted pure reimbursement of expenses and were not income of the recipient. Hence, no TDS was required under Section 195. Reliance was placed on judicial pronouncements including Ge India Technology Centre Private Ltd. Vs. CIT and Tata Iron & Steel Co. Ltd. Vs. Union of India. 3. Disallowance of Payments to QAI Singapore Pte. Ltd. and KCS Hong Kong Ltd.: The payments of Rs. 5,48,090/- to QAI Singapore Pte. Ltd. and Rs. 91,230/- to KCS Hong Kong Ltd. were for services rendered outside India for earning income from a source outside India. The Tribunal noted that these payments fell under the exclusionary provision of Section 9(1)(vii)(b) and thus, no TDS was required. Judicial precedents such as DCIT Vs. M/s Hofincons Infotech and Industrial Services Pvt. Ltd. were cited. 4. Disallowance of Payments to Carnegie Mellon University and Call Centre School LLC: The payments of Rs. 16,56,580/- to Carnegie Mellon University and Rs. 3,89,089/- to Call Centre School LLC were for licensed trainings conducted outside India. The Tribunal held that these payments did not fall under the definition of Fee for Technical Services as per Explanation 2 to Section 9(1)(vii) and were covered under the exclusionary provision of Section 9(1)(vi)(b). Reliance was placed on judicial pronouncements including Commissioner of Income-tax vs. Aktiengesellschaft Kuhnle Kopp and Kausch W. Germany. 5. Disallowance of Payments to The APM Group: The payment of Rs. 23,02,094/- to The APM Group was disallowed by the AO as Fee for Technical Services. The Tribunal found that the transaction did not fall within the definition of Fee for Technical Services and thus, the disallowance was unwarranted. 6. Disallowance of Payments to Call Centre Industry Advisory Council and The British Computer Society: The payments of Rs. 76,446/- to Call Centre Industry Advisory Council and Rs. 4,45,809/- to The British Computer Society were disallowed as Fee for Technical Services. The Tribunal noted that these payments did not qualify as Fee for Technical Services under Article 12 of the DTAA with USA, which requires the provision of services to "make available" technical knowledge, experience, skill, etc. Judicial precedents such as Raymond Ltd. Vs. DCIT and Mahindra and Mahindra Limited Vs. DCIT were cited. 7. Disallowance of Payments to RADTAC Ltd.: The payment of Rs. 5,33,527/- to RADTAC for services rendered outside India was disallowed. The Tribunal held that these payments fell under the exclusionary provision of Section 9(1)(vii)(b) and thus, no TDS was required. Relevant judicial precedents were cited. 8. Disallowance of Payments to Mr. Tejinder Pal Singh: The payment of Rs. 2,56,585/- to Mr. Tejinder Pal Singh for services rendered outside India was disallowed. The Tribunal held that the payment fell under the exclusionary provision of Section 9(1)(vii)(b) and also under Article 15 of the DTAA with USA, which excludes such payments from being taxable in India. Judicial precedents and DTAA provisions were cited. 9. Application of Double Taxation Avoidance Agreement (DTAA): The Tribunal emphasized the importance of considering the relevant provisions of the DTAA entered by India with other contracting states, which in many instances provided exclusions that were applicable to the payments in question. Conclusion: The Tribunal allowed the appeals of the assessee, holding that the disallowances made by the AO and confirmed by the CIT(A) under various sections were unwarranted and liable to be deleted. The Tribunal's decision was based on a thorough analysis of the relevant provisions of the Income Tax Act, judicial precedents, and the applicable DTAA provisions.
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