2024 (11) TMI 165 - AT - Income Tax

TDS u/s 195 - disallowance u/s. 40(a)(i) - non deduction of tax at source (TDS) on overseas payment towards patent fees, reimbursement of official fees and professional fees, by treating such payments as Royalty taxable in India - whether such income had accrued or arisen outside India? - Whether the assessee was liable to deduct tax at source on payments made to non-resident attorneys where such payments are in the nature of official fees, reimbursement of renewal fees and professional fees? - HELD THAT - The department has not disputed the fact that the overseas payments made by the assessee are towards reimbursement of expenses incurred by the non-resident attorneys towards renewal of registration of patents abroad and payments to registration authorities. Revenue has not controverted the fact that professional fee paid to the foreign attorneys who are non residents have no Permanent Establishment (PE) in India and none of the Attorneys have visited India during the year under assessment. After examining the nature of payments made by assessee, we are of considered view that the AO and the CIT(A) have erred in coming to the conclusion that the assessee is liable to deduct tax at source on the aforesaid payments. The coordinate bench in the case of Chandra Mohan Lall 2021 (12) TMI 1354 - ITAT DELHI held these payments being in the nature of reimbursement and payment made for official purpose and trade fair services cannot come within the purview of either professional or technical services. Therefore, such payments not being in the nature of income chargeable to tax in India in terms of section 195 of the Act, there was no obligation on the assessee to deduct tax at source on such payment. Therefore, delete the disallowance of the aforesaid amount. The payments made by assessee to non-resident attorneys who have no permanent establishment in India for the services rendered overseas are not subject to TDS provisions u/s. 195 - Similarly, the payments made towards reimbursement of renewal fee and official fee are not subject to TDS provisions. Thus, the assessee was not under obligation to deduct tax at source on such payments. Assessee appeal allowed.

Summary

Issues:
Assessee's liability to deduct tax at source on overseas payments for patent fees, reimbursement of official fees, and professional fees.

Analysis:
The appeal was against the order of the Commissioner of Income Tax (Appeals) confirming disallowance under section 40(a)(i) of the Income Tax Act, 1961 for non-deduction of TDS on overseas payments. The assessee contended that the payments made were for services rendered outside India and hence not subject to TDS. The assessee was engaged in manufacturing various products and had applied for patents abroad, necessitating payments for official fees and professional services. The Tribunal considered a similar case previously and held that payments not chargeable to tax in India are not subject to TDS provisions.

The department did not dispute that the overseas payments were for reimbursement of expenses incurred by non-resident attorneys and that the attorneys had no Permanent Establishment in India. The Tribunal examined the nature of payments made by the assessee and concluded that the AO and CIT(A) erred in determining the liability to deduct TDS on such payments. Referring to a previous case, the Tribunal emphasized that payments for official purposes and trade fair services do not fall under professional or technical services, hence not subject to TDS. Therefore, the Tribunal held that the assessee was not obligated to deduct tax at source on the payments made to non-resident attorneys and for reimbursement of renewal and official fees.

In light of the above analysis, the Tribunal set aside the impugned order and allowed the appeal of the assessee. The judgment highlighted that payments made to non-resident attorneys without a Permanent Establishment in India for services rendered overseas, as well as payments for reimbursement of renewal and official fees, are not subject to TDS provisions. The decision was based on the principle that payments not chargeable to tax in India do not require TDS deduction.