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2024 (12) TMI 35 - AT - Income TaxTDS u/s 195 - Deduction of TDS from the payments made to foreign associated enterprise/group companies - HELD THAT - As relying on assessee s own case in 2024 (8) TMI 928 - ITAT DELHI we hold that since the remittance made by HCLT to the foreign subsidiary/ AEs are held to be not taxable in India in the hands of the recipient company in India, there would be no obligation for the payer i.e. assessee company, to deduct tax at source u/s 195 of the Act. This proposition is already settled by the Hon'ble Supreme Court in the case of GE India Technology India Ltd. 2010 (9) TMI 7 - SUPREME COURT No infirmity in the order of the ld CIT(A). Accordingly, the addition u/s 201(1) and interest u/s 201(1A) of the Act on the assessee is hereby deleted and the grounds raised by the revenue are dismissed.
Issues Involved:
1. Taxability of income paid to foreign associated enterprises (AEs) and the obligation of the assessee to deduct tax at source. 2. Applicability of Section 9(1)(vii)(b) of the Income Tax Act and whether the income is taxable in India. 3. Deletion of additions under Sections 201(1) and 201(1A) of the Income Tax Act. 4. Consideration of exemptions under Sections 10A/10AA of the Income Tax Act. 5. Application of Article 12 of the Double Taxation Avoidance Agreement (DTAA). 6. Findings from survey proceedings regarding technical services received from foreign clients. Detailed Analysis: 1. Taxability of Income and TDS Obligation: The primary issue was whether the income paid by the assessee to its foreign associated enterprises (AEs) was chargeable to tax in India, thereby necessitating tax deduction at source under Section 195 of the Income Tax Act. The Tribunal referred to a previous decision where it was held that the remittances made to foreign AEs were not taxable in India, as these were part of a revenue-sharing arrangement rather than payments for services rendered to the assessee. Consequently, the assessee was not considered an "assessee in default" for not deducting tax at source. 2. Applicability of Section 9(1)(vii)(b): The Tribunal examined whether the payments made to foreign AEs fell under the exception provided in Section 9(1)(vii)(b) of the Income Tax Act, which exempts income utilized for business carried on outside India. It was determined that the services were rendered and utilized outside India for business purposes, thus qualifying for the exception. The Tribunal concluded that the payments were not taxable in India, supporting the CIT(A)'s decision. 3. Deletion of Additions under Sections 201(1) and 201(1A): The Tribunal upheld the CIT(A)'s decision to delete the additions made under Sections 201(1) and 201(1A) of the Income Tax Act, which pertain to the assessee's liability as a defaulter for not deducting tax at source and the corresponding interest. The Tribunal found no fault in the CIT(A)'s reliance on the earlier Tribunal decision, which had already addressed these issues in favor of the assessee. 4. Consideration of Exemptions under Sections 10A/10AA: The Tribunal addressed the Revenue's contention that the assessee's claim for exemption under Sections 10A/10AA was not adequately considered. However, given the Tribunal's findings that the income was not taxable in India, the question of exemptions became moot. 5. Application of Article 12 of the DTAA: The Tribunal noted that since the income was not taxable under the provisions of the Income Tax Act, the applicability of Article 12 of the DTAA, which deals with the taxation of royalties and fees for technical services, was rendered academic. No findings were made regarding the DTAA, as the primary issue was resolved under domestic law. 6. Findings from Survey Proceedings: The Tribunal reviewed the findings from survey proceedings, which suggested that the assessee received technical services from foreign clients. The Tribunal found that the services were part of a collaborative effort between the assessee and its foreign AEs, with no technical knowledge being transferred to the assessee. Consequently, the payments could not be classified as fees for technical services (FTS) taxable in India. In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order that the income paid to foreign AEs was not taxable in India, and the assessee was not liable to deduct tax at source. The Tribunal's decision was based on a thorough analysis of the relevant legal provisions and previous judicial precedents.
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