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2025 (1) TMI 1201 - AT - Income TaxTDS u/s 195 - disallowance u/s 40(a)(i) - applicability of the DTAA between India and the USA - Whether services rendered satisfies the definition of Fees for Included Services ? - HELD THAT - Services emanating from the Agreement dated 28.11.2016 was not placed in legible from before the AO therefore AO could not look at correct nature of services. The issue that identical matter has been examined in AY 2017-18 were emanating from the same Agreement or not was also not known to the AO nor the ld. CIT(A). The No PE certificate submitted by the assessee now was also not available with lower authorities. It is contended that except agreement nothing else was asked for by the ld. AO. Now it has been submitted before us legible agreement no PE certificate of Tevlon LLC USA therefore we restore the whole issue back to the file of ld. AO with a direction to the assessee to show that the income of Tevlon LLC USA is business income as per Article 5 7 of the DTAA as business income applies to it. Alternatively the Assessee may also prove that provisions of Article 12(4) of that including make Available test applies to the facts of the case - Appeal filed by the assessee is allowed for statistical purposes.
The appeal concerns the assessment year 2018-19, where the appellant challenged the appellate order dismissing their appeal against the assessment order under section 143(3) of the Income-tax Act, 1961. The core issues revolve around the disallowance of Rs. 5,40,96,815 under section 40(a)(i) due to non-deduction of tax at source under section 195, and the applicability of the Double Taxation Avoidance Agreement (DTAA) between India and the USA.
The appellant argued that the lower authorities erred by not granting a personal hearing via video conference, violating the principle of natural justice. They contended that the payment to Tavelon LLC, USA, for services rendered, did not require tax deduction at source as it was not chargeable to tax in India. The appellant claimed these payments were business profits under the DTAA, and in the absence of a Permanent Establishment (PE) in India, they should be taxed only in the USA. They also argued that the services did not qualify as "Fees for Included Services" under Article 12(4) of the Indo-US DTAA, as they did not make available any technical expertise or knowledge. The relevant legal framework includes sections 195 and 40(a)(i) of the Income-tax Act, which pertain to tax deduction at source on payments to non-residents and the disallowance of expenses for non-compliance, respectively. The DTAA provisions, particularly Articles 5, 7, and 12, are crucial to determining the taxability of the payments in question. The Court noted that the appellant's agreement with Tavelon LLC was not legible, leading the Assessing Officer (AO) to conclude that the payments were for technical services taxable in India. The CIT(A) upheld this view, emphasizing the absence of a specific DTAA article for technical services, thereby defaulting to domestic law. The appellant provided a legible agreement and a No PE certificate from Tavelon LLC, which were not available to the lower authorities. The Court recognized that similar services in the previous assessment year were accepted without disallowance, indicating potential inconsistency in the treatment of identical transactions. The Court found merit in the appellant's claim that the services were business income under the DTAA, not subject to Indian tax due to the absence of a PE. The Court concluded that the lower authorities did not have all pertinent documents, such as the legible agreement and the No PE certificate, which could have influenced their decision. Consequently, the Court remanded the case to the AO for reconsideration, allowing the appellant to demonstrate the nature of the income under the DTAA and the applicability of the "make available" test under Article 12(4). Significant holdings include the Court's emphasis on the necessity of a fair hearing and the proper examination of all relevant documents. The Court underscored the importance of consistent treatment of similar transactions across different assessment years. The final determination was to allow the appeal for statistical purposes, effectively reopening the case for further examination by the AO.
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