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TMI Blog2017 (4) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 201(1A) are unsustainable in law and are accordingly cancelled. - Decided in favour of assessee - ITA Nos. 1085 & 1086/Mum/2014 - - - Dated:- 24-3-2017 - Shri Jason P. Boaz, Accountant Member And Shri Pawan Singh, Judicial Member Appellant by : S/s. M.P. Lohia, Jignesh Shah Ms. Cheshta Moolchandani Respondent by : Shri Jasbir Chouhan ORDER Per Jason P. Boaz, A. M. These appeals by the assessee are directed against the consolidated order of the CIT(A)-IT/TP, Pune dated 29.11.2013 for assessment years 2007-08 and 2008-09. Common issues being involved, theses appeals were heard together and are being disposed off by way of this common order. 2. The facts of the case, briefly, are as under: - 2.1 The assessee-company is engaged in the business of marketing, promotion and distribution of Red Hat subscriptions to customers in India, enabling users to get updates, upgrades, etc. of Linux and other Red Hat applications through support services ; which include ongoing maintenance during the subscription period and troubleshooting support by responding to questions/queries/problems pertaining to the open source software through web based sys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he nature of 'Fees for technical services' as defined under Article 12(4) of the India-Singapore Double Taxation Avoidance Agreement ('Tax Treaty') and hence, subject to withholding tax in India under Section 195 of the Act; 3. failed to appreciate that Red Hat Singapore has not made available any knowledge/ skills either to the Appellant or to the end users of Red Hat Subscriptions and hence purchase of subscription are not fees for technical services as per Tax Treaty and not liable to tax in India; 4. without prejudice to Ground No. 1 to 3, failed to appreciate that the tax liability arising on payments made to Red Hat Singapore, if any, is to be borne by Red Hat Singapore and hence there is no question of grossing up as per Section 195A of the Act; Levy of interest under Section 201(1A) of the Act 5. erred in levying in interest under Section 201(1A) of the Act. Initiation of penalty proceedings under Section 271C of the Act 6. erred in initiating penalty proceedings under Section 271C of the Act. 4. Ground No. 1 4.1 In this ground the assessee challenges the validity of the orders of the authorities below, contending that they h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by Revenue to assess the taxability of the assessee payee/recipient in the case on hand, i.e. Red Hat Asia Pacific Pte. Ltd., Singapore and further no action can now be taken by the AO against the payee for the assessment years in question viz. 2007-08 and 2008-09 as the same is barred by limitation. It is prayed that in view of the factual and legal matrix of the case, as discussed above, the assessee s appeals for assessment years 2007-08 and 2008-09 be allowed on this preliminary legal ground and the AO s orders under section 201(1) and 201(1A) be held to be unsustainable, as the AO in the case on hand is clearly precluded from holding the assessee to be an assessee in default under section 201(1) of the Act. 4.2 The learned D.R. for Revenue was heard. In response to the propositions raised by the learned A.R. of the assessee, that the AO was precluded from holding the assessee in the case on hand as an assessee in default under section 201(1) of the Act as the payee/recipient has not paid tax thereon and that neither has Revenue determined the payee s tax liability in the relevant assessment years 2007-08 and 2008-09. On the request of the Bench, the learned D.R. ascer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has been held in default under section 201(1) of the Act and (ii) no assessment has been made in the hands of the payee/recipient, i.e. non payment of tax by the payee (as in the case on hand) and/or Revenue has failed to pass orders in payee s case in this regard or the possibility of action is barred by limitation, Explanation to section 191 of the Act mandates if only one of the above two conditions is satisfied, then the person responsible for making TDS on such payments cannot be treated as an assessee in default as the above two conditions are inter connected. In para 18.10 of its order the Special Bench held as under: - 18.10 The underlying principle behind the deduction of tax at source is the presumption that there will be some liability of the payee towards tax on the sum paid to him. If there is no such liability then the entire exercise of firstly getting the amount of tax collected/deducted at source and then refunding to the payee will be futile. If there is no tax liability of the payee then there cannot be any question of treating the person responsible for paying the sum without deducting tax at source as assessee in default. Thus the essence of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars from the end of the relevant assessment year, notice under s. 148 will be issued and the assessment shall be framed by taxing such income. If however during such proceedings it is conclusively established that the assessee had earned income not disclosed to the Revenue in period prior to the said six years from the end of the relevant assessment year, then such income will escape taxation unless it falls within s. 69 or 69A or 69B or 69C and the Revenue will be restrained from recovering tax by. making the assessment of such income. The logic behind providing such timelimit for taking action is that the Departmental authorities should remain vigilant and bring the escaped income to tax at an earlier point of time and further to work against the inaction on the part of the AOs on one hand and providing certainty to the assessee that after this period no action will be taken against him. Thus it follows that if due to one reason or the other the concealed income of the assessee is unearthed for a period beyond six years from the end of the relevant assessment year, then no tax can be recovered thereon. By the same logic and turning to the point before us when the payee has paid t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the utmost importance that the income so paid or credited to the account of payee is capable of being brought within the purview of tax net and such assessment can be lawfully made on the payee. 4.3.3 Considering the legal and factual matrix of the case, as discussed above, and respectfully following the above cited decision of the Special Bench of ITAT, Mumbai in the case of Mahindra Mahindra Ltd. (supra) we hold that in order to treat the assessee/payee as an assessee in default it is required that the income so paid or credited to the account of the payee/recipient is capable of being brought within the tax net and such assessments should be lawfully made by the AO on the payee/recipient. Since these two conditions as required by Explanation to section 191 of the Act have not been satisfied, the orders of the AO under section 201(1) r.w.s. 201(1A) of the Act for assessment year 2007-08 and 2008-09 treating the assessee as an assessee in default under section 201(1) of the Act and thereby raising tax liability and charging interest thereon under section 201(1A) are unsustainable in law and are accordingly cancelled. We hold and direct accordingly. Consequently, groun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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