Payments Made To Overseas Company For Services Utilized Abroad, Does Not Warrant Tax Deduction At Source U/s 195: Delhi ITAT
Pankaj Bajpai
17 July 2024 8:45 PM IST
The New Delhi ITAT held that when the taxpayer company has utilized the service of a company outside India and payment has also been made outside India, then taxpayer company would not be liable for deduction of tax at source u/s 195. As per Section 195 of the Income Tax Act, TDS must be deducted at the time of credit or payment on certain payments made to non-residents, and it applies...
The New Delhi ITAT held that when the taxpayer company has utilized the service of a company outside India and payment has also been made outside India, then taxpayer company would not be liable for deduction of tax at source u/s 195.
As per Section 195 of the Income Tax Act, TDS must be deducted at the time of credit or payment on certain payments made to non-residents, and it applies to interest, royalty, fees for technical services, and other sums chargeable for tax in India.
The Bench of B.R.R. Kumar (Accountant Member) and Sudhir Kumar (Judicial Member) observed that “except in two circumstances, firstly, where the fees paid in respect of services utilized in a business carried on by the assessee outside India or secondly fee is paid for the purpose of earning any income from any source outside India, in all other cases the assessee is liable to deduct tax on the amount of technical fee paid to non-residents”.
Facts of the case:
The assessees company, engaged in the business of software development, had made payment to Everest Global Inc without deducting tax at source u/s 195. The AO observed that the taxable event and, consequently, the occasion for TDS, arose when assessee had made payment of royalty of Rs.54,65,508/- to the Everest Global Inc, and therefore made disallowance u/s 40(a)(i).
Observations of the Tribunal:
From a perusal of the order of CIT(A), the Bench found that the Everest global Inc do not have any permanent establishment in India and further the service was provided from outside India to the assessee.
The Bench noted that as per the agreement entered into between assessee and Everest Global Inc, the services of Everest global Inc were utilized for carrying out the project work, and the source of income was located outside of India and payment also have been made outside of India.
The fee for technical services was paid by the assessee for the purpose of making or earning income from any source outside India, and therefore, clearly section 9(1)(vii)(b) gets attracted, added the Bench.
The Bench also clarified that income earned by such non-residents cannot be deemed to accrue or arise in India and the fees for technical services was not taxable.
Hence, observing that work order was issued outside India for making an income from a source outside India, the ITAT concluded that the amount paid are covered in exception provided u/s 9(1)(vii)(b), and the assessee was not required to deduct tax at source.
Therefore, the ITAT deleted the addition made by AO and allowed Assessee's appeal.
Counsel for Appellant/ Assessee: Ved Jain & Supriya Mehta
Counsel for Respondent/ Revenue: Amaninder Singh
Case Title: QAI India Ltd. verses DCIT
Case Number: ITA No.1033/Del/2018
Click here to read/ download the Order
