Remittance Made To Foreign Subsidiary Companies Are Not Taxable In India: ITAT

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that the remittance made by the assessee to the foreign subsidiary companies have been held to be not taxable in India in the hands of the recipient company, there would be no obligation for the payer i.e. assessee company to deduct tax at source under section 195 of the Income Tax Act.

The bench of Saktijit Dey (Vice President) and M. Balaganesh (Accountant Member) has observed that the moment a remittance is made to a non resident; obligation to deduct tax at source under section 195 of the Income Tax Act does not arise. It arises only when such remittance is a sum chargeable to tax under the Income Tax Act under sections 4, 5 and 9 of the Income Tax Act.

The appellant/assessee is a Public Limited company engaged in the business of providing IT/ ITES Services. The assessee is engaged in 3 lines of businesses i.e. software services (including engineering services), infrastructure services and business processing outsourcing (BPO). The case of the assessee was taken up for verification on the basis of information received from systems for verification of Form 15CA/15CB with respect of various remittances made to different subsidiary companies in different countries without deduction of tax at source u/s 195 of the Income Tax Act.

Ultimately an assessment was framed under section 201(1)/ 201(1A) of the Income Tax Act for all the assessment years by the AO treating the assessee as “assessee in default” on the ground that the remittances made by the assessee to various subsidiary companies in different countries would be liable for deduction of tax at source in India. Since the remittances were made without deduction of tax at source by the assessee, the AO treated the assessee as “assessee in default” and hence tax was sought to be collected from the assessee and consequently interest. The order was passed for each of the assessment years in the name of the assessee company.

The AO held originally that the remittances made by the assessee company to its subsidiary companies in different countries would be taxable in the hands of the respective subsidiary companies in India on the ground that the same tantamount to income deemed to accrue or arose in India within the meaning of Section 9 of the Act. The remittances made by the assessee were duly subjected to Income Tax assessment in India in the hands of the subsidiary companies. Those assessment orders were duly confirmed by the CIT(A).

The Tribunal while allowing the appeal held that the remittance received by them from Indian company i.e. HCL Technologies Ltd (assessee herein) would not be taxable in India as per the provisions of the Income Tax Act as well as under the Double Taxation Avoidance Agreement (DTAA).

Counsel For Appellant: Ajay Vohra

Counsel For Respondent: T. James Singson

Case Title: ITO Versus HCL Technologies Ltd

Case No.: 16/08/2024

Click Here To Read The Order