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IN THE INCOME TAX APPELLATE TRIBUNAL, CHENNAI
I.T.A.No.846/Mds/2013
Assessment year : 2003-04
The Dy. Commissioner of Income-tax, Chennai
Vs.
M/s Hofincons Infotech and Industrial Services Pvt. Ltd
Date of Pronouncement : 18-08-2014

Summary
- Payments made to Non Resident exclusively for the purpose of earning income from a source outside India are covered by exclusion clause u/s 9(1)(vii)(b) of the Act. Hence not liable to TDS in India.
- O
nce the assessee had made all the payments, finalized accounts well before insertion of the retrospective explanation by Finance Act 2010, it is not supposed to take the clock back and deduct TDS.
 

Facts of the Case - Para 2 & 3 of Order:
2. The assessee is a ‘company’. It provides operation, maintenance, consultancy and training services. The assessee had filed its return on 1.12.2003 admitting loss of ` 32,84,971/-. The same was ‘summarily’ processed. Thereafter, the Assessing Officer completed a ‘regular’ assessment on 22.8.2006 reducing the loss declared to ` 22,74,779/-.

3. After framing of ‘regular’ assessment, the Assessing Officer formed reasons to believe that the assessee’s income liable to be taxed had escaped assessment. He issued section 148 notice dated 31.3.2008. The assessee reiterated the income already returned. In re-assessment, the Assessing Officer found the assessee to have paida sum of ` 2,02,21,560/- as service charges in foreign currency. This comprised of a sum of ` 1,57,79,352/- towards per-diem allowances paid to resident employees outside India and payment in relation to support services rendered of  44,22,208/-. We are only concerned about the latter limb. The assessee had not deducted TDS u/s 195 
of the Act.


Arguments by Assessee - Para 3 of Order:
3. It pleaded that these payments pertained to services rendered/performed in Qatar qua its Nigerian projects. There was no service stated to be rendered in India. It referred to section 9(1) explanation to clause (i) to contend that if business of which all operations are not carried out in India, its entire income or a part thereof accrues or arises in India only as is reasonably attributable to the operations carried out in India. Per assessee, it had not carried out any operation in India in relation to the support services availed in question which would create any obligation to deduct TDS. The Assessing Officer did not agree. In re-assessment order dated 31.12.2009, he invoked section 40(a)(i) and disallowed this sum of  44,22,208/-.


Held by CIT (A) -  Para 4 of Order:
The CIT(A) finds that these payments are in the nature of service charges exclusively paid towards execution of projects in Qatar and covered by exclusion clause u/s 9(1)(vii)(b) of the Act. He has followed case law of the 'tribunal' in Ajapa Integrated Project Management Consultant Pvt. Ltd I.T.A.No.2169/Mds/2010 holding this ‘exclusion’ applicable if the payment is made to a non-resident for the purpose of earning income from a source outside India. The CIT(A) concludes that these payments pertain to the assessee/consultancy firm’s overseas Nigerian contracts. So, the fees paid to such consultants abroad have been held to be for services utilized in the business carried outside India not liable for any TDS deduction. The CIT(A) has deleted the impugned disallowance.



Appeal by Revenue against order of CIT(A) - Para 7 & 8 of Order:
A) The Revenue’s plea is that its appeal is pending u/s 260A of the Act.

B) The Revenue also pleads that the assessee’s headquarter is in India. So, this exclusion clause does not apply.

C) The Revenue further contends that in view of explanation inserted by the Finance Act, 2010 with retrospective effect from 1.6.1976, it is immaterial as to whether the services have been rendered outside India or the payee does not have a permanent establishment in India.


D) Revenue reiterates the aforesaid pleadings and submits that the CIT(A) ought to have upheld the impugned disallowance. It also quotes case law of [2013] 33 taxmann.com 309 (Chennai – Trib.) ACIT vs Evolv Clothing Co. (P) Ltd and prays for acceptance of the appeal.
 

Held by ITAT - Para 8 of Order:
We notice that in case law Lufthansa Cargo India (P) Ltd vs DCIT 91 ITD 133, head office or place of control of business have been held to be immaterial factors for this exclusion principle u/s 9(1)(vii)(b) of the Act. In our view, there cannot be any issue about the insertion of this explanation. However, the assessment year before us is 2003-04 and this explanation came only in the year 2010. In these circumstances only, we hold that once the assessee had made all these payments, finalized accounts well before insertion of the explanation, it is not supposed to take the clock back and deduct TDS. We disagree with the Revenue’s ground on this reasoning. So far as the case law quoted by the Revenue (supra) is concerned, there was no specific issue as to whether the retrospective explanation mandated TDS deduction or not. So, this decision stands distinguished. The Revenue’s grounds fail.

To download full judgment click here


 

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Author:

TaxReply


Jan 2, 2015


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