2005 (6) TMI 550 - AT - Income Tax

Tribunal Rules Orders Void, Payments to BZ Not Taxable in India, No Obligation for Tax Deduction or Interest Payment.

Wockhardt Life Sciences Ltd. Versus DCIT (TDS) Circle 1

The Tribunal allowed the assessee's appeal, ruling that the orders under sections 201(1) and 201(1A) were time-barred and void. It determined that ... Liability to deduct tax u/s 195 - Reimbursement of expenses, underwriting fees and selling commission - Charging Interest u/s 201(1A) - Assessee in default - limitation as the order was passed beyond 4 years time - Validity of order passed by the Assessing Officer - HELD THAT:- Undisputedly the tax was to be deposited before 31st March 1994. However, the proceedings u/s 201(1) and 201(1A) were initiated by the Assessing Officer in 2000. As the order was passed on 24.01.2000, it is beyond the period of limitation of 4 years, which has been held as reasonable period for deciding such issues. Therefore, following the decision of the Tribunal, we hold that the orders of the Assessing Officer are barred by limitation. As the facts are identical in the present case. Therefore, we are not in hesitation in following the decision of the Tribunal in the case of Raymond Ltd. [2002 (4) TMI 891 - ITAT MUMBAI]. No contrary decision was brought to our knowledge that on similar circumstances the provisions of DTA are not applicable. Therefore, respectfully following the finding of the Tribunal, we hold that in the present case also the provisions of DTA are applicable. Therefore, the reimbursement of expenses, underwriting fees and selling commission cannot be considered as taxable in India even u/s 9(1)(vii). As we have held that DTA agreement with UK is applicable and payments made do not fall within the definition of fees for technical services' under Article 13.4 (c) of the agreement. Hence these were not taxable in India. Therefore, the assessee company was not liable to deduct tax from them it cannot therefore be treated as assessee in default u/s 201 (1). Consequently, no interest u/s 201 (1A) can be charged. Therefore, we delete the additions made, by holding the assessee was not in default in terms of section 201(1) and consequently charging interest in terms of section 201 (1A). In the result appeal of the assessee is allowed. Issues Involved:1. Confirmation of Assessing Officer's order under section 201(1) and interest under section 201(1A) of the Income Tax Act.2. Validity of the Assessing Officer's order being ab initio, void, illegal, and inoperative.3. Applicability of Double Taxation Avoidance Agreement (DTAA) between India and UK.4. Time limitation for passing the order under sections 201(1) and 201(1A).Issue-wise Detailed Analysis:1. Confirmation of Assessing Officer's Order under Section 201(1) and Interest under Section 201(1A):The Assessing Officer held the assessee liable under section 201(1) for failing to deduct tax at source on payments made to Barclays de Zoete Wedd Ltd. (BZ) for services rendered in connection with a Euro Issue. The officer also imposed interest under section 201(1A). The CIT(A) upheld this decision, except for directing the Assessing Officer to re-examine the grossing up and tax calculation. The Tribunal, however, found that the services rendered by BZ did not qualify as 'fees for technical services' under Article 13(4) of the DTAA between India and UK. Consequently, the assessee was not liable to deduct tax under section 195, and therefore, could not be held in default under section 201(1) or liable for interest under section 201(1A).2. Validity of the Assessing Officer's Order Being Ab Initio, Void, Illegal, and Inoperative:The assessee argued that the order passed by the Assessing Officer was void ab initio, illegal, and inoperative. The Tribunal agreed with the assessee, noting that the order was passed beyond the reasonable period of four years, as established in previous Tribunal decisions such as Raymond Woollen Mills Ltd. vs. ITO and Sahara Airlines Ltd. vs. DCIT. The Tribunal held that the order was therefore barred by limitation and consequently void.3. Applicability of Double Taxation Avoidance Agreement (DTAA) Between India and UK:The Tribunal found that the DTAA between India and UK was applicable to the payments made to BZ. The Tribunal referenced the case of Raymond Ltd. vs. DCIT, where it was held that the provisions of the DTAA override the Income Tax Act. The Tribunal concluded that the services rendered by BZ did not 'make available' technical knowledge, experience, skill, know-how, or processes to the assessee as required under Article 13(4)(c) of the DTAA. Therefore, the payments could not be considered as 'fees for technical services' and were not taxable in India.4. Time Limitation for Passing the Order Under Sections 201(1) and 201(1A):The Tribunal addressed the issue of time limitation, noting that the Assessing Officer's order was passed more than five years after the payments were made. Citing various Tribunal decisions, the Tribunal held that a period of four years constitutes a reasonable time limit for passing such orders. Since the order was passed beyond this period, it was deemed to be barred by limitation and therefore void.Conclusion:The Tribunal allowed the appeal of the assessee, holding that the orders under sections 201(1) and 201(1A) were barred by limitation and that the payments made to BZ were not taxable in India under the DTAA between India and UK. Consequently, the assessee was not liable to deduct tax at source, and no interest could be charged under section 201(1A).