2020 (9) TMI 1255 - HC - Income Tax

Tribunal Exceeded Jurisdiction in Remitting Matter to Assessing Officer

M/s. Sutherland Global Services Pvt. Ltd. Versus The Commissioner of Income Tax-6, Chennai

M/s. Sutherland Global Services Pvt. Ltd. Versus The Commissioner of Income Tax-6, Chennai - TMI Issues Involved:1. Jurisdiction of the Tribunal in remitting the issue of disallowance of BD commission.2. Directions provided by the Tribunal to the Assessing Officer regarding the examination of profit shifting.3. Obligation to deduct tax at source concerning the BD commission under the provisions of the Income Tax Act and the DTAA between India and the US.Issue-wise Detailed Analysis:1. Jurisdiction of the Tribunal in remitting the issue of disallowance of BD commission:The primary issue revolves around whether the Tribunal exceeded its jurisdiction by remitting the issue of disallowance of the Business Development Commission (BDC) without deciding if the appellant was liable to deduct tax at source. The Tribunal's decision to remit the matter back to the Assessing Officer (AO) was challenged on the grounds that the issue of taxability had already attained finality through an order passed by the Commissioner of Income Tax (Appeals) [CIT(A)] on 03.02.2014. The Tribunal's jurisdiction is confined to the lis before it, and it cannot reopen concluded proceedings, especially when the Revenue did not appeal against the CIT(A)'s order. The Tribunal should have acknowledged the finality of the CIT(A)'s order and provided adequate reasons if it found the order non-binding.2. Directions provided by the Tribunal to the Assessing Officer regarding the examination of profit shifting:The Tribunal directed the AO to examine if there was any concerted effort to shift profits by camouflaging it as a commission on sales, which was not a matter initially raised by the Revenue at any stage. This direction was seen as an overreach and not relevant to the issue at hand, which was solely about the disallowance of the BDC for non-deduction of tax at source. The Tribunal's observations were considered wholly adverse to the assessee and unwarranted, as they introduced a new dimension to the transaction that was not previously contested by the Revenue.3. Obligation to deduct tax at source concerning the BD commission under the provisions of the Income Tax Act and the DTAA between India and the US:The assessee argued that the BDC paid to the US company was not taxable in India as the recipient did not have a permanent establishment in India, and thus, there was no obligation to withhold taxes under Section 195 of the Income Tax Act. The CIT(A) had previously ruled in favor of the assessee, stating that the BDC did not constitute fees for technical services or consultancy services under Section 9(1)(vi) of the Act or the DTAA between India and the US. This ruling was based on the nature of the services rendered, which were routine sales and marketing activities, and did not involve the transfer of technical knowledge or skills. The Tribunal's decision to remit the matter contradicted this established position, which had already attained finality.Conclusion:The High Court concluded that the Tribunal exceeded its jurisdiction by remitting the matter to the AO, effectively reopening a concluded proceeding. The Tribunal's directions and observations were deemed inappropriate and beyond the scope of the issues initially presented. Consequently, the appeal was allowed in favor of the assessee, and the substantial questions of law were answered accordingly, affirming the finality of the CIT(A)'s order dated 03.02.2014.