2017 (6) TMI 383 - AT - Income Tax

Tribunal Upholds Decision on Non-Resident Payments

Deputy Commissioner of Income-Tax Versus Incent Tours P. Ltd.

The Tribunal upheld the decision of the Commissioner of Income-tax (Appeals) to delete the disallowance of expenses under section 40(a)(i) of the ... TDS u/s 195 - payment made to the non-residents - marketing consultancy fees - all the operations and activities of the non-residents were carried on outside India - disallowance made u/s 40(a)(i) - P.E. in India - DTAA - Held that:- Payment made to the non-residents is not taxable under section 9(1)(i) of the Act as such assessee is under no obligation to make any deduction at source on such payments. See Union of India v. Azadi Bachao Andolan [2003 (10) TMI 5 - SUPREME Court ]. The payment made to the non-residents is not taxable under section 9(1)(i) of the Act as such assessee is under no obligation to make any deduction at source on such payments. There is no attempt before us to demonstrate as to how the learned Commissioner of Income-tax (Appeals) is wrong in holding that the provisions of section 40(a)(i) have no applications to the payment made to the non-residents in view of the non-discrimination provisions contained in article 26 of Indo French Treaty. - Decided in favour of assessee. Issues:- Challenge to order of Commissioner of Income-tax (Appeals) regarding disallowance of expenses under section 40(a)(i) of the Income-tax Act.- Applicability of section 9(1)(i) and 9(1)(vii) of the Act to payments made to non-residents.- Interpretation of technical services and fee for technical services under the Double Taxation Avoidance Agreement.- Application of non-discrimination provisions in the Indo French Treaty to section 40(a)(i).Analysis:1. The appeal by the Revenue contested the order of the Commissioner of Income-tax (Appeals) concerning the disallowance of expenses under section 40(a)(i) of the Income-tax Act for payments made to non-residents. The Assessing Officer disallowed these expenses, which were challenged by the assessee in appeal resulting in their deletion by the Commissioner of Income-tax (Appeals).2. The Revenue challenged the finding of the Commissioner of Income-tax (Appeals) on the grounds of being wrong, perverse, and against the law. The argument focused on the applicability of section 40(a)(i) to the payments made to non-residents, contending that the disallowance should not have been deleted.3. The debate revolved around whether the payments to non-residents fell under section 9(1)(i) and 9(1)(vii) of the Act. The Departmental representative argued that the payments constituted marketing consultancy fees and technical services, falling within the ambit of the specified sections. The Assessing Officer's decision was supported, emphasizing the rejection of the assessee's contention regarding the Double Taxation Avoidance Agreement.4. The authorized representative argued against the application of section 40(a) to the payments to non-residents, asserting that tax deductions were not required as the payments were not taxable under the Act. Additionally, it was contended that since the non-residents' operations were outside India, section 9(1)(i) did not apply. The representative also highlighted the non-discrimination clause in the Indo French Treaty to support their case.5. The central issue was whether the disallowance under section 40(a)(i) was legally justified. The Tribunal examined the orders of the authorities and the argument that the payments to non-residents were not taxable under the Act, based on previous orders and assessment findings for subsequent years.6. The Tribunal analyzed the first contention regarding the taxability of payments made to non-residents, emphasizing that if the services were outside India, there was no liability to deduct tax at source. The Tribunal agreed with the Commissioner of Income-tax (Appeals) that the Assessing Officer was unjustified in taking a different view without valid reasons.7. Regarding the second contention, it was established that all operations of the non-residents occurred outside India, leading to the conclusion that the payments were not taxable under section 9(1)(i) of the Act. The Tribunal referred to relevant court decisions to support this position.8. The interpretation of technical services and fee for technical services under the Double Taxation Avoidance Agreement was crucial. The Tribunal agreed with the Commissioner of Income-tax (Appeals) that the services provided by the non-residents did not fall under technical services, as per the terms of the agreement.9. The Tribunal upheld the decision that the payments to non-residents did not constitute fee for technical services, citing relevant court decisions and the provisions of the Double Taxation Avoidance Agreement.10. The application of non-discrimination provisions in the Indo French Treaty to section 40(a)(i) was also discussed. The Tribunal concurred with the Commissioner of Income-tax (Appeals) that the provisions of section 40(a)(i) did not apply to the payments made to non-residents due to the non-discrimination clause in the treaty.11. Ultimately, the Tribunal found the reasoning and conclusions of the Commissioner of Income-tax (Appeals) to be sound and dismissed the appeal by the Revenue, confirming the orders of the Commissioner of Income-tax (Appeals).This detailed analysis of the legal judgment highlights the various issues involved, the arguments presented by both parties, and the Tribunal's comprehensive examination leading to the final decision.