2017 (11) TMI 1543 - AT - Income Tax

Tribunal orders fresh assessment on tax payments to The MITRE Corp under Section 195

The Tribunal remanded the case back to the Assessing Officer for a fresh adjudication on the taxability of payments made to The MITRE Corporation and the ... TDS u/s 195 - payments to be made to The MITRE Corporation,USA under Agreement - whether the services would fall outside the ambit of FTS? - Held that:- A perusal of the assessment order shows that there was no proper submission made by the assessee before the Assessing Officer. Only before the CIT(A) the assessee made certain submissions based on which the ld. CIT(A) held that any payment made by the assessee to MITRE are in nature of FTS and chargeable in India under the Act and India – USA DTAA. He, therefore held that the assessee is under obligation to withhold tax from these payments u/s 195 of the I.T. Act. In our opinion, the matter requires a re-visit to the file of the Assessing Officer with a direction to adjudicate the issue afresh in the light of the various submissions made before us and in the light of latest decisions on this issue. The grounds raised by the assessee are accordingly allowed for statistical purposes. Issues Involved:1. Taxability of payments made to The MITRE Corporation under the Indo-US Double Taxation Avoidance Agreement (DTAA).2. Requirement of tax deduction at source (TDS) under Section 195 of the Income Tax Act.Issue-wise Detailed Analysis:1. Taxability of Payments under Indo-US DTAA:The primary issue was whether the payments made by the assessee, Airports Authority of India (AAI), to The MITRE Corporation, USA, for technical support services in relation to the certification of the GAGAN system, fall under the category of 'Fee for Technical Services' (FTS) and are thus taxable in India under the Indo-US DTAA.The assessee argued that the services provided by MITRE do not fall within the ambit of FTS as per the 'make available' clause in Article 12(4) of the DTAA. According to the assessee, the services provided did not make available any technical knowledge, experience, skill, know-how, or processes to AAI, which would enable AAI to apply the technology independently.The Assessing Officer (AO) disagreed, stating that within the framework of a provisional order u/s 195(2), it was not possible to ascertain with certainty whether the services would fall outside the ambit of FTS. He held that the entire sum of USD 1,577,000 was chargeable to tax in India as FTS, and the assessee was required to deduct tax on the same.The CIT(A) upheld the AO's decision, stating that the services provided by MITRE were technical services within the meaning of Explanation 2 to Section 9(1)(vii) of the Income Tax Act. The CIT(A) further held that the case fell within the second limb of Article 12(4)(b) of the DTAA, which does not require the 'make available' condition to be satisfied if the services consist of the development and transfer of a technical plan or technical design.2. Requirement of Tax Deduction at Source (TDS) under Section 195:The second issue was whether the assessee was required to deduct tax at source under Section 195 of the Income Tax Act while making payments to MITRE.The CIT(A) relied on the decision of the Hon'ble Supreme Court in the case of GE India Technology Centre Pvt. Ltd. vs. CIT, which held that the liability to deduct tax at source arises when the sum payable to a non-resident is chargeable to tax in India in the hands of the non-resident. Since the payments made by the assessee to MITRE were held to be in the nature of FTS and chargeable to tax in India under the Act and the Indo-US DTAA, the CIT(A) concluded that the assessee was under an obligation to withhold tax from these payments u/s 195.Tribunal's Decision:The Tribunal observed that there was no proper submission made by the assessee before the AO and that the assessee made certain submissions only before the CIT(A). The Tribunal held that the matter requires a re-examination by the AO in light of the various submissions made and the latest decisions on the issue.The Tribunal directed the AO to adjudicate the issue afresh, providing the assessee with a due opportunity of being heard. The appeal filed by the assessee was allowed for statistical purposes.Conclusion:The Tribunal remanded the case back to the AO for a fresh adjudication on the taxability of the payments made to MITRE and the requirement of TDS under Section 195, considering the detailed submissions and relevant legal precedents. The appeal was allowed for statistical purposes.