2022 (5) TMI 770 - AT - Income Tax

Tribunal exempts assessee from TDS on non-resident payments for student recruitment, thesis evaluation, faculty dev expenses

M/s. Sharda Educational Trust Versus The Income Tax Officer, (TDS), International Taxation, Noida.

M/s. Sharda Educational Trust Versus The Income Tax Officer, (TDS), International Taxation, Noida. - [2022] 97 ITR (Trib) 456 (ITAT [Del]) Issues Involved:1. Validity of survey proceedings under section 133A on a charitable trust.2. Opportunity of representation and hearing before the Assessing Officer.3. Liability to deduct tax at source on payments made to non-resident parties.4. Classification of payments as 'fees for technical services' under section 9(1)(vii) of the I.T. Act, 1961.5. Applicability of DTAA provisions.6. Rate of TDS under section 206AA.7. Interest and penalty for non-deduction of TDS under sections 201(1) and 201(1A).Detailed Analysis:1. Validity of Survey Proceedings under Section 133A:The assessee argued that the survey proceedings under section 133A were invalid as they were conducted on a charitable trust. The tribunal dismissed this ground as not pressed by the assessee.2. Opportunity of Representation and Hearing:The assessee claimed that proper and reasonable opportunity was not provided by the Assessing Officer. This ground was also dismissed as not pressed.3. Liability to Deduct Tax at Source on Payments to Non-Resident Parties:Commission on Student Recruitment/Admission:The tribunal held that the services rendered by the agents were marketing services and not consultancy services. The agents were engaged to market the university's educational courses to international students, which does not fall under 'fees for technical services' as defined under section 9(1)(vii). Therefore, the income was not deemed to accrue or arise in India, and the assessee was not liable to deduct tax under section 195.Ph.D. Thesis Evaluation:The tribunal found that the evaluation of Ph.D. theses by experts does not constitute 'technical services' to the assessee. The evaluators applied their technical knowledge to evaluate the theses but did not provide technical services to the assessee. Hence, the payments were not subject to TDS under section 195.Faculty Development Expenses:The payments made for faculty development were for training and educating the staff in the field of education, which does not qualify as 'technical services.' The tribunal referred to Article 12(5) of the DTAA between India and Singapore, which excludes teaching services from 'fees for technical services.' Therefore, the assessee was not liable to deduct tax at source.Professional Expenses:The tribunal noted that these expenses were wrongly classified as professional expenses but were actually advertisement expenses on which tax was already deducted. Hence, the assessee was not in default.4. Classification of Payments as 'Fees for Technical Services':The tribunal emphasized that the nature of services rendered by the agents, Ph.D. evaluators, and faculty development trainers did not fall under 'managerial, technical, or consultancy services' as defined under section 9(1)(vii). The services were either marketing, educational, or advisory without any technical element.5. Applicability of DTAA Provisions:The tribunal upheld that the DTAA provisions were correctly applied by the Assessing Officer. However, in cases where the DTAA excluded certain services (e.g., teaching services under the India-Singapore DTAA), the payments were not taxable in India.6. Rate of TDS under Section 206AA:The tribunal found that the higher rate of TDS @ 20% was not applicable for the relevant assessment years as the provisions of Rule 37BC, which provide relaxation, came into force only from 24th June 2016. However, since the tribunal held that the payments were not subject to TDS, this issue became academic.7. Interest and Penalty for Non-Deduction of TDS:Since the tribunal held that the payments were not subject to TDS, the assessee was not deemed to be in default under section 201, and consequently, no interest under section 201(1A) or penalty under section 271C was applicable.Conclusion:The tribunal allowed the appeals partly, holding that the assessee was not liable to deduct tax at source on the payments made to non-resident parties for student recruitment, Ph.D. thesis evaluation, and faculty development expenses. The tribunal directed the deletion of the demand of TDS and interest under sections 201 and 201(1A).