2023 (12) TMI 652 - HC - Income Tax

Tax Deduction Notice Overturned; Management Fees Not 'Technical Services' Due to Low Tax Effect and Time-Barred Appeal.

The HC set aside the impugned notice and letter related to the deduction of Tax at Source against management fees remittance. The Tribunal had previously ... TDS u/s 195 - non deduction of TDS on management fees paid by assessee [to its Associated Enterprises (AEs)] - whether can be regarded 'fee for technical services' (FTS)? - tribunal deleted addition - HELD THAT:- Tribunal [2022 (9) TMI 1538 - ITAT DELHI] had sustained the order of the CIT(A) as held that the findings of the CIT(A) had not been rebutted. Tribunal further held that the AO had failed to list out the ‘highly technical services’ that the AEs provided to the petitioner/assessee and that the AO failed to allude to the relevant clause of the agreement which demonstrates that expertise available with the AEs was ‘made available’ to the petitioner/assessee. Finally, it was also observed that this issue had been decided by the CIT(A) in favour of the petitioner/assessee in matters concerning AYs 2010-11 and 2014-15 decisions that were not challenged before the Tribunal. As revenue, says that the appeal against the aforementioned order of the Tribunal was not preferred because of low tax effect. It is also not in dispute that in any event, as of today, the appeal is time-barred. Tribunal has deleted the addition on merits. Decided in favour of assessee. Issues involved: The petitioner sought a writ to quash an order and a notice related to the Income Tax Act, specifically regarding the deduction of Tax at Source (TAS) against remittance of management fees.Summary:Issue 1: Impugned Notice and LetterThe petitioner challenged a notice dated 10.10.2017 and a letter dated 25.03.2021 related to the deduction of Tax at Source against management fees remittance. The objections of the petitioner were rejected through the impugned letter.Issue 2: Disallowance under Section 40(a)(i)The Assessing Officer disallowed an amount of Rs. 2,06,29,647 under Section 40(a)(i) of the Income-tax Act, 1961, for failure to deduct Tax at Source against management fees. However, the Commissioner of Income Tax (Appeals) later deleted this addition, stating that the fees paid by the petitioner to its Associated Enterprises cannot be categorized as 'fee for technical services.'Issue 3: Tribunal's DecisionThe Tribunal upheld the order of the CIT(A) and ruled in favor of the petitioner. It was noted that the Assessing Officer failed to provide details of the technical services provided by the Associated Enterprises and did not demonstrate how their expertise was made available to the petitioner. The Tribunal also mentioned previous decisions in favor of the petitioner for other assessment years.Issue 4: Appeal and MeritsThe respondent did not appeal the Tribunal's decision due to low tax effect, and the appeal is now time-barred. The Tribunal's deletion of the addition on merits further solidified the petitioner's position.Judgment:Considering the Tribunal's decision and the lack of appeal by the respondent, the High Court set aside both the impugned notice and letter. The writ petition was disposed of accordingly, and parties were instructed to act based on the digitally signed copy of the order.