Management and selling commissions to non-residents can be FTS under s.9(1)(vii) and attract TDS under s.195; limitation bars payer liability

ITAT BOMBAY-H held that management and selling commissions paid to non-residents in relation to GDR issues constitute fees for technical services under s. 9(1)(vii) and are prima facie taxable in India, creating an obligation to deduct tax under s. 195; however, where no assessment has been made on the payee and the limitation for assessment has expired, the payer cannot be treated as assessee in default under s. 201(1)/(1A). The Tribunal fixed limitation principles: initiation limited to s.149 periods (four/six years) and passing orders within s.153(2) timelines; underwriting commission and reimbursements are non-taxable; DTAA prevails where applicable. Two appeals allowed.

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Issues Involved:
1. Admissibility of Additional Ground on Limitation
2. Applicability of Section 201(1) to Non-Deduction of Tax at Source
3. Reasonable Time for Passing Order under Section 201(1)
4. Taxability under Section 201(1) and DTAA
5. Merits of the Payments Made to Non-Residents

Issue-wise Detailed Analysis:

I. Admissibility of Additional Ground on Limitation
The Tribunal held that the issue of limitation can be raised at any stage, including for the first time before the Tribunal. The Tribunal cited the Supreme Court's decision in National Thermal Power Co. Ltd. vs. CIT, establishing that legal grounds can be raised if they do not require new fact-finding. The Tribunal concluded that the question of limitation goes to the jurisdiction of the matter and must be considered.

II. Applicability of Section 201(1) to Non-Deduction of Tax at Source
The Tribunal clarified that Section 201(1) applies to both non-deduction and non-payment of deducted tax. The amendment by the Finance Act, 2008, which substituted "if any such person referred to in section 200" with "where any person," was merely clarificatory, affirming the legislative intent that Section 201(1) covers both scenarios.

III. Reasonable Time for Passing Order under Section 201(1)
The Tribunal emphasized that even in the absence of a specified time-limit, actions under Section 201(1) must be taken within a reasonable time. The reasonable time was determined by analogy to the time limits for reassessment under Section 147 and 149, concluding that the maximum time for initiating proceedings under Section 201(1) is six years if the income is equal to or more than one lakh rupees, and four years if less. The completion of proceedings must occur within one year from the end of the financial year in which the proceedings were initiated.

IV. Taxability under Section 201(1) and DTAA
The Tribunal held that the taxability of payments to non-residents must be examined under both the Income Tax Act and the applicable Double Taxation Avoidance Agreement (DTAA). The Tribunal referred to the DTAA between India and the UK, noting that the specific provisions of the DTAA override the general provisions of the Income Tax Act. The Tribunal concluded that "management and selling commissions" paid to non-residents were not taxable under the DTAA with the UK as the services were not "made available" to the assessee.

V. Merits of the Payments Made to Non-Residents
The Tribunal analyzed various payments made by the assessee to non-residents:
- Management and Selling Commission: These were deemed to fall within the scope of "fees for technical services" under Section 9(1)(vii) but were not taxable under the DTAA with the UK as the services were not "made available" to the assessee.
- Underwriting Commission: This was not considered "fees for technical services" and, in the absence of a Permanent Establishment (PE) in India, was not taxable under the DTAA.
- Reimbursement of Expenses: These were not considered income and thus not taxable.

Conclusion:
The Tribunal allowed the appeals, holding that the orders under Section 195 read with Section 201(1) and (1A) were invalid due to the expiry of the time limit for taking action against the payee. The Tribunal also concluded that various payments made to non-residents were not taxable under the DTAA, and hence, the assessee could not be treated as in default under Section 201(1).

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