2024 (8) TMI 928 - AT - Income Tax

Company wins appeal on foreign subsidiary remittances without TDS deduction under section 195

The ITAT Delhi ruled in favor of the assessee company regarding remittances to foreign subsidiary companies without TDS deduction under section 195. The ... TDS u/s 195 - remittances made to different subsidiary companies in different countries without deduction of tax at source - AO treating the assessee as 'assessee in default' - HELD THAT:- Since the remittance made by the assessee to the foreign subsidiary companies have been held to be not taxable in India in the hands of the recipient company, there would be no obligation for the payer i.e. assessee company to deduct tax at source u/s 195 of the Act. This proposition is already settled in the case of GE India Technology India Ltd [2010 (9) TMI 7 - SUPREME COURT] - Decided in favour of assessee. Issues:1. Taxability of remittances made to foreign subsidiary companies without deduction of tax at source under section 195 of the Income Tax Act, 1961.2. Interpretation of Section 9 of the Act regarding income deemed to accrue or arise in India.3. Analysis of Master Service Agreement (MSA) between the Assessee and foreign associated enterprises (AEs).4. Consideration of statements recorded during survey proceedings.5. Taxability of income of foreign AEs under section 9(1)(vi) of the Act.6. Taxability under Double Taxation Avoidance Agreements (DTAAs).7. Receipts in connection with Infrastructure Services.8. Applicability of the Supreme Court judgment in GE India Technology India Ltd Vs. CIT.Analysis:1. The appeals arose from orders by the CIT(A) against the Income Tax Officer's order under section 201/201(1A) of the Act, treating the assessee as 'assessee in default' for remittances made without tax deduction at source. The AO held the remittances taxable in India, but the Tribunal later ruled that the remittances were not taxable in India under the Act or DTAA.2. The Tribunal found the MSA between the Assessee and foreign AEs to be a revenue-sharing arrangement, not services rendered, and that the remittances were for revenue sharing, not for services provided. The AO's findings were contrary to the DRP's directions, and the Tribunal held that the payments were not FTS.3. The Tribunal analyzed statements from survey proceedings and found that both the Assessee and foreign AEs were jointly rendering services, with payments not constituting FTS. The Tribunal held that the income of foreign AEs was not taxable in India under section 9(1)(vi) of the Act.4. The Tribunal held that since income of foreign AEs was not taxable in India, the issue of taxability under DTAAs was academic and left open. Payments for Infrastructure Services were also held not chargeable to tax in India due to lack of technical knowledge transfer and no Permanent Establishment in India.5. Citing the Supreme Court judgment in GE India Technology India Ltd, the Tribunal ruled that the assessee was not liable to deduct tax at source from payments to foreign AEs. The order of penalty under section 201(1) and interest under 201(1A) was deleted based on the Tribunal's findings.6. The Tribunal dismissed the revenue's appeal, stating no infirmity in the CIT(A)'s order. The remittances to foreign subsidiaries were held not taxable in India, relieving the assessee from the obligation to deduct tax at source under section 195 of the Act.Conclusion:The Tribunal's decision based on the interpretation of the Act, MSA analysis, and taxability under section 9 and DTAAs resulted in the relief for the assessee from tax deduction obligations. The judgment aligned with previous judicial precedents and the Supreme Court's ruling, dismissing the revenue's appeal and upholding the CIT(A)'s order.