2026 (2) TMI 455 - HC - Income Tax

TDS on cross border service charges treated as fees for technical services; TDS officer's independent jurisdiction upheld but impugned order quashed under DTAA benefits

TDS on cross-border service charges were characterised as fees for technical services under the India Singapore DTAA, and the TDS officer retains ... TDS u/s 195 - service charges paid to Solvay Singapore are in the nature of “fees for technical services” as per Article 12(4) of the India–Singapore DTAA - powers of the AO u/s 142 and 143 of the Act and those of the AO (TDS) under Section 201 Whether the AO(TDS) can exercise his jurisdiction u/s 201 of the Act of holding the petitioner to be an “assessee in default” after the assessment order passed u/s 143(3) of the Act ? HELD THAT:- For attracting the provision of Section 201 of the Act, the assessee must be a person who has failed to deduct or pay TDS and is, therefore, deemed to be an “assessee in default”. The consequences of such failure include mandatory interest under Section 201(1A) of the Act and penalty u/s 221 of the Act. The limitation prescribed for these proceedings also differs. Thus, while a scrutiny assessment may trigger action u/s 201, it is not essential that merely because the AO failed to notice any incongruity relating to TDS, the TDS Officer would be precluded from invoking proceedings u/s 201 of the Act. Both proceedings are independent in nature. AO (TDS) can always exercise his jurisdiction relating to tax deducted at source and arrive at his own conclusion, independent of the view taken by the Assessing Officer who has passed the scrutiny assessment order under Section 143(3) of the Act. We, therefore, do not find substance in the argument advanced by the learned counsel for the petitioner that the Assessing Officer (TDS) cannot take a view different from that of the Assessing Officer who passed the order u/s 143(3) of the Act while exercising powers under Section 201 of the Act. Decided in favour of revenue. Effect of order passed by DRP u/s 144C on the order passed u/s 201 - AO(TDS) has precisely exercised his jurisdiction and powers for scrutinizing the aspect of compliance with the provisions of Section 40(a)(i) read with Section 195 and the subsequent order passed by the DRP will have no bearing on the order of the Assessing Officer (TDS). In the present case, it appears that there was a lack of coordination between the AO who conducted the scrutiny assessment and the AO (TDS), and both proceedings were conducted simultaneously. On an overall appreciation of the statutory scheme u/s 143(3), 195, and 201 of the Act, we are of the opinion that the Ao operated in different spheres of their respective jurisdictions. Merely because the assessment order passed by the Assessing Officer under Section 143(3) of the Act travelled to the DRP and culminated in an order, the same cannot, in any manner, impact the exclusive jurisdiction of the Assessing Officer (TDS) under Section 201 of the Act, unless the issue of TDS was assertively dealt and answered by DRP. Validity of order passed u/s 201 - impugned order by declaring the petitioner as an assessee in default, relies primarily on the alleged inadequacy of the invoice descriptions - Section 90(2) of the Income Tax Act mandates that DTAA provisions prevail if they are more beneficial to the assessee. The Supreme Court in the case of Union of India vs. Azadi Bachao Andolan [2003 (10) TMI 5 - SUPREME COURT] has confirmed that DTAA provisions take precedence over the Income Tax Act. Accordingly, the Assessing Officer (TDS) erred in holding the petitioner as an assessee in default. The respondents have also questioned the maintainability of the instant writ petition, on the ground of alternative remedy of appeal. We are not inclined to reject the writ petition, and relegate the writ petitioner to avail the remedy of appeal, since the petitioner has raised legal issues relating to interpretation of the statutory provisions governing the jurisdiction and powers of Assessing Officers under different Chapters. Moreover, we have also held that the impugned order dated 31.03.2024 also suffers from non-application of mind to vital aspects raised by the writ petitioner. The impugned order issued by the AO(TDS) u/s 201 and 201(1A) of the Income Tax Act is hereby quashed and set aside. Decided in favour of assessee. Issues: (i) Whether the Assessing Officer (TDS) can exercise jurisdiction under Section 201 of the Income-tax Act after completion of a scrutiny assessment under Section 143(3) and arrive at a view different from the Assessing Officer who passed the scrutiny assessment; (ii) Whether the order dated 31.03.2024 passed under Sections 201 and 201(1A) is valid in view of the material and submissions furnished by the petitioner and the requirements of Article 12(4) of the India-Singapore DTAA.Issue (i): Whether the Assessing Officer (TDS) can independently examine and decide TDS liability under Section 201 despite a scrutiny assessment under Section 143(3).Analysis: Section 143(3) concerns computation of total income under Chapter XIV, while Section 201 is within Chapter XVII dealing with collection and recovery of tax; limitation regimes and purposes differ. The statutory scheme allows the Assessing Officer (TDS) to verify Form 15CA/15CB and to examine obligations under Section 195/201 independently. The provisions of Section 144C do not ipso facto bind the Assessing Officer (TDS) unless the DRP has expressly formed and directed on the TDS issue.Conclusion: In favour of Revenue.Issue (ii): Whether the impugned order dated 31.03.2024 under Sections 201 and 201(1A) is sustainable on the record and in law.Analysis: The petitioner furnished Form 15CA/15CB, invoices and detailed submissions including prior-year scrutiny findings that payments to the same overseas entity were not FTS under the DTAA. Article 12(4) of the India-Singapore DTAA requires a 'make available' inquiry to classify payments as fees for technical services. The Assessing Officer (TDS) primarily relied on generalized invoice descriptions and alleged insufficiency of invoice particulars but did not adequately examine whether the services satisfied the 'make available' condition or consider prior determination for the same service relationship. Section 90(2) mandates applying DTAA provisions beneficial to the assessee. The impugned order failed to apply the essential legal test under Article 12(4) and did not address critical submissions, rendering the conclusion of default unsustainable.Conclusion: In favour of Assessee.Final Conclusion: The Assessing Officer (TDS) has independent jurisdiction to examine TDS obligations, but an order under Section 201/201(1A) is liable to be quashed where the TDS authority fails to apply the controlling DTAA test (including the 'make available' requirement) or to consider material and prior determinations essential to the classification of payments; accordingly, the impugned order is set aside.Ratio Decidendi: An Assessing Officer exercising powers under Section 201 must apply the governing DTAA test (including the 'make available' criterion in Article 12) and address material submissions and prior relevant assessments; failure to do so renders a Section 201/201(1A) order invalid even though the TDS authority has independent jurisdiction.