TaxTMI 
TaxTMI 
2008 (9) TMI 414
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....2,74,075. To give a logical end to the proceedings, learned assessing officer issued notice under Section 143(2) of the Act and in response to that notice Shri Anil Kumar Khanna, FCA appeared on behalf of the assessee. 4. On scrutiny of the accounts, it was found by the learned Assessing Officer that assessee had claimed the following expenses paid to Dr. Hutarew & Partner (P.) Ltd., Germany: (i) Data processing charges Rs. 13,14,521.55 (ii) License fees Rs. 7,87,291.20 The learned assessing officer has observed that assessee has filed a copy of agreement with Dr. Hutarew & Partner for using the brand name. The license fees payable by the assessee is in the nature of royalty and a tenable as per Section 9(1)(vi) of the Act. Since the assessee failed to deduct the tax while making the payment of this amount. Assessing Officer has applied Section 40(a)(i) of the Act and disallowed the claim made by the assessee for expenses. With regard to the payment made for data processing, the assessing officer has held that this payment as made for specialized services and it is in the nature of technical services provided by Dr. Hutarew & Partner, Germany. He treated this payment also as ....
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....lace in India. Even if there be a business connection between Germany company and India, no income would accrue or arise to Dr. Hutarew & Partner in India because no income has been accrued or received by Dr. Hutarew & Partner, Germany from any assets or source in India. 8. On the other hand, learned Departmental Representative relied upon the order of learned revenue authorities below. He pointed out that fees have been paid for obtaining technical services which help the assessee to prepare its design. As far as the connection of Dr. Hutarew & Partner with India is concerned, now an explanation has been appended to Section 9 of the Income Tax Act, 1961 vide Finance Act, 2007 with retrospective effect from 1 -6-1976. According to this explanation, irrespective of the situs of the service, the situs of the payer and payee, the situs of utilization of the services will alone determine the tax jurisdiction. He pointed out that the services obtained by the assessee are highly technical in nature which can only be performed by high end software possessed by Dr. Hutarew & Partner, Germany. It is not the simple information as contended by the learned Counsel of the assessee. Apart from ....
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.... or not the nonresident has a residence or place of business or business connection in India. 10. From reading of Clause (vii) of Section 9(1) of the Act, it will reveal that it envisaged three alternative situations of payment for technical services. Sub-clause (a) provide a situation where fees for technical services is payable by the Government. Clearly, the case of the assessee does not fall within this Sub-clause as the payer i.e., the assessee is not a Government. Sub-clause (b) refers to a situation where the payment is made by a person who is resident. It provides certain exemptions also i.e., in case services are utilized in a business or provisions carried on by such person outside India or for the purpose of making or earning any income from any source outside India then Clause will not be applicable. Clause (c) refers to a situation where the payer is a non-resident as the assessee is a resident company, Clause (c) would not be applicable. The case of the assessee falls within the ambit of Clause (b) and the conditions of exclusion provided in this Clause are not applicable upon the assessee. The contention of the learned Counsel for the assessee is that payment made b....
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....used, if for technical services could only be meant to cover such thing technical as are capable of being provided by way of service for a fee. The popular meaning associated with technical is involving or concerning applied and industrial science. Accordingly, the Hon'ble Court held that technical service referred in Section 9(1)(vii) contemplates rendering of a service to the payer of the fees. Mere collection of a "fees" for use of standard facility provided to all those willing to pay for it does not amount to the fees having been received for technical services. 12. In the present case, facts are quite different. Dr. Hutarew & Partner, Germany is not maintaining any server for everybody that any one can feed the data and get the solution. The solutions are being provided on the specific needs of the customers. The information supplied by the German Company is specific which can help the assessee in finalizing its design. Such specific client based information cannot be equated with the standard services provided by a tele-communication company. Therefore, the decision of Hon'ble Madras High Court is not applicable on the facts of the present case. Similarly, the facts....
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.... the payment is a trade receipt. However, what is to be deducted is income-tax payable thereon at the rates in force. Under the Act, total income for the previous year would become chargeable to tax under Section 4. Sub-section (2) of Section 4, inter alia, provides that in respect of income chargeable under Sub-section (1), income-tax shall be deducted at source where it is so deductible under any provision of the Act. If the sum that is to be paid to the non-resident is chargeable to tax, tax is required to be deducted. The sum which is to be paid may be income out of different heads of income provided under Section 14 of the Act, that is to say, income from salaries, income from house property, profits and gains of business or profession, capital gains and income from other sources. The scheme of tax deduction at source applies not only to the amount paid which wholly bears "income" character such as salaries, dividends, interest on securities, etc., but also to gross sums, the whole of which may not be income or profits of the recipient, such as payments to contractors and sub-contractors and the payment of insurance commission. It is true that in some cases, a trading receipt ....
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....duct tax under Section 195(1) is an essential liability cast by statute on a person who is making payments to non-residents. A person responsible for making payments to a non-resident, other than interest on securities and income chargeable under the head "Salaries" has necessarily to examine the liability to deduct tax at source. He has to satisfy himself that the payments made by him are not such sums which are chargeable under the provisions of the Income Tax Act. The liability to deduct tax at source arises only in the case of such payments where those payments are in the nature of income chargeable under the Income Tax Act. The provisions of Section 195(1) may create an avoidable inconvenience in such cases where the payments made by a person are not such amounts which are chargeable to income-tax. It is in order to avoid such inconvenience to a person that Sub-section (2) of Section 195 has been provided. Where the person making such payments to a non-resident thinks that the payments made by him to the non-resident would not be income chargeable in the case of the recipient, he can made an application to the assessing officer to determine the issue and decide whether tax is ....