TaxTMI 
TaxTMI 
2012 (9) TMI 285
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....holding that the proportionate disallowance is called for as the rate of TDS applied was only 11.33 % instead of 33.99% on payments made to non-residents for services rendered in India. 4. The CIT(A) failed to note that Sec.44BB of the Act is attracted to the facts of the case and so the appropriate rate of tax would be only 3.399% whereas the appellant has deducted more tax at the rate of 11.33% which in anyway does not warrant any proportionate disallowance in the manner done by the Assessing officer. 5. The CIT(A)ought to have appreciated that the appellant had engaged the services of nine NRI's who are not liable to tax in India and the only issue relates to the rate of TDS to be applied. 6. The CIT(A) has not given due to weightage to the various arguments advanced by the assessee with regard to the scope of Sec. 44BB as applicable to business or profession. 7. The appellant craves leave to adduce additional grounds of appeal at the time of hearing." 3. The sole issue involved in the above grounds of appeal relates to disallowance of Rs. 61,19,632/- u/s 40(a)(i) towards consultancy charges/fee for technical services paid to non-resident individuals of Indian ori....
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.... tax prescribed u/s 44BB and hence, there is question of invoking the proportionate disallowance u/s 40(a)(i). The assessee further stated that the 9 persons to whom the impugned payments were made are non-residents and are also not employees of the assessee. They are professionally qualified in the field of extraction or production of mineral oils etc in off-shore areas in international waters. Some of them have also done professional services outside India. The assessee further stated that the word 'business' is one of wide import and it means an activity carried on continuously and systematically by a person with a view to earn an income. All the non-residents to whom payments were made are engaged in the business of providing services whose income are chargeable to tax under the head 'profits and gains of business or profession'. The assessee further submitted that if the provisions of section 44BB are considered as inapplicable, then in absence of any exclusion of the categories of persons stated above, a beneficial interpretation of section 44BB was called for, since it is open to those non-resident to contend that they should be fastened with the rate of taxation which is lo....
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....ade in favour of the non-residents and section 195(1) consists of the words 'chargeable under the provisions of the Act' and section 195(2) is based on the 'principle of proportionality'. In other words, the sub-section gets attracted only in cases where the payment made is a composite payment in which a certain proportion of payment has an element of income chargeable to tax in India. Hence, he supported the order of the Assessing Officer in making proportionate disallowance of expenditure for short deduction of tax at source by the assessee. 9. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. The issue before us is whether deduction of tax at source @ 11.33% in case of payments made to nine non-residents engaged in rendering services in connection with oil exploration business which are taxable under the Income-tax Act as per the provisions of section 44BB, is sufficient compliance of section 40(a)(i) of the Act or any disallowance out of such payment is warranted u/s 40(a)(i) of the Act. We find that the issue is decided by this Tribunal in the case of Frontier Offshore Exploration (India) Ltd vs DCIT, (201....
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....r the Income-tax Act, 1961 on which TDS can be made. A question now arises as to how much of the amounts paid by the assessee to the non-resident is the income chargeable to tax under the Income-tax Act, 1961 for the purpose of section 195. It is true that the assessee cannot quantify the income of the non-resident. This is where the special provision of section 44BB comes into play. Where the statute has provided a special provision for dealing with a special type of income such a provision would exclude a general provision dealing with the income accruing or arising out of any business connection. This view of ours finds support from the decision of the Hon'ble jurisdictional High Court in the case of Copes Vulcan Inc., referred to supra. Section 44BB is a special provision to the exclusion of all the contrary provisions provided in sections 28 to 41 and 43 and 43A of the Act. Once the provisions of sections 28 to 41 and sections 43 & 43A stand excluded, the method of computing the business income of the non-resident on the basis of the books of account goes out of the picture. Then it is only the provisions of section 44AD, 44AE & 44AF which could be applied and the same obvious....
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....ndia and cannot, in strict sense of the term, be said to be having the business outside India. In the circumstaeces, it is not open for the assessee to conclude suo-moto that the provisions of section 9(1)(vii)(b) would be applicable to payments made to non-residents and the proper course for the assessee would be to make an application u/s 195(2) to the concerned Assessing Officer, in the absence of which the assessee ought to have deducted tax at 33.99%. 3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored." 12. The sole issue involved in the above grounds of appeal of the Revenue is that the CIT(A) erred in deleting the disallowance of Rs. 4,76,58,976/- u/s 40(a)(i) of the Act for non-deduction of tax on consultancy charges/fee for technical services paid to non-residents working in overseas off shore oil and gas exploration projects in Nigeria. 13. The brief facts of the case, as observed by the Assessing Officer, are that an amount of Rs. 10,22,97,112/- was claimed as consultancy fees paid by the assessee both to residents and to nonresid....
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....ts have been utilized by the resident company in a business located outside India. According to the Assessing Officer, the assessee-company ought to have deducted TDS @ 33.99% on the following amounts paid: Shri Amount paid Bhushan 75,62,974 Harsh 17,97,142 Janardhan Pannir 55,37,687 Javed Ahmed 15,88,000 Jayamanohar Daniel 5,35,305 J. Muthukumar 1,11,14,105 Naidu Bakam 10,83,000 Shasikanth 72,98,683 Umamaheshwar 1,11,42,080 4,76,58,976 19. The Assessing Officer observed that same issue had come up for consideration in assessment year 2007-08 and on appeal by the assessee in I.T.A.No. 527/09-10/A.III, Chennai, vide his order dated 28.9.2010, deleted the addition. He also observed that the CIT(A) placed reliance on the decision of Hon'ble Supreme Court in the case of GE India Technology Centre Pvt. Ltd vs CIT, 327 ITR 356 and observed that section 195(2) springs into action only when the payment to the recipient contains an element of income chargeable to tax in India. Since the sum is not chargeable to tax in India, the provisions of section 195(2) are not attracted and disallowance u/s 40(a)(i) would not a....
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.... not chargeable to tax in india and Section 195(1) of the Act would make it obligatory to deduct tax at source only from the income chargeable to tax as per the provisions of the Act in India, in the hands of the concerned non-residents. Ld. CIT(Appeals) deleting the disallowance held as under:- "5.2.1 As per sec. 9(1)(vii)(b) income by way of fees for technical services payable by a resident shall be deemed to accrue or arise in India except where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any sources outside India. As rightly observed by the Addl. CIT if the resident assessee utilizes the services of non-resident, in its business outside India, it is covered under the exception given in the section itself and the payment received by the non-resident cannot be deemed to accrue or arise in India. Having held so, he could not have pressed into service the mischief of section 40(a)(i) because the appellant did not make application u/s 195(2). For this he has relied on the decision of the Karnataka High Court in the case of Samsung Electronics (supr....
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....he assessee were to non-residents Indian who were working abroad. Assessee had made no deduction of tax at source whatsoever. As per the assessee, they were working for its business carried on in Nigeria and hence, by virtue of Section 9(1)(vii)(b) of the Act, the fees payable to such non-residents could not be considered as income accruing or arising to them in India. We find that that the ACIT in his directions under Section 144A of the Act, had stated as under:- "S 9(1)(vii)(b) itself provides the exception. If the Resident assessee utilizes the services of the Non-resident, in its business outside India, it is covered under the exception given in the section itself and the payment received by the non-resident cannot be deemed to accrue or arise in India. Here, the assessee company, utilized the services of two nonresident in its business outside India, i.e. in Nigeria. Therefore, though assessee company has shown that the payments are directly related to the Nigerian project, the fact that the payments were made from India and not from Nigeria leaves some ambiguity in determining whether the exception provided to the non-resident on utilization of services outside Indi....