TaxTMI 
TaxTMI 
2017 (4) TMI 60
X X X X Extracts X X X X
X X X X Extracts X X X X
....eries/problems pertaining to the open source software through web based systems and telephone calls. In the order passed under section 201(1) r.w.s. 201(1A) of the Income Tax Act, 1961 (in short 'the Act') for A.Y. 2007-08 dated 26.03.2013 and A.Y. 2008- 09 dated 27.10.2012, the Assessing Officer (AO) held that the amounts remitted by the assessee to its Associated Enterprises (AE) in this period was exigible to tax as 'royalty' under section 9(1)(vi) of the Act as well as Article 12(3)(a) of the India-Singapore DTAA. The AO also held that these remittances were also exigible to tax as 'fees for technical services' (FTS) under section 9(1)(vii) of the Act as well as under Article 12(4)(a) and 12(4)(b) of the India-Singapore DTAA. The AO was of the view that the assessee ought to have deducted tax at source on the remittances to its AE, which it failed to do and therefore treated the assessee as an assessee in default and raised demand under section 201(1) of the Act and charged interest under section 201(1A) of the Act. 2.2 The learned CIT(A) disposed off the appeals preferred for assessment years 2007-07 and 2008-09 vide the impugned order dated 29.11.2013 substantially....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd the assessee challenges the validity of the orders of the authorities below, contending that they have erred in holding the assessee as an assessee in default in respect of payments made to its AE, Red Hat Asia Pacific Pte Ltd, Singapore and thereby charging tax under section 201(1) of the Act. At the outset, the learned A.R. of the assessee strongly canvassed the proposition that the AO's orders passed under section 201(1) r.w.s. 201(1A) of the Act for assessment years 2007-08 and 2008-09 vide orders dated 26.03.2013 and 27.10.2012 respectively would not survive and are unsustainable in these appeals if (i) no action has been taken by Revenue against the recipient/payee, i.e. Red Hat Asia Pacific Pte Ltd., Singapore and (ii) and/or if the possibility of action being taken by revenue is barred by limitation. 4.1.2 In support of the aforesaid proposition, the learned A.R. placed reliance on the decision of the Special bench of ITAT, Mumbai in the case of Mahindra & Mahindra vs. DCIT (2009) 122 TTJ 0577 (SB). According to the learned A.R., in the cited case it has been held that as per Explanation to section 191 of the Act, both conditions, viz. (i) failure on the part of the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the relevant assessment years 2007-08 and 2008-09. On the request of the Bench, the learned D.R. ascertained the position from the AO. The learned D.R. submitted that the AO vide letter dated 21.03.2017 (copy placed on record) has confirmed that no orders of assessment have been passed in the case of the payee/recipient, Red Hat Asia Pacific Pte. Ltd., for assessment years 2007-08 and 2008-09 and subsequent years in this regard. 4.3.1 We have heard both parties and perused and carefully considered the material on record; including the judicial pronouncements cited. For the assessment years 2007-08 and 2008-09 under consideration, the AO passed orders under section 201(1) r.w.s. 201(1A) of the Act holding that assessee to be an assessee in default for failure on its part to deduct tax at source on payments made by it to its AE, M/s. Red Hat Asia Pacific Pte, Ltd., Singapore. According to the assessee the validity of the said orders passed by the AO is in question and that the said orders are unsustainable since both the twin conditions laid down as per Explanation to section 191 of the Act are not satisfied, i.e. (i) failure on the part of the assessee to make TDS on payments to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsible for paying the sum without deducting tax at source as assessee in default. Thus the essence of the provisions of deduction of tax at source is that there is a presumption of liability of the payee to tax on the income. As discussed in an earlier para that if there is no or lower liability of the payee to tax on the income so received without deduction of tax at source, then the payer cannot be treated as assessee in default for the whole or that part of the amount, as the case may be. It is therefore clear that though the duty of deduction of tax at source was there at the time of making the payment or crediting the account of the payee, but its failure will not lead to adverse consequence by treating the person paying the income as assessee in default if eventually either the payee is not liable to tax on such sum or he has already paid the tax due on the amount of income so received. Thus the question of treating the person responsible for paying the income as assessee in default by way of passing the order under s. 201(1) is inter alia, tied with the tax liability of the payee on such sum. If no liability of the payee to tax exists at the time when order under s. 201(1) i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ax can be recovered thereon. By the same logic and turning to the point before us when the payee has paid the tax by offering such income for taxation on which tax was deductible but not deducted, then the person responsible cannot be treated as assessee in default under s. 201(1). In the like manner where the payee has not offered such income for taxation and there is no remedy available with the AO for taxing such income in the hands of the payee i.e. the time-limit for taking action against the payee under any possible provision of the Act has expired, then also the payee cannot be charged on such income nor resultantly the person responsible for paying the income can be treated as assessee in default. We have seen above that the provisions for deduction of tax at source presuppose the taxability of the sum paid in the hands of the payee and the tax so deducted is finally adjusted against the tax liability of the payee. If tax is collected by way of order under s. 201(1) from the person responsible failing in his duty to deduct or paying after deduction of tax at source, but such amount cannot be adjusted against the tax liability of the payee, then this collection of tax would ....