TaxTMI 
TaxTMI 
2017 (7) TMI 692
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....ssing Officer noticing that the assessee has claimed deduction on account of payment made to non-resident on account of expenditure incurred under various heads whereas, it has not deducted tax at source while making such payment called upon the assessee to furnish the details of expenditure incurred and explain why tax was not deducted at source. On verifying the details submitted by the assessee, he found that an amount of ` 19,45,872, was paid towards inspection, verification, testing and certification services (IVTC) provided by the non-resident to the assessee. He found that the payees are resident of different countries like Australia, Brazil, Germany, Japan, Switzerland, etc., which have wide definition of fees for technical service (FTS) clause in their tax treaties with India. He also observed, the definition of FTS in the respective tax treaties are similar to the definition of FTS under section 9(1)(vii) of the Act. Therefore, he concluded that payment for IVTC service is in the nature of FTS requiring deduction of tax at source under section 195 of the Act. Since the assessee had not deducted tax at source on such payment, he disallowed the amount of ` 19,45,872, under ....
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....nt is involved. However, the learned Commissioner (Appeals) accepting the contention of the assessee that as per relevant DTAAs taxability on FTS is on actual basis and not on accrual basis directed the Assessing Officer to examine the payment actually made by the assessee during the relevant previous year without deducting tax at source and disallowed the same under section 40(a)(i). As far as the disallowance of payment made towards representation fees paid to non-resident by invoking section 40(a)(i), the learned Commissioner (Appeals) issued similar direction to the Assessing Officer to restrict the disallowance to payments actually made by the assessee during the relevant previous year without deducting tax at source. Being aggrieved, the assessee is before us. The Revenue has also challenged partial relief granted by the learned Commissioner (Appeals) to the assessee by raising grounds no.2 and 3 in its appeal. 5. Learned Authorised Representative submitted before us that as far as the payment made towards IVTC is concerned, such payments made to various overseas affiliates were for services rendered outside India. The learned Authorised Representative submitted, since suc....
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....number of active users. He submitted, as far as reimbursement of other expenditure of ` 1,08,90,974 is concerned, it is for ease of administration and for negotiating bulk discount for procurement of goods / services entered into globally by few overseas affiliates. It was submitted, during the year, the assessee has made payment, inter-alia, for air tickets, freight charges, purchase of security papers, courier charges, travelling expenses, etc., to overseas affiliates which are nothing but the cost incurred on behalf of the assessee. The learned Authorised Representative submitted, in the case SGS, Jeneva, AAR, vide AAR no.912/2013 dated 14th May 2015, has held payment made by the assessee towards WAN services is not taxable in India. It further held that the payment for WAN services was a mere reimbursement and was neither technical in nature nor royalty. He submitted, as per section 245C, ruling of AAR is binding in respect of transactions between the assessee and SGS, Geneva, therefore, as per the decision of AAR no tax is deductible at source on such payment, hence, consequently, disallowance under section 40(a)(i) has to be deleted. He submitted, the Assessing Officer himsel....
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....he payment made towards representation service is concerned, the AAR in the very same order has held that such payments are not towards FTS or royalty. Hence, not taxable under the Act or DTAA. In view of such decision of the AAR as referred to above, the payment made towards WAN services and representation services cannot be subjected to TDS provisions. Therefore, disallowance made of such expenditure for non-deduction of tax cannot be sustained as there is no requirement for assessee to deduct tax at source while making such payments. As far as the payment made towards IVTC is concerned, nothing has been brought to our notice to conclusively prove that such services are not in the nature of technical services. The assessee has also failed to prove that such income does not accrue or arise in India. Therefore, we are not inclined to accept the arguments of the assessee that payment made are not in the nature of FTS, hence, no TDS was required. However, we agree with the conclusion of the learned Commissioner (Appeals) that the disallowance under section 40(a)(i) as per Article-21(1) of the India Switzerland DTAA has to be restricted to the amount actually paid during the relevant ....
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....sis of section 115O, it would appear that DDT is levied on the company distributing dividend and not on the shareholders who receive the dividend. Referring to the provisions of sub-section (4) and (5) of section 115O, the learned Commissioner (Appeals) observed that DDT charged under section 115O is a tax on distributed profit and is charged on the company distributing the dividend and has no element of being a withholding tax payable on behalf of any other entity, shareholders or otherwise. Thus, the learned Commissioner (Appeals) ultimately held that the provisions of DTAA are not applicable. 12. Learned Authorised Representative submitted before us that the DDT is a tax on dividend. Referring to the provisions of section 115O, he submitted that, it is a tax on dividend and not a tax on the income of the company paying dividend. Referring to the CBDT Circular no.763 dated 18th February 1998, the learned Authorised Representative submitted, DDT is administratively convenient method for collection of tax on dividend income. He submitted, although, DDT is a tax charged and paid by the company paying dividend to shareholders it would not mean that DDT is not a tax on dividend inc....
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....e aforesaid provisions, it appears that the DDT is a liability of the domestic company declaring dividend and not liability of the shareholder receiving such dividend income. Whereas, careful reading of Article-10 of India Switzerland treaty prima-facie gives an impression that it speaks of taxability of the dividend at the hands of the recipient of such dividend which is a resident of the other contracting state. Therefore, keeping in perspective the provisions contained under section 115O vis-a-vis Article-10 of DTAA it needs to be examined whether the benefit of tax treaty can be extended to the DDT paid / payable by the assessee. We have noted, the various proposition advanced by the assessee claiming benefit under Article-10 of India Switzerland DTAA as contained in the written notes are nothing but repetition of submissions made before the learned Commissioner (Appeals) on 20th February 2014, a copy of which is at Page-112 of the paper book. Though, reading of Article-10 of India Switzerland DTAA prima-facie gives an impression that it will only apply to non-resident shareholder receiving the dividend, however, still it leaves a scope for examining the claim of the assessee t....
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....lared at 3% followed the same and deleted the addition. 19. We have heard the rival contentions and perused the material available on record. The learned Counsel appearing for both the parties have agreed before us that the issue stands covered by the decision of the Tribunal in assessee's own case for assessment year 2002-03 to 2007-08. As could be seen, while deciding assessee's appeal for assessment year 2002-03 and 2003-04, in ITA no.2406/ Mum./2006 and other related appeals in order dated 30th January 2013, the Tribunal deleted the transfer pricing adjustment by accepting the arm's length price of the license fee declared at 3%. The same view was again reiterated in ITA no.963 and 3107/Mum./2011 dated 22nd May 2013, in A.Y. 2004-05 and 2005-06 and in ITA no. 4968/Mum./2011 and ITA no.8840/Mum./2010, for assessment year 2006-07 and 2007-08. There being no material difference in facts brought to our notice by the learned Departmental Representative respectfully following the consistent view of the Tribunal, we upheld the order of the learned Commissioner (Appeals) on this issue. Ground no.1 is dismissed. 20. Grounds no.2 and 3 are in relation to partial relief granted ....