TaxTMI 
TaxTMI 
TaxTMI 
2018 (3) TMI 580
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.... 3. Briefly stated the facts are that the assessing officer passed an order u/s 201 of the Income Tax Act, 1961 (hereinafter referred to as the "Act") thereby the assessing officer observed that the assessee was obliged under the Act to deduct tax at the source on certain payments made to the non-resident persons. It is noted by the assessing officer that the assessee is a Foreign Company deriving income from consultancy services for the Hydel Project with NHPC for design, supervision of installation and commissioning of Electro- Mechanical equipments etc. for Chamera Hydro-Electric Power Project. He further observe that as per the P & L account for the assessment year 2001-02, an amount of Rs. 1,84,30,838/- has been debited by the assessee as work in process on the basis of a Debit Note issued by Head Office for the project work done during financial year 1999-2000. The assessing officer therefore, held that the assessee was required to deduct tax. Therefore, by invoking the provision of section 201 treated the assessee as assessee in default. Against this, the assessee preferred in appeal before the ld. CIT(A) who after considering the submissions, allowed the appeal. Against thi....
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....ent that the head office has rendered services only to NHPC, and not to a P.E. Therefore, the said amounts, i.e., the expenditure covered by work-in-progress of Rs. 1,84,30,838/- cannot be held to be in the nature of fees for technical services paid by the P.E. to the head office. The appellant has also correctly argued that even if payments had been made by a P.E. to a head office, these would have amounted to payment to self, which cannot be subjected to TDS. The Special Bench of the ITAT, Kolkata, held in the case of ABN Amro Bank at 280 ITR 117 that the branch/PE is not a separate legal entity, and the appellant has relied on the same to argue that the provisions of withholding taxes would not apply to payments from a P.E. in India to the head office, being payment to itself. The appellant has also relied on the judgment of the Hon'ble Delhi Tribunal in the case of SMS Demag Pvt. Ltd. v. DCIT (2010) 132 TTJ 498, to argue that as the amounts in dispute were not claimed by the 'P.E,' against the receipts of the project in India in A.Y. 2000-01, the question of invoking section 195 would not arise. Deduction for the expenditure was not claimed against its receipts for the purpose ....
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....ding adjudication. 10. We have heard the rival contention perused the material on record, the ld. CIT(A) has decided the issue which reads as under : - "4. I have carefully considered the above submissions. Firstly, it is seen that the assessing officer has held that the appellant was liable to deduct tax at source on reimbursement of expenses by the permanent establishment (P.E.) in India to the head office in Canada. It is evident that the P.E. has neither incurred the said expenses nor made any payment to the head office. The accounts of the head office and the project office were consolidated to determine the overall profit. Apportionment of the expenditure incurred by the head office to the project in India, did not entail any payment or liability of the P.E. The treatment of the expenditure incurred by the head office in the profit and loss account of the P.E. was merely a notional entry to compute the correct profit of the contract with NHPC. Moreover, the entire payment for execution of the contract - relating to the work done by the head office of the appellant in the F.Y. 1999-2000 was made by NHPC directly to the head office, after deduction of tax at source. It canno....
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....4) of the DTAA with Canada, the definition of "made available" as per the Memorandum to the India-USA treaty, and the judgment of the Mumbai Tribunal in the case of Raymond Ltd. (80 TTJ 120). The settled law in this respect is that the recipient of the services must be enabled to apply the technology on his own. Since in this case the P.E. has not got equipped by the head office to apply any technology, the 'expenditure' is clearly not of the nature of fees for "technical services" or "included services". 6. The appellant has further argued that treating reimbursement of expenses as income would lead to double taxation. The appellant has charged NHPC the contract consideration for the services performed by it and NHPC has withheld income tax while making the payments. Subjecting the expenses, which are treated by the assessing officer as fees for technical services and royalty, to tax, would result in taxation both of the contract receipts and of the expenses incurred to earn the contract receipts. The assertion of the assessing officer might have been acceptable if the appellant had recovered these expenses from the client along with the fees for the services performed, which i....