2024 (6) TMI 769

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....d April 2008 to August 2010. 2.1 The Appellant deducted Tax at source and paid the same to the Income tax department in accordance with the terms of the agreement with the parties. 2.2 In view of the aforesaid, it is evident that the consideration payable was agreed as net of all duties and taxes applicable and payable. 2.3 As per Section 195A of the Income tax Act, 1961, the Appellant is liable to deduct Income tax thereon at the stipulated rate on the aforesaid payment. Since the Appellant had to bear the taxes, including TDS, the amount of consideration agreed was grossed up and TDS borne by the Appellant was worked out in terms of Section 195A of the Income tax Act, 1961. 2.4 An audit was conducted for the period 2008-09 and observed that the Appellant did not include the TDS amount in the value of taxable services provided by foreign customers, which resulted in short payment of Service tax. 2.5 In pursuance of such audit, a show-cause notice dated 26.04.2013 was issued to the appellant to demand service tax on the amount of TDS deducted by the Appellant. 2.6 The matter was adjudicated. The demand of service tax was confirmed along with interest and penalties....

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....at the will of a person not party to the agreement, such amount does not bear the character of consideration. It has to be noted that in the present case, there is no consent from the foreign counterpart to reduce his consideration by deducting the income tax liability from the agreed consideration. While doing business with the foreign counterpart and making payment, they are bound to deduct the tax and deposit with the Government. The appellants have thus grossed up the TDS and complied with the statutory obligation. The situation would be different if the TDS is deducted from the actual consideration and is not borne by the Indian counterpart. When the foreign counterpart does not agree to forego the TDS portion from the consideration agreed, then it becomes legally incumbent upon the appellant to gross up the value as under Section 195A. 14.2.2For the purposes of discharging their obligation of deducting tax at source, the appellants have grossed up the TDS to the actual consideration. After deposit of TDS, the service provider has received only the amount that has been agreed between the parties. There is no dispute about the fact that TDS amount has been borne by app....

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.... decision relied upon by the Ld. Counsel in the case of Magarpatta Township Development & Construction Co. Ltd. (supra), wherein the facts are as under :- 3. The Learned Counsel took us through the facts of the case and submits that the agreement entered by the appellant with the foreign architect is very clear as the said agreement states that amount to be paid by the foreign architect not to be taxed i.e. by the appellant. He would take us through the agreement and bring to the notice specific clauses; appellant has discharged the Service Tax liability on the actual amount paid by them to such consultant. He would then take us through the provision of Section 67 of the Finance Act, 1994 and submit that the said Section contemplates discharge of Service Tax liability on the gross amount charged by the service provider. He would submit that the architect has charged the gross amount that indicated in the agreement. Subsequently, Learned Counsel would take us through the provision of Service Tax (Determination of Value) Rules, 2006, as per Rule 7 during the relevant period, the provisions were very clear as to actual consultant charges need to be taxed. For this purpose, he....

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....lue is equal to the actual consideration charged for the services provided or to be provided. In the case in hand, we specifically asked for the invoice/bill raised by the service provider and on perusal of the same, we find that appellant had discharged the consideration as raised in the said invoice/bill. There is nothing on record that indicates that the appellant had recovered that amount of Income Tax paid by them on such amount paid to the service provider from the outside India and any other material to hold that this amount is paid as consideration for services received from service provider. 9. In our considered view, the plain reading of Section 67 with Rule 7 of Service Tax Valuation in this case in hand, Service Tax liability needs to be discharged on amounts which have been billed by the service provider." 14.4.3In the case of M/s. Centre for High Technology (supra), the Tribunal discussed the issue and held in favour of the assessee, which reads as under : "10. After the considering the arguments made by both sides and perusal of record, we note that dispute is with reference to the amount paid as Withholding Tax which was on top of the amou....