TaxTMI 
TaxTMI 
2026 (2) TMI 455
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.... to Assessment Year 2020-21, the petitioner made payments to several non-residents. The petitioner paid service charges to 'Solvay Speciality Chemicals Asia Pacific PTE Ltd.' (hereinafter referred to as 'Solvay Singapore') on account of services rendered by it as per the agreement dated 1st January, 2014 entered into between Solvay Singapore and the petitioner. As per the said agreement, Solvay Singapore was to render services in the nature of communication, finance, general management, legal, information technology, etc. to the petitioner. The petitioner did not withhold "Tax Deducted at Source" (hereinafter referred to as "TDS") on the service charges paid to Solvay Singapore. 4. The petitioner e-filed its return of income for the Assessment Year 2020-21 on 14th February, 2021 declaring total income of Rs. 11,00,30,480/- under the normal provisions of the Act. 5. The return was processed under Section 143(1) of the Act. Subsequently, the case of the petitioner was selected for complete scrutiny assessment under the E-assessment scheme. One of the issues in complete scrutiny was verification of foreign outward remittances. Thereafter, notice dated 22nd January 2022 was issue....
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....f the Income-tax Act. Subsequently, vide order dated 24.07.2024, respondent No. 2 passed the final assessment order under Section 143(3) read with Section 144C(13) read with Section 144B of the Income-tax Act. 11. It appears that during the Scrutiny proceedings under Section 143(3) of the Act, the Assessing Officer (TDS)-respondent No. 1, issued a notice dated 16.08.2022 under Section 133(6) of the Act seeking details of remittances made to Solvay Singapore and Bruker Switzerland AG. 12. The petitioner, vide reply dated 22.08.2022, submitted the complete details called for, including the agreements with each of the parties. 13. Respondent No. 1 issued two notices dated 09.02.2023 and 17.07.2023 seeking certain details and clarifications from the petitioner. 14. The petitioner, vide reply dated 16.02.2023, detailed the nature of services provided by Solvay Singapore and requested for a personal hearing. The petitioner, vide reply dated 24.07.2023, reiterated the submissions made earlier and filed further details. 15. The Assessing Officer (TDS) - respondent No. 1 issued a notice dated 27.03.2024 seeking an explanation as to why TDS was not deducted on service charges ....
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....d, the Assessing Officer (TDS) cannot exercise powers under Section 201 of the Act. The DRP has also not made any further inquiry or enhancement of income on this issue. The final assessment order was passed noting the inquiry into the issue of foreign remittances made, but no disallowance of expenses under Section 40(a)(i) of the Act was made. d) It is thus submitted that since the direction/order issued by the DRP is binding on the Assessing Officer, as provided under Section 144C(10) of the Act, the Assessing Officer (TDS), being a subordinate officer to the DRP, cannot pass the impugned order under Sections 201 and 201(1A) of the Act in contradiction to the findings of the DRP. It is submitted that although the order of the DRP does not explicitly deal with the issue relating to deduction of TDS while making foreign remittances, the said issue is very much part of the matter arising out of the assessment proceedings. Thus, respondent No. 1 cannot ignore the directions of the DRP and pass the impugned order under Sections 201(1) and 201(1A) of the Act which is contrary to the findings of the DRP. In support of his submissions, learned Senior Counsel Mr. Soparkar has pla....
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....aragraph Nos. 13 - 16). h) That, the liability cast upon the assessee to deduct TDS is provided under Section 195 of the Act. It is further submitted that if a default is committed in deducting TDS under Section 195 of the Act i.e. if the payments made to the non-residents are chargeable to tax and no TDS is deducted thereon, there would be two consequences : (i) the assessee would not be allowed deduction of expenditure under Section 40(a)(i) of the Act in respect of such payments; and (ii) the assessee would be deemed to be an "assessee in default" in accordance with the provisions of Section 201 of the Act. In the present case, the Assessing Officer in the scrutiny proceedings has held that the payments made to Solvay Singapore are not in the nature of "fees for technical services" as defined in Article 12(4) of the India- Singapore DTAA and, hence, are not chargeable to tax in India. In view of the same, the petitioner is not liable to deduct TDS and there is no default under Section 195 of the Act. Learned Senior Counsel Mr. Soparkar further submitted that having held that no TDS is required to be deducted under Section 195 of the Act, the Assessing ....
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....d the findings in one proceeding would not automatically bind the other. It is submitted that the scope and purpose of Section 201 of the Act is confined to examining the assessee's obligation to deduct and deposit the tax at source in accordance with the provisions of Chapter XVII-B of the Act, whereas assessment under Section 143(3) of the Act pertains to computation of total income and determination of tax liability thereon. Therefore, even if no disallowance under Section 40 (a)(i) is made in the scrutiny assessment, it does not preclude initiation or conclusion of proceedings under Section 201 of the Act where failure to deduct or deposit tax at source is established on the basis of evidence available on record. c) It is submitted that the provisions of Sections 201(1) and/or 201(1A) of the Act do not provide for any exemption in cases where scrutiny assessment under Section 143(3) has been completed and no disallowance was made under Section 40(a)(i) of the Act. It is further submitted that, in the absence of any specific stipulation restricting the applicability of the provision of Section 201 of the Act to cases where no disallowance under Section 40(a)(i) of the A....
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....ent made to a non-resident is not chargeable to tax in India by furnishing complete and accurate particulars of the nature of services, supported by documentary evidence. However, despite being afforded multiple opportunities vide notices dated 09.02.2023, 17.07.2023, and 27.03.2024, the assessee failed to provide invoice-wise exact particulars of the nature of services rendered by the non-resident service provider and merely furnished repetitive and generic descriptions reproducing the broad categories mentioned in the Functional Service Agreement dated 01.01.2014, without specifying the actual work performed against each invoice. Further, several invoices clubbed multiple services rendered on different dates, making it impossible to ascertain the precise nature of each service, which is in contravention of Para 3.1 of Article 3 of the said agreement, which specifically requires providing sufficient details to enable compliance with tax requirements, including withholding of taxes. It is submitted that, in the absence of such specific details, the payments are liable to be treated as "fees for technical services" within the meaning of Explanation 2 to Section 9(1)(vii) of the Act,....
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..... (Solvay Singapore), a non-resident entity, on the basis of an agreement dated 01.01.2014. As per the said agreement, Solvay Singapore was to render services in the nature of communication, finance, general management & GPA, human resources, legal opinion, technology, etc. b) The petitioner e-filed its return of income for Assessment Year 2020-21 on 14.02.2021, declaring total income of Rs. 11,00,30,480/-. c) The return of income was selected for complete scrutiny, and accordingly, the Assessing Officer sought details of foreign remittances by issuing a notice dated 22.01.2022 under Section 142(1) of the Act. d) The petitioner, vide its detailed reply dated 03.03.2022, furnished a complete break-up of foreign entities, including Solvay Singapore. e) The Assessing Officer further issued notices dated 11.07.2023 and 09.08.2023 seeking details of TDS deduction on service charges paid to foreign entities. f) The petitioner, vide its reply dated 12.08.2023, furnished further details of TDS made to specified persons under Section 40A(2)(b) of the Act. g) The Assessing Officer passed the draft assessment order under Section 144C of th....
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.... the aforementioned facts and the impugned order, it would be necessary to examine the powers of the Assessing Officer under Sections 142 and 143 of the Act and those of the Assessing Officer (TDS) under Section 201 of the Act. 24. Thus, the question which falls for deliberation before this Court, at this stage, is whether the Assessing Officer (TDS) can exercise his jurisdiction under Section 201 of the Act of holding the petitioner to be an "assessee in default" after the assessment order passed under Section 143(3) of the Act ? 25. The scrutiny assessment proceedings under Section 143(3) of the Act falls under Chapter XIV of the Act. The said Chapter prescribes the procedure for detailed investigation to ensure that the assessee has fully disclosed its income and that no income has escaped assessment. The limitation prescribed for such proceedings is twelve months from the end of the assessment year in which the income was first assessable. Section 201 of the Act, on the other hand, is contained in Chapter XVII (Collection and Recovery of Tax) of the Act, which is dedicated to tax deduction at source. Section 201 of the Act, deals with the consequences of failure to deduct....
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....iction cannot be read into Sections 201(1) and 201(1A) of the Act. There may be cases where the Assessing Officer, during scrutiny proceedings, has committed an error in not making a disallowance, and such omission may result in non-deduction of tax at source. If such assessment is treated as final, it would be detrimental to the interest of the revenue. It is trite that the power under Section 263 of the Act can be exercised by the Commissioner of Income Tax if the Assessing Officer, after scrutiny, fails to make any addition or disallowance. However, in the absence of such exercise having been undertaken, the same cannot ipso facto dilute the powers of the Assessing Officer (TDS) under Section 201 of the Act. 27. Thus, while examining the assessment proceedings, the Assessing Officer (TDS) can always exercise his jurisdiction relating to tax deducted at source and arrive at his own conclusion, independent of the view taken by the Assessing Officer who has passed the scrutiny assessment order under Section 143(3) of the Act. We, therefore, do not find substance in the argument advanced by the learned counsel for the petitioner that the Assessing Officer (TDS) cannot take a view....
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....ith,- (i) the Dispute Resolution Panel; and (ii) the Assessing Officer. (3) xxx xxx xxx (4) xxx xxx xxx (5) The Dispute Resolution Panel shall, in a case where any objection is received under sub-section (2), issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment. (6) The Dispute Resolution Panel shall issue the directions referred to in sub-section (5), after considering the following, namely:- (a) draft order; (b) objections filed by the assessee; (c) evidence furnished by the assessee; (d) report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority; (e) records relating to the draft order; (f) evidence collected by, or caused to be collected by, it; and (g) result of any enquiry made by, or caused to be made by, it. (7) The Dispute Resolution Panel may, before issuing any directions referred to in sub-section (5),- (a) make such further enquiry, as it thinks fit; or (b) cause any further enquiry to be made by any income....
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....rcise ancillary powers, over and above the power to enhance the variation, including the power to consider any matter arising out of the assessment proceedings relating to the draft order, notwithstanding the fact that such matter was raised or not by the eligible assessee. Sub-section (10) of Section 144C of the Act stipulates that every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer, which clearly depicts its authority over the Assessing Officer. 32. The Dispute Resolution Panel examines the draft order passed by the Assessing Officer under the provisions of Section 144C of the Act. In the present case, the Assessing Officer passed the draft assessment order on 28.09.2023, wherein he neither formed any opinion nor made any disallowance under Section 40(a)(i) of the Act in respect of payments made to the Singapore entity on which tax was not deducted at source. 33. The case of the respective parties primarily hinges on this draft assessment order. A perusal of the draft assessment order dated 28.09.2023, passed under Section 144C(1) of the Act, shows that it refers to foreign outward remittances. It is recorded in the draft assessm....
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.... against the upward variation before the DRP under Section 144C(2)(b) of the Act. Thus, the DRP also confined itself to the issue arising out of the draft assessment order relating to transfer pricing. 38. The DRP, while examining the upward variations in respect of transfer pricing under Section 92CA(3) of the Act as proposed by the Assessing Officer in the draft assessment order dated 28.09.2023 passed under Section 144C(1) of the Act, neither issued any directions guiding the Assessing Officer nor exercised its power to consider the issue of TDS, nor issued any directions in that regard. As held hereinabove, the non-formation of any opinion by the Assessing Officer in scrutiny proceedings, after calling upon the petitioner to submit details of TDS and break-up of foreign remittances, can be treated as scrutiny of the issue of TDS. However, the DRP did not examine the issue of TDS and confined itself to the draft assessment order relating to the upward variation in transfer pricing. The question, therefore, is whether the discernment adopted by the Assessing Officer in scrutiny proceedings of having examined the issue of TDS without expressing any opinion - can be extended to ....
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....ed the order passed under Section 201 of the Act, the same would not have any consequence on the jurisdiction of the Assessing Officer (TDS), unless the DRP had formed a positive opinion on the issue of TDS and issued directions to the Assessing Officer regarding non-deduction. Hence, in the present set of facts, we are of the opinion that the Assessing Officer (TDS) has precisely exercised his jurisdiction and powers for scrutinizing the aspect of compliance with the provisions of Section 40(a)(i) read with Section 195 of the Act, and the subsequent order passed by the DRP will have no bearing on the order of the Assessing Officer (TDS). 41. In the present case, it appears that there was a lack of coordination between the Assessing Officer who conducted the scrutiny assessment and the Assessing Officer (TDS), and both proceedings were conducted simultaneously. On an overall appreciation of the statutory scheme under Sections 143(3), 195, and 201 of the Act, we are of the opinion that the Assessing Officers operated in different spheres of their respective jurisdictions. Merely because the assessment order passed by the Assessing Officer under Section 143(3) of the Act travelled....
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....43(3) of the Act has been passed. It is trite that the principle of res judicata does not apply to assessment proceedings (M.M. Ipoh & Ors. vs. Commissioner of Income-tax, Madras, (1968) 67 ITR 106). However, the Assessing Officer (TDS) was required to examine the assessment order for A.Y. 2018-19, since the very nature of services rendered by the petitioner to the same entity was the subject matter of scrutiny in the earlier proceedings, and disallowance under Section 40(a)(i) of the Act was ultimately not made by holding that the petitioner-assessee was not required to deduct TDS under Section 195 of the Act, since the payments not being liable for disallowance under Section 40(a)(i) of the Act. 43.4 The Assessing Officer (TDS) has further held that since a detailed description of the functional services rendered under the agreement dated 01.01.2014 was not disclosed, and the assessee - petitioner failed to furnish invoice-wise particulars reflecting the exact nature of services rendered, the nature of services could not be ascertained. It has been observed that the petitioner deliberately failed to do so in order to avoid tax compliance. It has thus been held that the service....
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...., and Transversal functions. It was submitted that it is impractical and operationally impossible to prepare separate invoices for each instance of service rendered, as the services were continuous, ongoing, and often involved multiple simultaneous activities. The petitioner further submitted that the nature of the services is defined in the agreement, and invoicing is done for the service as a whole, which is provided on a consistent, year-round basis. The petitioner emphasized that there is no "make available" condition in the agreement, which is essential to qualify as FTS under the DTAA definition. 43.8 To assess the opinion of the Assessing Officer (TDS), it is apposite to refer to Article 12 of the India-Singapore DTAA. "ARTICLE 12" ROYALTIES AND FEES FOR TECHNICAL SERVICES 4. The term "fees for technical services" as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or informa....
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....ly ignored this explanation and has not examined this quintessential feature before declaring the petitioner as an "assessee in default." 43.10 At this stage, it is apposite to refer to the decision of the Karnataka High Court, in the case of Director of Income-tax (International Taxation) Bangalore vs. Sun Microsystems India (P.) Ltd., [2014] 48 taxmann.com 93 (Karnataka), wherein the Court, with reference to Article 12 of the DTAA between India and Singapore, held as follows: "3. ... If the service provider also makes available the technology which they used in rendering services, then it falls within the definition of "fees for technical services", as contained in DTAA. However, if the technology is not made available along with the technical services what is rendered is only technical services and the technical knowledge is withheld then, such a technical service would not fall within the definition of "technical services" in DTAA and the same is not liable to tax." 43.11 In the instant case, the Assessing Officer (TDS), without examining whether the services rendered involved the "make available" condition, has passed the impugned order by holding that ....