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April 23, 2022

Where services rendered outside India by Non-Residents TDS not deductible

by CA Shivam Jaiswal in Income Tax

Where services rendered outside India by Non-Residents TDS not deductible

Fact and Issue of the case

The fact of the case are undisputed facts are that the commission has been paid to various non­resident entities in respect of sales affected by the assessee outside of India, the services have been rendered outside of India and the payments have been made outside of India. In light of these undisputed facts, the legal proposition laid down in the aforesaid decision equally applies in the instant case and such commission payment cannot be held chargeable to tax in India. Similarly the exhibition expenses have been paid in respect of participation in various exhibitions held outside of India and even the testing charges have been paid for testing services outside of India. Therefore, these payments will not fall in the category of income which has accrued or arisen or deemed to accrued or arise in India. Further, payments have been made outside of India. Accordingly, we are of the considered view that there was no liability to deduct tax at source u/s 195(1) as these payments are not chargeable to tax and the provisions of section 40(a)(ia) cannot be invoked in the instant case.

Observation of the court

The order of the court are, the department has filed an appeal before us contending that the CIT(A) has erred in deleting the addition of Rs.2,28,86,971/-made by the AO. During the course of hearing, the AR of the assessee has relied on the order of the  CIT(A) where in all most all the arguments have been raised and is considered by the Ld. CIT(A) in his order. Before us, the Ld. AR has almost reiterated the submission made before CIT(A) and stated that the Ld. CIT(A) has given his finding on all the aspects, issues or concerns raised by the Ld AO, even the decision relied upon by the AO is differentiated and discussed so as to why the same is not accepted. Thus, the AR of the assessee heavily relied on the finding of the Ld. CIT(A) and submitted that the finding of the CIT(A) is rendered afterconsidering the overall facts of the case and submissions made before him. The Ld. AR stated that in the earlier year the order of the CIT(A) in assessee’s own case was not favourable, but the considering the decision of the coordinate bench of this tribunal in earlier years and after considering the submission and details placed on record the Ld. CIT(A) has hold that the disallowance for the year under consideration is uncalled for and has deleted the same and the said order is disputed by the department in this appeal.

On the contrary , the fact that the assessee is contending in connection with the contention for alleged non-deduction of tax at source. The  AR contended that there is no requirement to withhold the tax on this paymentbased on the evidences placed on record by the assessee running . Against the written submission filed the Ld. AR, the Ld. DR has not challenged any contentions on the written arguments supported by evidence placed on record. The submission were filed in two part one is on28.07.2021 and another on 23.10.2020. Even the fact submitted by the Ld. AR is not challenged and the decision relied upon where also not differentiated by the Ld. DR. He has only contended that payment made to non resident without deduction of tax and based on the finding of the assessing officer he prayed that the addition should sustained. He has heavily relied upon the finding of the Ld. AO and has not pointed any legal arguments or decision stating so as to why and how the finding of the Ld. CIT(A) for this year and ITAT Jaipur bench decisions forast year are incorrect. He has only filed a clarificatory letter obtained from the assessing officer.

The ld. AR of the assessee has submitted a chart showing the breakup of the payment made to various parties to whom selling commission was paid with their complete address, a chart showing the breakup of various parties to whom selling commission was paid with their complete address for A. Y. 2013-14 & 2014-15 along with comparative chart for last 3 years, copies of ledger account of selling commission, copies of agency agreement, certificate of payee, Foreign bills transaction advise, letter by the assessee to the concerned bank with enclosure to make payment outside India for each of the parties to whom the selling commission was paid. The assessee also filed the copies of the Form no. 15CA and 15CB for making payment outside India as per provisions of the I. T. Act, 1961. The assessee also filed the ledger, bills, Bank advise, correspondence and Form A2 of FEMA in respect of expenses relating to Exhibition Expenses claimed by the assessee also. The Ld. AR of the assessee also placed in the paper book ledger account for testing expenses along with the invoice for every expenses claimed as testing expenses.

 The Ld. AR appearing on behalf of the assessee submitted that all the evidences placed on record is verified by the assessing officer. He has not raised single question about the payment under each head of expenses claimed. All the expenses were supported by bills and agreement, have complied the provisions of law under the I. T. Act as well as under FEMA. The only grievance raised by the revenue that TDS is not deducted on these payments made by the assessee while making to payment of the parties to whom the payments were made.

During the course of hearing the Ld. AR appearing on behalf of the assessee has argued in detailed. Based on the detailed argument, the Ld. AR of the assessee fervently contested the disallowance made being the payment made to the foreign parties and stated that based on the facts, circumstance, evidence and decisions relied upon the disallowance is unwarranted and required to be deleted.

On the other hand the Ld. DR relied upon the orders of the assessing officer, and stated that the relief granted by the Ld. CIT(A) is unwarranted and thus, the order of the AO be restored.

We have persuaded the paper book filed by the assessee and have gone through the copies of the bills,ongoing thorough those bills it is evident that services were rendered outside India for the purpose of export outside India. It was submitted that the products are being tested and certified by the various agencies outside India to enable the assessee company to export its products, as it is the requirement of importing countries to get the products tested by designated agencies in their own countries. Thus, the contention of the assessee is that such fees for technical services are paid for services rendered outside India and has been utilized for the export business outside India and thus, the same are outside the purviews of section 9(1)(vii) and shall not be chargeable to tax in India so with holding of tax does not arised.

The ld AO rejected the contention of the assessee and held that the above payment is chargeable to tax in India in terms of provision of the Act as they fall into the definition of fees for technical services. With respect to the applicability of Double Taxation Avoidance Agreement, also he held that it also satisfied the make available criteria of technical services. Therefore, the sum was disallowed.

On the contrary the ld. AR of the assessee has argued before us that there is no sum chargeable to tax as all the payees are of outside India, there is not a single party in whose case the criteria for their residency for charging to tax in India is proved,services are also rendered outside India. Even the Testing Fees are paid as per requirement of customers and testing services are also rendered outside India. These entities do not have permanent establishment and, therefore, the impugned disallowance of the sum is also not chargeable to tax therefore, the provisions of the act ,cannot be invoked in the present facts.It has been pointed out that the said services are rendered and utilized outside India and payment has also been received by the foreign entities outside India,the case of the assessee is squarely covered in the exemption provided in the act which is reproduced as under a person who is a resident, except where fees are payable in respect of services utilized in a business or profession earned on by such person outside India or for the purpose of making or earning any income from any source outside India. Therefore, in case where fees for technical services has been rendered outside India and has been utilized for the purpose of making or earning any income from any sources outside India, such payments would fall outside the purview of provisio and will not be deemed to accrue or arise in India.

We have carefully considered the rival contentions and perused the orders of the lower authorities. The contentions relying on plethora of judicial precedents and has also placed on record the copies of bills, service agreement, payment advice, nature of service rendered in respect of the payments which is disputed by the Department in this appeal. The ld. AR of the assessee has filed detailed paper book containing all these evidences and various decisions relied upon. Here it is noteworthy that assessee’s own case is covered by the decision of the co-ordinate bench of this tribunal for the assessment year 2013-14 and 2014-15.

Against the submission of the AR of the assessee, the Ld. DR has not pointed that why and how the decision that is relied upon by the AO which in detailed distinguished by the Ld CIT(A) are in correct. In fact, the department has accepted the contention that this sum is not disallowable as the subsequent assessment is completed by the department at retuned income. Not only that the ld. DR has also not countered the notable argument of the AR of the assessee that the subsequent year . In a notice issued to the assessee and the assessee filed a detailed reply vide letter dated 25.01.2021 and Ld. AO after considering the overall facts presented being similar to the year under considered preferred not to make any addition on the similar issue and has accepted the contention of the assessee for that A. Y.2017- 18.Considering this development for the subsequent year even the disallowance made by the AO shall not sustained as the claim under this year is similar with that of A. Y. 2017-18.On this aspect Ld. DR choose to remain silent, whereas, the Ld. AR of the assessee relied on the judicial decision that in absence of any material change in the facts and circumstances.

The ld. AR of the assessee further submitted that since the matter is fully covered in assessee’s own case by the decision of Coordinated Bench of this Tribunal only and the issue being similar, the appeal should be decided in accordance with the judicial precedence available in assessee’s own case. As the facts are identical relating to A.Y. 2017-18 wherein the AO has not preferred to dispute and has not made any disallowance on such foreign party’s payments. Therefore, looking to the overall facts of the case, the addition made by the AO be deleted and the order of the ld. CIT(A) be upheld dismissing the appeal of the Department.

The ld. DR on the other hand vehemently argued before us that the considering the amendment made by the Finance Act, 2012, the assessee is required to deduct tax and, therefore, he has relied on the order of the AO. The ld. DR has also argued that Department has not filed any appeal in respect of earlier years orders of ITAT on account of CBDT instructions and, therefore, the issue may be decided afresh looking to the findings given by the AO in his order. He has also filed the copy of the letter dated 27.07.2021 being the status report on the filling of an appeal for A. Y. 2013-14 & 2014-15.

On this issue the ld. AR of the assessee has argued before us that the parties to whom payments have been made for AY 2013-14 and 2014-15 are similar in the year under consideration i.e. 2016-17 and he has given detailed chart mentioning therein name of each entities to whom payment has been made in the year under consideration and the ld. AR of the assessee has also filed the names and addresses of the parties. Here the Ld. DR has not challenged any of the facts and his silence on the issue suggests that there are merits in the arguments and submissions made by the Ld AR of the assessee. Therefore, considering the overall facts, judicial precedents relied upon before us, we hold that all the payments involved in these years are similar to earlier years, wherein the ITAT has in detailed dealt with the issue and it is in assessee’s own case.

Therefore, respectfully following the decision of the coordinate bench in assessee‘s own case in earlier year given on the identical issue and on facts, we dismiss solitary ground of appeal in the appeal of the department.

Conclusion

In the result, the appeal of the Department is dismissed.

Where-services-rendered-outside-India-by-Non-Residents-TDS-not-deductible

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