DEPUTY COMMISSIONER OF INCOME TAX Vs. HOFINCONS INFOTECH & INDUSTRIAL SERVICES (P.) LTD.
INCOME TAX APPELLATE TRIBUNAL
DEPUTY COMMISSIONER OF INCOME TAX
Hofincons Infotech And Industrial Services (P.) Ltd.
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S.S.Godara, Member (J) -
(1.) THIS Revenue's appeal for assessment year 2003 -04, is directed against order of the Commissioner of Income -tax (Appeals) -I, Coimbatore [Camp office at Chennai] dated 2.1.2013, passed in Appeal No. 818/09 -10, deleting disallowance of Rs. 44,22,208/ - u/s. 40(a)(1) in proceedings under section 143(3) of the Income -tax Act, 1961 (in short the 'Act'). The assessee is a 'company'. It provides operation, maintenance, consultancy and training services. The assessee had filed its return on 1.12.2003 admitting loss of Rs. 32,84,971/ -. The same was 'summarily' processed. Thereafter, the Assessing Officer completed a 'regular' assessment on 22.8.2006 reducing the loss declared to Rs. 22,74,779/ -.
(2.) AFTER framing of 'regular' assessment, the Assessing Officer formed reasons to believe that the assessee's income liable to be taxed had escaped assessment. He issued section 148 notice dated 31.3.2008. The assessee reiterated the income already returned. In re -assessment, the Assessing Officer found the assessee to have paid a sum of Rs. 2,02,21,560/ - as service charges in foreign currency. This comprised of a sum of Rs. 1,57,79,352/ - towards per -diem allowances paid to resident employees outside India and payment in relation to support services rendered of Rs. 44,22,208/ -. We are only concerned about the latter limb. The assessee had not deducted TDS u/s. 195 of the Act. It pleaded that these payments pertained to services rendered/performed in Qatar qua its Nigerian projects. There was no service stated to be rendered in India. It referred to section 9(1) explanation to clause (i) to contend that if business of which all operations are not carried out in India, its entire income or a part thereof accrues or arises in India only as is reasonably attributable to the operations carried out in India. Per assessee, it had not carried out any operation in India in relation to the support services availed in question which would create any obligation to deduct TDS. The Assessing Officer did not agree. In re -assessment order dated 31.12.2009, he invoked section 40(a)(i) and disallowed this sum of Rs. 44,22,208/ -. The assessee preferred an appeal. The CIT(A) is of the view that the Assessing Officer had not at all discussed the nature and ambit of section 9(1)(vii) of the Act. He treats these payments as 'fee for technical services' u/s. 9(1)(vii) of the Act, but holds that section 40(a)(i) applies only in case TDS is liable to be deducted and not otherwise. The CIT(A) finds that these payments are in the nature of service charges exclusively paid towards execution of projects in Qatar and covered by exclusion clause u/s. 9(1)(vii)(b) of the Act. He has followed case law of the 'tribunal' in Dy. CIT v. Ajapa Integrated Project Management Consultant (P.) Ltd.,  49 SOT 37 (URO) :,  16 taxmann.com 269 (Chennai) holding this 'exclusion' applicable if the payment is made to a non -resident for the purpose of earning income from a source outside India. The CIT(A) concludes that these payments pertain to the assessee/consultancy firm's overseas Nigerian contracts. So, the fees paid to such consultants abroad have been held to be for services utilized in the business carried outside India not liable for any TDS deduction. The CIT(A) has deleted the impugned disallowance. The Revenue is in appeal by raising following grounds:
"2. The ld. CIT(A) erred in holding that provisions of Sec. 40(a)(i) are not attracted towards expenditure incurred on payment of services charges paid to non residents abroad to the tune of Rs. 44.22 lakhs as it falls under clause (b) of Sec. 9(1)(vii) of the Act.
2.1 The ld. CIT(A) ought to have appreciated that though the services were rendered towards Nigerian Projects of the assessee, the assessee is engaged in consultancy business and the fee paid to non resident consultants deemed to accrue or arise in India since the situs of Head Office is situated in India. Hence the exceptional clause (b) of Sec. 9(1)(vii) cannot be applied to the facts of the case.
2.2 It is submitted that the decision of the Jurisdictional Hon'ble ITAT in the case of M/s. Ajapa Integrated Project Management Consultant P. Ltd. in ITA No. 2169/Mds/2010 dated 22.06.2011 has not become final and further appeal before the Hon'ble High Court is pending.
2.3 It is submitted that as per Explanation inserted by the Finance Act, 2010 with retrospective effect from 01.06.1976, payments of this nature are taxable in India irrespective of the PE of the non resident and also the place in which the service was rendered.
2.4 It is submitted that service charges paid to the non resident consultants is in the nature of services rendered in connection with consultancy services including the provision of services of technical or other personnel and covered by the explanation 2 of Sec. 9(1)(vii) of the Act. Hence the provisions of Sec 40(a)(i) are attracted.
2.5 The decision of the Apex Court in the case of Ms. Transmission Corporation of Andhra Pradesh reported in [239 ITR 589 (SC)] clearly held that TDS should be effected at the rates in force, if the amount is paid to a non -resident. The rights of the payee or the recipient are fully safeguarded under sections 195(2), 195(3) and 197.
2.6 The assessee has not obtained certificate u/s. 195(2) of the Act to be exempt from the purview of TDS and hence the AO has rightly disallowed the Commission paid to foreign agents, u/s. 40(a)(i) of the I.T. Act.
2.7 It is submitted that the assessee did not submit any application for non deduction of tax at source before the TDS authorities."
(3.) IN the course of hearing, the Revenue reiterates the aforesaid pleadings and submits that the CIT(A) ought to have upheld the impugned disallowance. It also quotes case law of Asstt. CIT v. Evolv Clothing Co. (P) Ltd. :  142 ITD 618 : : 33 taxmann.com 309 (Chennai - Trib.)and prays for acceptance of the appeal.;
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