NOTIFICATION

Govt notifies India-Brazil Protocol

CASE LAWS

2018-TII-01-SC-INTL

DIT Vs WNS GLOBAL SERVICES UK LTD: SUPREME COURT OF INDIA (Dated: January 4, 2018)

Income Tax - India-UK DTAA - Articles 5, 7 & 12(4)(b).

Keywords - Fee for included services - marketing & management fees - substantial question of law.

The Revenue Department questioned the Tribunal's stand that marketing and management fees in India and the provision for marketing and management services outside India by the assessee does not qualify as 'Fees for Included Services' under Article 12(4)(b) of the Indo-UK DTAA. It was also contended that even if it was assumed that the aforesaid did not qualify as fees for included services under Article 12(4)(b) of the Indo-UK DTAA, the same would be liable to be taxed as business profits under Article 7 r/w Article 5 of the Indo-UK DTAA in view of the Force of Attraction Rule. When the matter reached High Court, the opinion of the Tribunal was affirmed and it was observed that an appeal concerning certain questions of law deserves to be dismissed if similar questions raised previously were held to be not 'substantial questions of law' by lower authorities and the reasons for such disposal still hold good.

Having heard the parties, the Supreme Court grants leave to the Revenue Department to defend their case on the issue of treatment of the 'provision for marketing & management services' outside India.

Leave granted

2018-TII-01-SC-TP

ACIT Vs LI AND FUNG INDIA PVT LTD : SUPREME COURT OF INDIA (Dated: Janaury 5, 2018)

Income Tax - Section 92A(2) & rule 10B(4)

Keywords - writ - FOB value - show cause notice - power to remand - fresh comparables & ALP determination

The assessee company was engaged in the business of providing support services for sourcing of garments, handicrafts, leather products, etc. to its AEs. It was aggrieved by a show cause notice issued by the ACIT and argued that it was beyond the scope of remit by the ITAT and that the respondents were seeking to re-open issues that have attained finality in judicial orders. It had charged a markup of 5% on its total cost in consideration for provision of sourcing support services to AE. For AY 2007-08, TPO accepted application of TNMM to benchmark the assessee's international transactions. By an order, benchmarking methodology by adoption of comparables was accepted by TPO, who however concluded that assessee was a trader and substituted its cost base from total costs to the FOB value of the goods exported to the third party customers. DRP approved the order of TPO in changing the cost base of assessee, but restricted the mark up to 4% of FOB value of goods. When the matter reached High Court, it was held that the Revenue could not have sought to inquire into the merits of their inclusion in an extremely limited remand for working out of profit level in the light of the existing comparables. The High Court in its impugned order also held that in case there had been no controversy about appropriateness of inclusion of any comparable for ALP determination, Revenue could not seize upon the direction to determine it "afresh" as the basis for going into the merits of inclusion of such comparables.

Having heard the parties, the Supreme Court though condoned the delay, however dismisses the SLP thus concurring with the opinion of writ court regarding selection of comparables.

Revenue's SLP dismissed

2018-TII-09-ITAT-JAIPUR-INTL

SUBHASH CHAND GUPTA Vs ACIT: JAIPUR ITAT (Dated: December 26, 2017)

Income tax - Sections 9(1)(vii), 40(a)(ia) & 195

Keywords - fees for technical service - overseas sales commission - payment to NRI - tax at source

The assessee company is engaged in the business of manufacturing and trading of granites and other stones. Consequent to filing of its return by declaring total income of Rs.26,64,780/-, the assessee's case was selected for scrutiny, wherein it was noticed that the assessee company had paid commission of Rs. 37,09,646/- to Salwa Mohammad Abdul Rehman, Jeddah, Kingdom of Saudi Arabia, without deducting any TDS. The Revenue authorities were however of the view that the said sales commission to an NRI would amount to payment as fees for technical services, and hence no deduction of tax at source on such payment would attract disallowance u/s 40(a)(ia).

On appeal, the ITAT held that,

Whether sourcing orders abroad for which payment had been made directly to NRI, does not fall under category of 'technical services' and hence such transactions do not partakes character of 'FTS' as explained in Section 9(1)(vii) - YES: ITAT

Whether when the person to whom commission was paid, was not having any business connection in India, then commission so earned by him is not taxable in India u/s 195 - YES: ITAT

+ it is pertinent to note that the commission was given for procuring the export orders from outside India. Sourcing orders abroad for which payment had been made directly to the nonresident does not fall in the category of technical services and transactions do not partakes the character of fee for technical services as explained in Section 9(ii)(vii) of the Act. Thus the commission has been paid for the services rendered outside the India. The person to whom the commission paid was not having any business connection in the India and commission so earned by him is not taxable in the India. Therefore, the provisions of Section 195 of the Act are not applicable. The Madras High Court in its order dated 20/1/2016 in Tax case Appeal No. 484 of 2015 has held that: "....the tax deducted at source obligations u/s 195(1) arises, only if the payment is chargeable to tax in the hands of the non-resident recipient. Therefore, merely because a person has not deducted tax at source or a remittance abroad, it cannot be inferred that the person making the remittance, namely, the assessee, in the instant case, has committed a default in discharging his tax withholding obligations because such obligations come into existence only when the recipient has a tax liability in India. The underlying principle is that, the tax withholding liability of the payer is inherently a vicarious liability on behalf of the recipient and therefore, when the recipient/ foreign agent does not have the primary liability to be taxed in respect of income embedded in the receipt, the vicarious liability of the payer to deduct tax does not arise. This vicarious tax withholding liability cannot be invoked, unless primary tax liability of the recipent/foreign agent is established...." Therefore, following the decision of Madras High Court and the also the factual aspect of the case, the question is answered in favour of assessee.

Assessee's appeal allowed