TII Instant Update - 2018-TII-INSTANT-ALL-538

CASE LAWS

2018-TII-77-ITAT-KOL-INTL

BENGAL TEA AND FABRICS LTD Vs DCIT: KOLKATA ITAT (Dated: February 28, 2018)

Income Tax - Sections 9(1)(i), 40(a)(i) & 195.

Keywords - Foreign agents - FTS - TDS obligation - Technical fee - Tax liability

The Assessee-company, engaged in manufacturing tea, cloth and yarn, had filed its return for the relevant AY. In the course of assessment proceeding, the Assessee had paid commission to the parties based on Hong-Kong. The AO also noted that there was no DTAA with Hong Kong and hence, commission in the hands of foreign parties were taxable in India as per the provisions of section 5(2)(b) r/w 9(1)(i). Therefore, the Assessee had TDS obligation on commission paid to the said parties however, the Assessee failed to do so. Hence, the AO disallowed the same and added to the Assessee's total income. On appeal, the CIT(A) stated that the Assessee could not escape its TDS liability merely because the non-resident agents had no residence of business or business connection in India. Hence, the disallowance made by the AO was confirmed.

On appeal, the Tribunal held that,

Whether the vicarious liability of the payer to deduct TDS arises, even when the recipient does not have the primary liability to be taxed in respect of income embedded in the receipt - NO: ITAT

Whether in absence of a DTAA between India and Hong Kong, the assessee is liable to deduct TDS on commission paid to non-resident export commission agents, where the same are not otherwise taxable in India - NO: ITAT

+ in the present case, the Assessee has made payment to various agents based in foreign countries on account of export made to the parties referred by them and no addition was made in respect of those parties based in the country other than Hong Kong in view of the fact that there was DTAA with those countries. However, AO was of the view that the payment made to the foreign agents based on Hong Kong was made without deducting TDS u/s 195. As per the AO, the Assessee was liable to deduct TDS on such payment of commission due to the fact that there was no DTAA with Hong Kong. The view taken by AO was subsequently confirmed by Ld. CIT(A). A plain look at section 195 makes it clear that the Assessee is liable to deduct TDS on the payment to non-residents on any sum chargeable under the provision of this Act;

+ it is beyond doubt the payment for the commission was not received by the foreign agents in India. Therefore, the same cannot be taxed in India as per clause (a) of sub-section (2) of section 5. Similarly, this Tribunal further noted that the income was received by the foreign agents on account of services rendered by them in their respective countries. Therefore, this Tribunal concluded that such income has not accrued or arisen in India and consequential not chargeable to tax in India;

+ it is not the case of Revenue that payment was made by Assessee on account of technical services rendered by the foreign agents. Therefore, this Tribunal believes that the Assessee was not liable to deduct TDS u/s 195. In holding so, support was made from the judgment of Madras High Court in the case of CIT vs. Farida Leather Co. wherein it was held "... 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 recipient/foreign agent is established. When the primary tax liability of the foreign agent is not established, the vicarious liability on the part of the Assessee to deduct TDS does not exist...." Thus, it can be safely concluded that Assessee paid commission to foreign agent is not the income chargeable to tax in India. Once an income is not chargeable to tax in India then the question of deducting TDS under the provision u/s 195 does not arise.

Assessee's appeal allowed

2018-TII-16-HC-KAR-INTL

CIT Vs GOOGLE INDIA PVT LTD: KARNATAKA HIGH COURT (Dated: March 7, 2018)

Income tax - modification of order - opportunity of hearing - reduction in pre deposit

The Assessee company, engaged in the business of rendering global outsourced information technology and IT enabled services to its overseas group companies, had filed its return declaring total income of Rs. 247,93,42,280/-. However, the AO assessed the taxable income of assessee at Rs. 1102,82,14,381/- and raised a demand of Rs. 486,46,79,020/- towards tax and interest. Aggreived by the same, the assessee approached the ITAT pointing towards the Office Memo issued by CBDT which stated that the demand be stayed upon payment of 15% thereof. Upon consideration of the matter for interim relief, the Tribunal however offered to grant stay subject to payment of 30% of the total tax demand, but such a proposition was declined by the counsel for Assessee. Thereafter, the Tribunal proceeded to consider the prayer for grant of stay with reference to the requirements of prima facie case, irreparable loss and balance of convenience; and even after being not satisfied on these requirements, proceeded to order stay of the demand subject to the payment of 50% of the tax demand. Not satisfied, the Assessee approached this Court, and the Single Judge after referring to the observations of the Tribunal, found that the prayer on behalf of Assessee could be accepted, and accordingly disposed of the writ petition while modifying the directions of the Tribunal, that instead of 50% of the total tax demand, the assessee was directed to deposit 30% of the total tax demand. Since the assessee had already deposited 20% of the tax demand in view of the previous direction of the Tribunal, therefore remaining 10% of the same was directed to be deposited within the period of one month as undertaken by the Assessee's counsel. Now, the Department had preferred the present appeal essentially on the ground that the Single Judge had modified the Tribunal's order without notice to it and without any justification.

On Intra Court appeal, the HC held that,

Whether merits of any matter relating to pre-deposit which was pending disposal before the ITAT, need not be disturbed/adjudicated afresh, when there is no harm to the interest of Department - YES: HC

+ it is not disputed that by the impugned order of the Single Judge, a substantial variation was made in the order of the Tribunal and the requirement of depositing 50% of the impugned tax demand by the assessee was reduced to that of 30%; and it remains indisputable that the impugned order was passed without any notice to the Department. However, it is pointed out that in ITA No.387/Bang/2017 pertaining to A.Y 2012-13, the same Single Judge had directed the assessee to deposit 30% of outstanding dues in addition to furnishing of bank guarentee of 45%. The resultant effect of the two orders passed by the writ Courts, is that in relation to ITA No.387/Bang/2017 pertaining to A.Y 2012-13, the assessee company has deposited 30% of the demand and has furnished Bank Guarantee to the extent of 45% of the demand. This is coupled with the fact that, as per the directions of the Court, the appeal in question, as pending before the Tribunal, is to be decided by 31st March 2018. In the given set of facts and circumstances, where the interest of the revenue stands adequately safeguarded, there is no justification for bringing about a new state of affairs until disposal of the appeal by the Tribunal. Of course, if the appeal is not decided by the stipulated date and if the delay is attributable to the assessee company, the Tribunal deserves to be given the liberty to pass appropriate further order, as deemed fit and necessary in the matter. This much of modification, would meet the ends of justice.

Case disposed of