TII Instant Update - 2018-TII-INSTANT-ALL-565

2018-TII-31-HC-AHM-INTL

PR CIT Vs MGM EXPORTS: GUJARAT HIGH COURT (Dated: April 11, 2018)

Income tax - Sections 40(a)(ia) & 195

Keywords - commission payments - overseas agents - TDS liability

The assessee company is engaged in the business of manufacturing and trading of dress and other materials. During the relevant year, the assessee had made commission payments, but failed to deduct tax at source on such payments. Hence, the AO made additions of a sum of Rs. 5.05 lacs u/s 40(a)(ia). On appeal, the Tribunal recorded that the non-resident agent of assessee was operating at his own level and no part of the income arose or accrued in India, hence the assessee was not liable for TDS deduction u/s 195 on the commission payments.

On appeal, the HC held that,

Whether withholding tax liability u/s 195 arises on payments made to abroad, only where such payments are chargeable under Indian tax regime - YES: HC

+ + it is seen that in the recent order in Tax Appeal No. 290 of 2018, a situation was placed before this court, wherein it was observed that: "....Explanation 2 to Section 195(1) inserted with retrospective effect provides that obligation to comply with Section 195(1) would extend to any person resident or non-resident, whether or not non-resident person has a residence or place of business or business connections in India or any other persons in any manner whatsoever in India. However, once the conclusion is arrived that such payment did not entail tax liability of the payee under the Act, Section 195(1) would not apply. The fundamental principle of deducting tax at source in connection with payment only, where the sum is chargeable to tax under the Act, still continues to hold the field...." Hence, the question is answered in favour of assessee.

Revenue's appeal dismissed

2018-TII-30-HC-AHM-INTL

PR CIT Vs CADILA HEALTHCARE LTD: GUJARAT HIGH COURT (Dated: April 23, 2018)

Income Tax - Sections 40(a)(i) & 195

Keywords - commission payments - professional fees - foreign remittance - tax at source

The assessee company, engaged in the business of healthcare activities, had filed its returns for the relevant AY. During the course of its assessment proceedings, the AO observed that assessee had paid commission as well as legal professional fees and clinical testing fees to the non-resident. Since, no tax at source was deducted on such payments, the AO disallowed them u/s 40(a)(i) and added them to assessee's income. On appeal, the FAA held that since the non resident firms did not have fixed tax base in India, therefore they did not attract tax liability in India.

On appeal, the HC held that,

Whether fees/charges paid to professional non resident firms having no fixed base PE in India, attracts no withholding tax liability on account of treaty provisions - YES: HC

+ it is seen that while deleting the additions made u/s 40(a)(i), the Tribunal has noted that the assessee had made payments to professional law firms by way of Consultancy Fees. Such firms did not have any fixed base available in India. The Tribunal, therefore, had recorded that under such circumstances, looking to the DTAA between the two countries, the recipient of the fees had no tax liability in India;

+ similarly, with regard to clinical testing charges, the material on record would suggest that in such case also, the recipient of the fees did not have permanent establishment in India. Therefore, this question is also disregarded.

Revenue's appeal dismissed