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2006 (10) TMI 260 - AT - Income TaxIncome - Deemed to accrue or arise in India - non-banking finance company - nature of payment - DTAA between India Australia - whether or not the CIT(A) was justified in holding that the assessee before us, i.e., Kotak Mahindra Primus Limited, was required to withhold tax @ 15% from payment of Australian Dollars (A$) 3,25,000 made to M/s. Ford Credit Australia Limited, Australia (Australian company) - HELD THAT:- DR’s reliance on the ruling given, by the Hon’ble Authority for Advance Ruling in the case of ABC [1999 (4) TMI 612 - ADVANCE RULING AUTHORITY], we see no need to deal with the same separately. The Assessing Officer had adopted the reasoning approved by the Hon’ble Authority for Advance Ruling and we have dealt with the same in the course of our consideration to the matter. The prescription of section 245S is unambiguous. We are not inclined to disturb our conclusions merely because the conclusions arrived at above, and in the light of detailed reasons set out earlier in the order, are at variance with the conclusions arrived at in the said ruling. We have carefully perused the esteemed views of the Hon’ble Authority for Advance Ruling, and, with respect but without hesitation, we are not persuaded. Hence, in our considered view, the impugned payment cannot be held to be covered by the scope of expression ‘royalty’ under article 12(3) of the India Australia DTAA. Since the Australian company admittedly does not have any permanent establishment (PE) in India, this payment cannot also be taxed as a business profit of the Australian company in India. It is so in view of the fact that article 7(1) of the applicable tax treaty specifically provides that, "The profits of the enterprises of one of the Contracting States shall only be taxable in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein". This leads us to the conclusion that the right of Indian tax jurisdiction does not extend to taxing the impugned payment of A$ 3,25,000 to the Australian company, i.e., FCAL, for specialized data processing of information furnished by the Indian company. Having held that the Australian company, i.e., FCAL, did not have any tax liability in India, and as the tax withholding liability is only a vicarious and substitutionary liability, we also hold that the appellant before us, i.e., Indian company by the name of Kotak Mahindra Primus Limited, did not have any tax withholding liability so far the payment of A $ 3,25,000 to the Australian company was concerned. The plea of the appellant is accepted. Thus, we vacate the orders of the authorities below. We also direct the Assessing Officer to refund the taxes deposited by the appellant company, after verifying that the appellant company has not issued tax deduction at source certificate u/s 203 and, accordingly, the credit for the tax deduction at source has not been given to the Australian company in its income-tax assessment in India. The appellant will get the relief, if so admissible in law, accordingly. In the result, the appeal is allowed.
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