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2012 (12) TMI 694 - AT - Income TaxDenying liability to deduct tax at source - appeals u/s 248 - Held that:- The assessee has entered into contracts of repairs for its imported machinery with the foreign suppliers i.e. in Germany of the machinery. From the copy of the purchase order and the invoices it is found that the Germany Company is required to carry out the services through which the machinery has to be repaired and not to be modified or 'improved'. As decided in the case of Lufthansa Air Cargo (2004 (6) TMI 273 - ITAT DELHI-B) it was considered whether repair work carried out in the normal course of its business in Germany without any involvement or participation of the assessee's personnel can be said to be of any managerial or technical or consultancy services and it was held that the payments made by the assessee to the non-resident workshops outside India do not constitute payment of fees for managerial, consultancy or technical services as defined in Explanation 2 to sec. 9(1)(vii). As in the present case facts are very much similar to the facts of the case of Lufthansa Air Cargo (cited Supra) the payments to the recipients in Germany do not come within the purview of fees for technical services. This, therefore, cannot be treated as FTS but is business income of the nonresident company. As per the law in force, business income of a nonresident recipient is chargeable to tax in India only if it is arising or accruing or deemed to arise or accrue in India provided that they have permanent establishment in India. As it is not disputed that the non-resident recipients of the remittances have no PE in India, their business income is not chargeable to tax in India. Since the very nature of income has been decided to be business income and not fees for technical services, the payments do not require withholding of tax at source u/s 195. In the result, the assessee is not under an obligation to withhold tax leave alone @ 20% u/s 206AA and the issue of grossing up would not arise. Assistance in analyzing and solving technical problem and disfunctions - providing telephonic advice analysis and assistance to the operator - Held that:- The services are not mere repairs but are towards preventive maintenance which clearly show that the recipients are providing technical assistance and services to the assessee in India. Therefore the assessee is liable to withhold tax from the payment of fees for technical services - the assessee's are non-residents and admittedly the income exceeds the taxable limit prescribed by the relevant Finance Act. In the circumstances, the recipients are bound and are under an obligation to obtain the PAN No. and furnish the same to the assessee. For failure to do so, the assessee is liable to withhold tax at the higher of rates prescribed u/s 206AA i.e. 20% and the CIT(A) has rightly held that the provision of sec. 206AA are applicable to the assessee. Grossing up u/s 195A - financial year in which such income is payable OR 20% as specified u/s 206AA - Held that:- Considering the provisions of Sec 195A & GE India Technology (2010 (9) TMI 7 - SUPREME COURT OF INDIA) the income shall be increased to such amount as would after deduction of tax thereto at the rate in force for the financial year in which such income is payable, be equal to the net amount payable under such agreement or arrangement. Thus the grossing up of the amount is to be done at the rates in force for the financial year in which such income is payable and not at 20% as specified u/s 206AA of the Act.
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