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Tata Chemicals Limited Versus Deputy Commissioner of Income Tax (International Taxation) , Mumbai

2016 (7) TMI 953 - ITAT MUMBAI

TDS u/s 195 - Payment of Euro towards purchase of Basic Engineering Design Package - withholding tax as being a payment for technical services - Held that:- The position of law as it stood then, including the taxing of the income under section 9(1)(vii) was that, if the services which are source of income is sought to be taxed, have to be rendered in India as well has to be utilized in India so as to be held to be taxable in India. Both the conditions have to be satisfied simultaneously, that is .....

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vercome the said decisions of Hon’ble Supreme Court as well as the other Courts. Once this is an admitted position, then it is very difficult to comprehend that, assessee should have deducted TDS on such payment when law of the land did not permit so or envisage any withholding of tax, on the basis of law which was brought from subsequent date albeit with retrospective date stating that, now all such payment for services even rendered outside India is taxable in India. Here, the maxim of “lex no .....

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ment was entered by the assessee with SP Italy on 26th April; 2007; application was made before the AO on 23rd August, 2007 for the payment to be made in September, 2007; therefore, assessee had a valid reason and reasonable ground for not with holding the tax at that time, because as observed above, there was no such provision or any explanation in the statute. Thus, we hold that, assessee was not liable to deduct TDS under section 195, at the time of making the payment. - Decided in favour of .....

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ised following ground: 1. The learned Commissioner of Income Tax (Appeals) erred in upholding the order of the learned Deputy Commissioner of Income Tax (International Taxation) that the payment of Euro € 4,90,000 to M/s SnamProgetti towards purchase of Basic Engineering Design Package was subject to withholding tax attracting the provisions of section 195, being a payment for technical services . 2. The facts in brief are that, assessee which is engaged in the business of manufacturing of .....

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ngineering was to be done by a local engineering firm engaged by assessee on approval of SP in Italy. In terms of the agreement, the SP had granted non-exclusive and non-transferable right and licenses to be used in BEDP prepared on the basis of necessary information and documents supplied by the assessee to SP. A sum of € 490,000 has been paid to SP for providing BEDP. The entire scope of the work including BEDP in the agreement was defined as under: Scope of Work SP s scope of work for th .....

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e terms and conditions of this AGREEMENT and to the full payment LICENSE FEE as per sub-clause 4.2, SP shall grant to TCL a non-exclusive non-transferable right and license: a) to have the CAPACITY AUGMENNTATION PROJECT designed and implemented using BEDP provided by SP under this AGREMENT; b) to practice SP PROCESS as may be required for operation of the CAPACITY AUGMENTATION PROJECT. To sell export to, or use in any country the urea produced in the CAPACITY AUGMENTATION PROJECT. Purview of exi .....

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will be supplied to TCL in accordance with the Delivery Schedule specified in Appendix IV to this AGREEMENT. Subject to the provisions of sub-clause 13.2 herein below, the BEDP shall be performed by SP in Italy. 2.5 Check of Detailed Engineering: SP shall at SP Home Offices in Italy the documents, indicated in para 4 Appendix I to this AGREEMENT relevant to detailed engineering, supplied by TCL, provided that such documentation shall be received by SP within the time limit defined in sub-clause .....

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s specified in Appendix V to this AGREEMENT, SP shall provide mandatory, Technical Assistance Services (hereinafter referred to as TAS ) during the implementation of the CAPACITY AUGMENTATION PROJECT as per para 5 of Appendix. . 3. Thus, as per the agreement, for different work and services four different identified payments have to be made. So far as the payment for BEDP is concerned, for supply, drawing and design in Italy, the same was performed by SP in Italy and not in India which is eviden .....

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hasing such Basic Engineering Design Package for its capacity augmentation project and BEDP will be supplied by S.P. in Italy. Detailed engineering design will be prepared by local engineering firm engaged by the applicant. The applicant has made an application dt. 23.08.2007. In BEDP, SP will supply their standard design which they already have wherein it is stated that the specific core services are not liable to Income tax in India under the provision of Income Tax Act 1961. The taxability of .....

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s fees for technical services as per clause BB of section 115(1)(h) as the agreement is entered into after 11th June 2005. Accordingly, I direct that applicant shall deduct tax at 10.56% on the payments made to M/s. SP of Italy. This certificate is issued on the prima facie examination of details/documents/information available with me. This certificate is valid till 31 March 2008 unless cancelled earlier with prior intimation. This certificate is issued at the request of the applicant . 4. Befo .....

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nt made to SP Italy is not for rendering services have been captured by the CIT(A) in the following manner:- 1. Payment is made to SP for supplying designs which is result of standard design package arising out of the commercial experience, skills, knowledge and technology of SP. 2. The payment made is for acquiring the BEDP design developed from the standard design which already exists with the SP, Italy. The SP, Italy has already performed all the required expertise, skills and technology in m .....

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a standard designs have already been developed by SP therefore, no major expenditures are to be incurred for supplying the designs. xxxxxxxx xxxxxxx xxxxxx xxxxxxxx xxxxxxxxx The payment made was for the development and transfer of the design, and being an out and out transfer on sale of such designs and drawings, the payments for such would not constitute FTS. The contract was not a contract of service as in the case of service, the supplier undertakes to perform services, which required the us .....

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BEDP provided by SP. As per the agreement the title and copyright of the BEDP will remain with the SP. Iii this regards we state that the payment made is not for the purchase of the title/rights/copyrights but for acquiring the copyrighted article . Thus, it was contended that the payment made is for the acquiring of technical know-how and not for rendering of any services in India. Besides this, various case laws were relied upon to contend that this firstly, payment made to SP Italy was not fo .....

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greement and for BEDP is nothing but in the nature of fee for technical services . As regards the assessee s reliance on the decision of Hon ble Supreme Court in the case of Ishikawajma Harima Heavy Industries Ltd vs. DIT (supra) and various other High Courts including Jurisdictional High Court in Clifford Chance vs. DCIT, reported in [2009] 318 ITR 0237 and catena of Tribunal decisions that, if the services are rendered outside India though they have been utilized in India, then payment on such .....

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tive effect by Finance Bill 2007/2010 under section 9(2) of the Act and Circular No.23 has been withdrawn by the CBDT vide Circular No.7 dt. 22.10.2009. The Memorandum explaining the intent of Legislature behind Explanation 2 below section 9(2) clearly states that only 'Fees for Technical Services' paid for services, irrespective of situs of rendition of services, is taxable in India, if the services are utilized in a business of assessee in India. This explanation has been introduced wi .....

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in detail as to why such a payment amounts to fees for technical services in terms of section 9(1)(vii). His detailed reasoning given in the order are not being dealt with us for the reason that the issue which has been contested before us by the parties is that, whether assessee can be held to be liable for deducting TDS or not in view of retrospective amendment brought in the statute from the subsequent date of the payment. 6. Before us, the Ld. Counsel has restricted his argument that, even .....

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le to tax in India. This law was settled in view of the decision of Hon ble Supreme Court in the case of Ishikawajma Harima Heavy Industries Ltd (supra). Hence, assessee could not be expected to deduct TDS on such a payment. The law was amended by virtue of insertion of Explanation in section 9(1)(vii) with retrospective effect from 01.06.1976. In support, that assessee could not be expect to with hold tax for any payment made outside India for rendering services outside India, he strongly relie .....

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384, which was in the context of Explanation 6 to section 9(1)(vi) brought by way of retrospective amendment wherein it was held that, it was clarificatory in nature. 8. We have heard the rival submissions and perused the relevant finding given in the impugned order as well as the material relied upon before us. As observed in the foregoing paragraphs we are not entering into the semantics of rendering of technical services, that is, whether the payment made by assessee to SP Italy for BEDP is .....

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,000 was made by the assessee, has been made available by SP in Italy. Other payments which have been made with regard to other work and services in terms of other clauses is not in dispute before us, although the Ld. Counsel at the time of hearing has stated that the assessee has later on deducted TDS for all the payments. It is an admitted position that in wake of decision of Hon ble Supreme Court in Ishikawajma Harima Heavy Industries Ltd vs. DIT (supra) which has been followed by the Hon ble .....

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have been rendered in India. However, if the second limb is not satisfied that is, services have been rendered outside India, then same was held to be outside the purview of taxability in India. The Ld. CIT(A) has also admitted to this position, however, he held that the Explanation to section 9(1)(vii) inserted by the Finance Act, 2010 with retrospective effect from 01.06.1976 was brought specifically to overcome the said decisions of Hon ble Supreme Court as well as the other Courts. Once thi .....

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erson to do something which is impossible, that is, when there was no provision for taxing an amount in India at the relevant time then how it can be expected that a tax should be deducted on such a payment. This view has been upheld by the ITAT Mumbai Bench in the case of Channel Guide India Limited (supra) relied upon by the ld. counsel and catena of other decisions wherein, it has been held that, assessee cannot be held to be liable for deducting TDS in view of the retrospective amendment whi .....

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