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2023 (6) TMI 731

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....nical services chargeable to tax u/s 9(1)(vii)". 3. The sole grievance of the Revenue in this appeal is against order of the Ld.CIT(A) in deleting disallowance made by the ld. Assessing Officer amounting to Rs.4,95,20,000/- u/s.40(a)(ia) of the Act, by overlooking the fact that remittance was made towards fee for technical services chargeable to tax u/s.9((1)(vii) of the Act. 4. The facts in brief are that the assessee company filed its return of income for the assessment year 2012-13 on 01.10.2012 declaring loss of Rs.10,02,80,149/-. The case was selected for scrutiny under CASS followed by issuing notices u/s.143(2) & 142(1) dated 14,08.2023 & 11.12.2014 required the assessee to submit various details. The then Assessing Officer has observed in the assessment order that the assessee has debited an expenditure of Rs.4,95,20,000- under the head "HS Pure Power Programme" on which tax was not deducted at source. He also observed that the payment was made to the non-resident involved in engineering design costs, product development costs and engineering support. The payments made to non-residents attract the provisions of Section 195 of the l.T. Act and the same has to be read with ....

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....e, disalllowed u/s.40(a)(ia) of the Act is uncalled for. Aggrieved, the Revenue is now in appeal before the Tribunal. 6. The Ld. DR vehemently supporting order of the Assessing Officer and further submitted that agreement referred in the paper book filed by the assessee is between Hamilton Sundstrand Corporation and the assessee i.e., (TASE) dated 24.06.2009, whereas payment has been made to assessee's sister concern TASI USA. However, there is no mention of the sister concern in the said agreement dated 24.06.2009 and there are some other agreements on the basis of which alleged payments have been made and in absence thereof, it has to be presumed that alleged payment is towards technical services and designing work, which calls for deduction tax at source u/s.195 of the Act and since the assessee has failed to deduct TDS, expenditure is disallowable u/s.40(a)(ia) of the Act. 7. On the other hand, the learned counsel for the assessee took us through product support agreement dated 24.06.2009 and also referred to the remand report extracted (supra) contending that designing and technical services were to be provided by the buyer i.e., Hamilton Sundstrand Corporation and the asses....

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....y for manufacturing. We note that when the Ld. CIT(A) deleted said disallowance u/s.40(a)(ia) of the Act observing as follows:- "In the return of income filed, the appellant claimed an expenditure of Rs. 4,95,20,000/- on the stated fact that the appellant has paid the same for engineering design costs, product development costs and engineering support. According to the Assessing Officer, as per Sec 195 of the Act, the payee being a non resident, the appellant ought to have deducted tax at source at the prescribed rates when the payment was made. Hence the disallowance u/s 40a(ia) of the I.T Act. For easy understanding of facts, Sec 195 is reproduced herein below. 195. (1) Any person responsible for paying to a nonresident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall, at the time of credit of such, income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : From the above, it could be seen that....

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....ncome in India; or (iv) through the transfer of a capital asset situated in India. In each of these four categories, the law has postulated the existence of a nexus with India, which invokes taxing jurisdiction. Another point to be considered here is whether nonresidents with no "tax presence" in India are liable u/s 195? A literal construction of the words "any person responsible for paying" as including non residents would lead to absurd consequences. A plain reading of Sec.191A, 194B, 194C, 194D,194E, 194l, and 194J read with Sec. 115BBA, 1941, 194J would show that the intention of the Parliament was first to apply Sec. 195 only to the residents who have a tax presence in India. It is all the more so, since the person responsible has to comply with various statutory requirements such as compliance of s. 200(3), 203 and 203A. Th% expression "any person" in Sec. 195 should mean any person who is a "resident" in India. Sec. 195 applies only if payments are made by a resident to another non-resident. The transaction had no nexus with the underlying assets in India. In order to establish a nexus, the legal nature of the transaction has to be examined. The Hon'ble Supreme ....