Pages

Sunday, February 23, 2014

Three Important Judgements On Taxability Of FTS, Accrual Of Foreign Salary And S. 40(a)(i) TDS Disallowance Under Retro Law

 

Dear Subscriber,

 

The following important judgements are available for download at itatonline.org.

DIT vs. Nisso Lwai Corporation, Japan (Andhra Pradesh High Court)

Design & Engineering drawings are in the nature of “plant” and consideration thereof is not assessable as “fees for technical services” if delivered outside India

The assessee company provided design and engineering services, manufacture, delivery, technical assistance through supervision of erection and commissioning etc., to establish compressor house-I for RINL. The payments were made by RINL separately for each of the services/equipments provided/supplied by the assessee. It, inter alia, included payment made towards supply of design and engineering drawings. The assessee company claimed the said payment is not taxable under the Indian Income Tax Act as it was a transaction of sale of goods that has taken place outside India. In our view the decision of Delhi ITAT Bench in the case of Mannesman Demag Sack AG Vs.Add.CIT reported in (2008), 119 TTJ (Del) 543, on which reliance was placed by Ld DR, is not applicable to the facts of the instant case. In the case of Mannesman Demag Sack, supra, the decision was rendered on the basis of the terms of the contract which provided that technical services shall include supply of design and drawings. Hence on the facts of the case, the Tribunal held that design and drawing charges are in the nature of fee for technical services. However, it may be pertinent to note that the Tribunal in that case, accepted the alternative contention of the assessee that the said fee cannot be assessed in India, unless it is shown that some part of work has emanated from Indian territories. Hence on a conspectus of the matter, we are of the view that the amount received by the assessee for supply of design and engineering drawings is in the nature of plant and since the preparation and delivery has taken place outside Indian territories, the same can not be subjected to tax in India


Arvind Singh Chauhan vs. ITO (ITAT Agra)

Salary income accrues at the place where the services are rendered and not where the appointment letter is received. If salary, after accrual abroad, is brought into India, it is not taxable on receipt basis. S. 6(5) which deals with residential status is redundant

The next objection of the Assessing Officer is that the money was received in India, since, beyond any dispute or controversy, the salary cheques were credited to the assessee’s account with HSBC, Mumbai. So far as this aspect of the matter is concerned, the law is trite that ‘receipt’ of income, for this purpose, refers to the first occasion when assessee gets the money in his own control – real or constructive. What is material is the receipt of income in its character as income, and not what happens subsequently once the income, in its character as such is received by the assessee or his agent; an income cannot be received twice or on multiple occasions. As the bank statement of the assessee clearly reveals these are US dollar denominated receipts from the foreign employer and credited to non resident external account maintained by the assessee wi th HSBC Mumbai . The assessee was in lawful right to receive these monies, as an employee, at the place of employment, i .e. at the location of its foreign employer, and it is a matter of convenience that the monies were thereafter transferred to India. These monies were at the disposal of the assessee outside India, and, it was in exercise of his rights to so dispose of the money, that monies were transferred to India


DCIT vs. Virola International (ITAT Agra)

S. 195 TDS obligation depends on law prevailing on date of payment and is not affected by retrospective amendment. No s. 40(a)(i) disallowance can be made if that law did not require TDS to be deducted

In accordance with the law laid down in Ishikawajma-Harima Heavy Industries, which was good law at the time of the remittance, unless the services are rendered in India, the same cannot be brought to tax as ‘fees for technical services’ u/s 9. Though the law was amended retrospectively, so far as tax withholding liability is concerned, it depends on the law as it existed at the point of time when payments, from which taxes ought to have been withheld, were made. The tax deductor cannot be expected to have clairvoyance of knowing how the law will change in future. A retrospective amendment in law does change the tax liability in respect of an income, with retrospective effect, but it cannot change the tax withholding liability, with retrospective effect. As there is no material whatsoever to establish that the design and development services were rendered in India, the assessee did not have any liability under s. 195 r.w.s. 9(1)(vii) to deduct tax at source from these payments. As a corollary thereto, no disallowance can be made in respect of these payments u/s 40(a)(i)


Regards,

 

Editor,

 

itatonline.org

---------------------

Latest:

CBDT Circular On Payment Of Dividend Distribution Tax By Mutual Funds


No comments:

Post a Comment