DCIT CORPORATE CIRCLE 1(1), CHENNAI vs. ABAN OFFSHORE LIMITED, CHENNAI

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ITA 3490/CHNY/2019Status: DisposedITAT Chennai06 April 2022AY 2011-124 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal followed its earlier decisions in the assessee's own case, holding that the twin conditions of rendering and utilization of services in India were not met. Therefore, the payment did not fall under the definition of fee for technical services taxable in India.

What were the facts?

The Assessing Officer disallowed professional and consultancy fees paid to a non-resident company under Section 40(a)(i) of the Income Tax Act. The assessee argued that the services were rendered and paid for outside India and were not taxable in India, thus TDS was not required.

What were the issues?

Whether payments made to a non-resident for services rendered and utilized outside India are disallowable under Section 40(a)(i) for non-deduction of TDS, when such income is not taxable in India.

Which sections of the Income-tax Act were involved?

Section 40(a)(i),Section 9(1)(vii),Section 195

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI

Before: SHRI V. DURGA RAO, HON’BLE & SHRI G. MANJUNATHA, HON’BLE

Hearing: 25.01.2022Pronounced: 06.04.2022

आदेश / O R D E R

PER G. MANJUNATHA, ACCOUNTANT MEMBER:

1.

This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-1, Chennai, dated 30.09.2019 and pertains to assessment year 2011-12.

2.

The Revenue has raised the following grounds of appeal:

1. The order of the learned CIT(A) is contrary to law, facts and circumstances of the case.

2. The learned CIT(A) erred in giving relief on the issue of disallowance made u/s 40(a)(i) in connection with the amount paid to M/s.Haledon International Corporation, by placing reliance on order of Hon'ble ITAT in assessee's own case

for AY 2012-13 without appreciating the fact that in AY 2012-13 Hon'ble ITAT has remitted the issue to AO to verify afresh and after due verification by AO the addition on similar issue was sustained by AO? 3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.

3.

The only issue that came up for our consideration from Ground No.2 of the assessee’s appeal is disallowance of professional and consultancy fees paid to M/s.Haledon International Corporation u/s.40(a)(i) of the Act.

The AO has disallowed the payment made to M/s.Haledon International Corporation, towards drilling service and management fees amounting to Rs.8,61,33,985/- u/s.40(a)(i) of the Act, on the ground that the impugned payment comes under the definition of fee for technical services u/s.9(1)(vii) of the Act. It was the explanation of the assessee before the lower authorities that payment made to M/s.Haledon International Corporation, Dubai, was towards operation expenditure incurred in respect of operation of rigs in Iran and further, the services were rendered outside India and the payments were also made in outside India. Therefore, unless the impugned payment made to non-resident is taxable in India, the assessee does not require to deduct TDS u/s.195 of the Act, and consequently, impugned payment cannot be disallowed u/s.40(a)(i) of the Act.

4.

We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. An identical issue has been considered by the Tribunal, in the assessee’s own case for the AY 2015-16 in IT (TP) A No.86/Chny/2019 for the AY 2015-16, wherein, the Tribunal by following its earlier decision for the AY 2012-13, held that twin conditions of rendering services in India and utilization of such services in India are not satisfied to bring the impugned payment within the definition of fee for technical services as per Sec.9(1)(vii) of the Act read with explanation and thus, the question of deduction of TDS on said payments does not arise. The relevant findings of the Tribunal are as under:

31.

The similar issue has been considered by the Co-ordinate Bench of the Tribunal in assessee’s own case for AY 2012-13 in dated 19.06.2017, wherein the Hon’ble Tribunal has remitted the matter back to the file of AO by observing as under:

“12. We have heard both the parties and perused the material on record. The Explanation incorporated in Section 9 declares that “where the income is deemed to accrue or arise in India under clause (v), (vi) and (vii) and sub-sec.(1), such income shall be included in the total income of the non- resident, whether or not be resident as a residence or place of business or business connection in India”. The plain reading of the said provisions suggests that criterion of residence, place of business or business connection of a non-resident in India has been done away with for fastening the tax liability. However, the criteria of rendering service in India and the utilization of the service in India to attract tax liability u/s.9(i)(vii) remained untouched and unaffected by the Explanation to Section 9 of the Act and outside India. Therefore, the twin criterion of rendering of services in India and utilization of services in India become evidently necessary condition to deduct tax. However, in respect of the said payments, the rendering of services being purely off shore and outside India, the whatever paid towards the said services does not attract tax liability.

12.1 In view of the above, we are inclined to remit the issue to the file of the Assessing Officer to examine the issue afresh in the light of the above order along with the concerned DTAA and decide thereupon. The issue is partly allowed for statistical purposes.”

32.

In view of the above, we respectfully following the order of Co-ordinate Bench of the Tribunal, we set aside the order passed by the AO and remit the matter back to the AO and direct the AO to follow the above decision of the Co- ordinate Bench of the Tribunal in assessee’s own case and pass assessment order thereupon.

5.

In this view of the matter and consistent with view taken by the co- ordinate Bench, we set aside the issue to the file of the AO and direct the 4 :: AO to re-consider the issue in light of the directions given by the Tribunal for the earlier years and decide the issue in accordance with law.

6.

In the result, appeal filed by the Revenue is dismissed.

Order pronounced on the 06th day of April, 2022, in Chennai.

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