DCIT CORPORATE CIRCLE 1(2), CHENNAI vs. CARAT LANE TRADING PRIVATE LTD., CHENNAI

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ITA 2981/CHNY/2018Status: DisposedITAT Chennai20 November 2019AY 2013-145 pages
AI SummaryRemanded

What did the Tribunal hold?

The ITAT found the CIT(A)'s order lacking in factual discussion and reasoning, failing to connect the assessee's situation to the relied-upon precedents. Therefore, the matter was remitted back to the CIT(A) for fresh adjudication.

What were the facts?

The assessee company made payments to non-residents for consultancy and professional services without deducting TDS. The AO treated these payments as fees for technical services liable for TDS. The CIT(A) granted relief, holding the payments did not fall under 'technical services'.

What were the issues?

Whether payments made for sales marketing consultancy services to non-residents constitute 'fees for technical services' requiring TDS deduction under Indian tax law and the DTAA.

Which sections of the Income-tax Act were involved?

Section 9(1)(vii),Section 195

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI

Before: SHRI INTURI RAMA RAO & SHRI DUVVURU RL REDDY

Hearing: 20.11.2019

PER INTURI RAMA RAO, ACCOUNTANT MEMBER:

1.

This is an appeal filed by the Revenue directed against the Order of the learned Commissioner of Income Tax (Appeals)-4, Chennai (hereinafter called as ‘CIT(A)’) dated 08.08.2018 for the assessment year 2013-14.

2 -: 2. The Revenue raised the following grounds of appeal:

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

2.

The Ld. CIT(A) erred in allowing relief to the assessee without following the ratio in the judgement of Chennai Tribunal in M/s Foster Wheeler France SA v. DCIT in and ITA no.641/Mds/2015 dated 05.02.2016 and which in turn has also relied upon Cochin Bench of Tribunal in the case of U S Technology Resource Pct Ltd. V. ACIT in ITA no.222/Coch/2013 wherein it has been elaborately discussed and held that sale, marketing and consultancy services rendered by the foreign company were utilized by the assessee company in the decision making process is technical in nature and falls within the scope of Article 12 of the DTAA and also complies with Explanation to section 9(1)(vii) which clearly says that payment made by the assessee company with regard to managerial technical and consultancy service is liable to be taxed in india since services are utilized in the business for earning income in india.

3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the Ld. CIT(A) be set aside and that of the AC restored.”

3.

The brief facts of the case are as under:

The respondent-assessee is a company namely M/s. Carat Lane Trading Pvt. Ltd. incorporated under the provisions of Companies Act, 1956. It is engaged in the business of manufacture and sale of jewellery and trading of solitaires. The return of income for the AY 2013-14 was filed on 29.11.2013 disclosing a loss of Rs. 17,92,08,483/-. Against the said return of income, the assessment was completed by Dy. CIT, Corporate Circle-1(2), Chennai (hereinafter called “AO”) vide order dated 08.03.2016 passed u/s. 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) at total income of Rs. 13,16,66,655/-. While doing so, the AO made

3 -: several disallowances. During the course of assessment proceedings, the AO noticed that the respondent-assessee company made payment to non-resident towards the consultancy and professional services on which no TDS was made. The AO was of the opinion that the payment partakes the character of fees for technical services within the meaning of provisions of s. 9(1)(vii) of the Act.

4.

Being aggrieved by the above decision, an appeal was preferred before ld. CIT(A), who vide impugned order granted relief on the ground that the payment not fall within ambit of “technical services” as there is no technical know-how was made available after placing reliance on the decision of certain judicial precedent. Being aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us in the present appeal.

5.

The ld. Senior Departmental Representative (DR) submitted that the ld. CIT(A) ought not to have granted relief as the payment was made for services towards sales marketing consultancy were utilized by the respondent-assessee company for the purpose of carrying on the business in India and it partakes the character for technical services as defined under Explanation-II to s. 9(1)(vii) of the Act.

6.

Despite service of notice none appeared on behalf of the assessee.

4 -: 7. We heard the ld. Sr. DR and perused the material on record. The payment to the non-resident was made by the respondent-assessee company towards sales marketing services. Admittedly, no tax deduction at source was made at the time of payment or credit to the party nor obtained certificate from the Department as stipulated u/s. 195 of the Act.

The AO of the view that the services rendered by the non-residents are in the nature “fees for technical services” and therefore, was of the view of the respondent-assessee company was liable to deduct TDS. On appeal before ld. CIT(A), after extracting plethora of the decisions, simply held that there was no liability on the part of the respondent-assessee company to deduct tax at source. From the perusal of the impugned order, it is clear that the ld. CIT(A) had failed to discuss factual situation of the payment made and the nature of the services rendered by the non- resident etc. The ld. CIT(A) simply discussed the certain judicial precedents without discussing as to how the factual situation of the assessee fits into ratio of those decisions. Thus, the order of the ld. CIT(A) is bereft of facts and reasoning and therefore, we are of the considered opinion that the matter should be remitted back to the file of ld. CIT(A) for a denovo adjudication in accordance with law and we order accordingly.

5 -: 8. In the result, appeal filed by the Revenue is partly allowed for statistical purpose.

Order pronounced on the 20th day of November, 2019 in Chennai.

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