ACIT, NEW DELHI vs. M/S. JC DECAUX ADVERTISEMENT INDIA PVT. LTD., NEW DELHI

ORDER

Per L.P. Sahu, Accountant Member:

1. The order of the learned CIT(Appeals) is erroneous & contrary to facts & law.

2. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting disallowance of Rs.35,37,666/- u/s 40(a)(ia) of the Income Tax Act, 1961. 2.1. Ld. CIT (A) erred in not appreciating the fact that the payment to the non-resident through its associate enterprise was chargeable to tax as Fee for Technical Services under section 9(1)(vii) of the Act and under the applicable treaty DTAAs, hence tax deduction at source payment was obligatory upon the assessee under section 195 of the Income Tax Act. 2.2. Ld. CIT (A) erred in holding that the payments were in the nature of reimbursements having no element of income, despite the fact that the same was taxable a fee for technical service in the hands of non-resident entities and the payments were merely routed through its associate enterprise concern to give it a colour of reimbursements. 2.3. Ld. CIT (A) further erred in not appreciating that fee for technical service is taxable on a fixed rate on gross receipt without having regard to actual income or loss arising to the non-resident under section 9(1)(vii) and applicable DTAA unless the non-resident is having a permanent establishment in India. Hence, withholding tax was necessary as per section 195 of the Act.

2. The brief facts of the case are that the assessee-respondent is engaged in the business of providing out of home advertising solutions and specializes in street furniture and bill boars. During the course of assessment proceedings, the assessee-respondent reimbursed a sum of Rs.35,37,666/- to its various foreign Associate Enterprises (AEs). The AO asked the assessee to furnish details of reimbursements made to its AEs with the details of tax if deducted at source. The contention of the assessee was that since the payment of reimbursement amounts were made by the non-resident companies on behalf of the assessee company, therefore, the provisions of section 195 are not attracted on such payments. The AO was of the opinion that the sums were paid by way of expenses to the non-resident third parties who had rendered services to the assessee in India. Therefore, these payments fall within the purview of section 9(1)(vii) and are, therefore, taxable in India as fee for technical services. The assessee’s stand was that the payment made is reimbursement against actual expenses, and therefore, not chargeable to tax, which was rejected by AO stating that the IT Act provide for taxation of fees for technical services on a gross basis and while deducting tax at source, the source state is not required to look into the profitability of the payments in the state of residence of the taxpayer. After relying upon various decisions, the AO concluded that the tax should have been deducted on the amount of reimbursement made under section 195 of the Act and this non-compliance of TDS provisions attracts the provisions of section 40(a)(i). He, therefore, disallowed the expenditure of Rs.35,37,666/- u/s. 40(a)(i) and added the same to the total income of the assessee. The assessee challenged this addition in appeal before the ld. CIT(A) who deleted the same vide impugned order. Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before the Tribunal.