DCIT, PONDICHERRY vs. INTEGRA SOFTWARE SERVICES P. LTD., PONDICHERRY

आदेश / O R D E R

PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER:

This is an appeal filed by the Revenue against the Order dated

20.02.2015 of Commissioner of Income Tax (Appeals), Puducherry, in ITA

No.702/PDY/13-14 for the AY 2010-11 and raised the following grounds: 1. The order of the CIT(A) is contrary to the law and facts of the case. 2. The learned CIT(A) ought to have considered the fact that the assessee company itself had admitted that the foreign vendors have rendered translation services which involve

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copy, editing, indexing which are all essentially knowledge driven services and listed out the services rendered by the vendors which include ‘Project Management’ and other ancillary services like “art alteration, design alteration etc” which would fall within the meaning of technical services as defined in Sec 9. 3. The learned CIT(A) ought to have considered the fact that if the whole of the services do not constitute as technical service, the assessee should have made an application as per sec 195(2) to determine the appropriate portion of the sum chargeable under the Act. 4. The learned CIT(A) ought to have remitted the issue to the Assessing Officer as per Rule 46A, since the details submitted before the CIT(A) for the amounts paid within threshold limits laid down by Section 194C which were not available in the records. 5. For the above and for any other reasons that may be adduced at the time of hearing the order of the CIT(A) may be cancelled and that of the AO may be restored.

Condonation of delay:

There was delay of 3 days in filing the appeal by the Revenue and

the assessing officer filed petition requesting for condonation of

delay. We heard both the parties and Ld.AR did not object for

condonation of delay. We are convinced with the explanation

offered by the Revenue and condone the delay.

2.0 Ground Nos.1 & 5 are general in nature which do not require

specific adjudication.

3.0 Ground Nos.2 & 3 are related to the disallowance u/s.40(a)(i) of

Income Tax Act. During the course of assessment proceedings, the

Assessing Officer (hereinafter referred to as ‘AO’) found that the assessee

has made payments to non-resident individuals and foreign companies for

outsourcing charges without deduction of tax at source amounting to

₹5,47,68,636/- u/s.195 of Income Tax Act. The assessee explained before

the AO that the payments were made to non-resident individuals falls in

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two categories. One is for payment made to individuals who are claimed

to be non-resident individuals and the other one is for foreign companies.

The assessee relied on the DTAA with United Kingdom for non-deduction

of tax at source in respect of non-resident individuals under Article-15 and

in respect of payments made to the assessee companies the assessee

relied on the decision of the Hon’ble Supreme Court in the case of GE

India Technology Centre (P) Ltd. v. CIT (2010) 327 ITR 456 (SC) wherein

it was held that obligation regarding the deduction of tax at source arises

only on such remittances chargeable under the Income Tax Act. The

assessee submitted that the payments made to foreign companies are not

chargeable to tax in India and thus TDS is not deductible and accordingly

no deduction is required to be made u/s.195 of Income Tax Act. The

remittances were made based on the declarations u/s.15CB along with

Certificate issued by the Chartered Accountant u/s.15CB in terms of Rule

37B. For the translation services carried out by the non-resident

freelancers or business entities payments are made outside India, they

were not actually received in India and there was no PE or business

establishment in India. The knowledge driven services of the assessee

were carried out by non-resident outside India. Hence, the assessee

contended before the AO that the assessee was outsourcing the job of

indexing, translation project management which involve copy of editing,

proofing, etc… are not in the nature of technical services, thus section 195

has no application in it’s case and consequent addition u/s40(a)(i) is not

called for. Not being impressed with the explanation offered by the

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assessee, the AO held that the payments made to foreign individuals are

in the nature of Fee for technical services and required to be taxed in

India u/s.9(1)(vii) of Income Tax Act. Since the assessee has not

deducted the tax at source as required u/s.195, the AO disallowed the

same of Rs.5,47,68,636/- u/s 40(a)(i)and brought to tax.

4.0 Aggrieved by the Order of the AO, the assessee went on appeal

before the Learned Commissioner of Income Tax(Appeals) (hereinafter

referred to as ‘Ld.CIT(A)’) and the Ld.CIT(A) allowed the assessee’s

appeal holding that the assessee has not rendered any technical services

and the provisions of Sec.195 does not attract for the payments made to

non-resident individuals and foreign body corporate.

5.0 Aggrieved by the Order of the Ld.CIT(A) the Revenue is on appeal

before us. Appearing for the Revenue, Learned Departmental

Representative (hereinafter referred to as ‘Ld.DR’) argued that the

assessee has made the payments to foreign individuals and the foreign

body corporate towards the knowledge driven services such as foreign

indexing, copy editing, translation, and payments which were in the

nature of Fee for foreign technical services and liable for deduction of tax

at source u/s 195 of Income Tax Act. The assessee has failed to deduct

tax at source and the provisions of Sec.195 clearly applies and the AO has

rightly made the addition u/s.40(a)(ia). On the other hand, the Ld.AR

relied on the orders of the Ld.CIT(A) and also the decision of this Tribunal

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in M/s.Cosmic Global Limited v. ACIT in ITA No.744/Mds/2014 dated

30.07.2014.

6.0 We heard the rival submissions and perused the material placed on

record. Certificates from the qualified Chartered Accountants in the form

of 15CA and15CB were called for by the AO but not filed by the assessee

and the verification/requirements u/s 195(6) have not been carried out.

The said information of 15CA and the 15CB were filed before the

Ld.CIT(A), but the Ld.CIT(A) has not given an opportunity to the AO.

Non-submission of Form-15CA/CB was discussed in the assessment order.

Therefore, the issue requires verification at the level of the AO regarding

submission of Form-15CA/CB and satisfactory compliance of the

requirement of Sec.195(6) to verify the application of TDS under section

195 of Income Tax Act. Therefore, we are of the considered opinion that

the issue should be remitted back to the file of the AO to verify the

satisfactory compliance of Form-15CA/CB. Accordingly, the issue

regarding the payments made to be foreign companies/individuals is set-

aside to the file of the AO to decide the issue afresh on merits and

Ground Nos.2 & 3 of the Revenue’s appeal are allowed for

statistical purposes.

7.0 Ground No.4 is related to the disallowance of expenditure u/s

40(a)(ia) for non deduction of tax at source. u/s.194C. The AO disallowed

a sum of Rs.1,01,85,791/- u/s.40(a)(ia) of Income Tax Act in respect of

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the payments made to the local contractors for carrying out the works

without deduction of tax at source. Therefore the AO made the addition.

8.0 Aggrieved by the Order of the AO, the assessee went on appeal

before the Ld.CIT(A) and the Ld.CIT(A) allowed the assessee’s appeal.

Before the Ld.CIT(A), the assessee filed evidences regarding non

application of TDS on payments made to certain local persons since the

payment was within the threshold limit. Therefore, the Revenue has

challenged the Order under Rule 46A of Income Tax Rules. The Ld.DR

argued that since the Ld.CIT(A) has accepted the fresh evidence and not

placed before the AO, the case should be remitted back to the AO. On

the other hand, the Ld.AR relied on the Order of the Ld.CIT(A).

9.0 We have heard the rival submissions and perused the material

placed on record. The assessee has filed fresh evidence relating to non-

deduction of tax at source not exceeding the threshold limits. During the

assessment proceedings, the assessee has not furnished the above details

to the A.O. The Ld.CIT(A) has not given an opportunity to the AO to

defend the case. Therefore, in the interest of justice we are of the

considered opinion that the case should be remitted back to the file of AO

to examine the additional evidences submitted before the Ld.CIT(A) and

decide the issue afresh on merits. It is needless to say that the assessee

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should be given an opportunity of being heard. The Revenue’s appeal on this ground is allowed for statistical purposes.

10.0 In the result, the appeal of the Revenue is allowed for statistical purposes.

Order pronounced in the Open Court on 28th February, 2017, at Chennai.

Sd/- Sd/- (एन.आर.एस. गणेशन) (�ड.एस. सु�दर �संह) (N.R.S. GANESAN) (D.S.SUNDER SINGH) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER

चे�नई/Chennai, �दनांक/Dated: 28th February, 2017. tln

आदेश क� ��त�ल�प अ�े�षत/Copy to: 4. आयकर आयु�त/CIT 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 5. �वभागीय ��त�न�ध/DR 3. आयकर आयु�त (अपील)/CIT(A) 6. गाड� फाईल/GF