SERVALL ENGINEERING WORKD P LTD.,COIMBATORE vs. JCIT, COIMBATORE

This appeal by the assessee is directed against the order of CIT(A)-1, Coimbatore dated 23.01.2015 and pertains to Assessment Year 2011-12.

The only issue arises for consideration is disallowance of Rs.19,33,839/-. Shri R.Vijayaraghavan, the learned counsel for the assessee submitted that during the year under consideration, the assessee has paid Rs.19,33,839/- towards engineering service charges. According to the learned counsel for the assessee, all the payments were made to individual. Therefore, the assessee is not liable to deduct tax. Hence, the disallowance made by the assessing officer for non deduction of tax at the time of payment is not justified. Referring to Double Taxation Avoidance Agreement between the Government of India and Government of Germany, the learned counsel submitted that in view of the Article 14 of Double Taxation Avoidance Agreement, the assessee is not liable to deduct tax when the payment was made to the individuals. The learned counsel further submitted that the provisions of Double Taxation Avoidance Agreement was not brought to the notice of both the authorities below. Therefore, they had no occasion to consider the provisions of Double Taxation Avoidance Agreement.

On the contrary, Shri Durai Pandian, the learned department representative submitted that the assessee has made payment to three companies and two individuals. The provisions of Double Taxation Avoidance Agreement admittedly not applicable to payment made to the companies.

We have considered the rival submissions on either side and also perused the material available on record. As per the order of the lower authorities, it appears that the assessee has paid a sum of Rs.8,22,461/- to one Engineer Mr.Harmut Dropczynski, Germany. The assessee has also paid another sum of Rs.6,17,560/- to Mr.Micheal Meycke. The other payments were made to companies. Therefore, the provisions of Double Taxation Avoidance Agreement are not applicable to payments made to companies.

We have carefully gone through the provisions of Article 14 of Double Taxation Avoidance Agreement. The tax liability of the independent service provider is subject to certain exceptions as provided in Article 14 of Double Taxation Avoidance Agreement between Government of India and Government of Germany. Therefore, the individual payments made to individuals has to be examined in the light of the provisions of Article 14. Since both the authorities below are to consider the provisions of Double Taxation Avoidance Agreement, this Tribunal is of the considered opinion that the matter needs to be reconsidered in respect of payment made to individuals. Accordingly, the orders of authorities below are confirmed in respect of payments made to three companies. However, in respect of payments made to two individuals i.e., a sum of Rs.8,22,461/- to one Engineer Mr.Harmut Dropczynski, Germany and another sum of Rs.6,17,560/- to Mr.Micheal Meycke are remanded back to the file of the assessing officer. The Assessing officer shall reexamine the payment in respect of these two individuals in the light of the provisions of Article 14 of Double Taxation Avoidance Agreement and thereafter decide the same in accordance with law after giving a reasonable opportunity to the assessee.