CA Rohit Gupta

CA Rohit GuptaPeculiar Cases where Courts held Assessee Liable for Deduction of TDS u/s 195

Withholding taxes u/s 195 in respect of transactions with Non-Residents has always been a bone of contention between Assessee and tax authorities. Though liability for deduction of TDS is clear in respect of some transactions like royalties, fees for technical services, interest etc., however there are few interesting transactions where courts/tribunals have held assessee liable for deduction of TDS. Some of such instances are listed below:

1. Prepayment Discount liable for TDS: Pre-payment discount given by assessee to foreign buyers in absence of any mention in purchase contract that assessee was obliged to give said discount, was in nature of interest and tax was deductible at source under section 195 DCIT v. Kothari Food & Fragrances [2014] 50 taxmann.com 213 (Lucknow – Trib.)

2. Usance Charges: Usance charges paid to non-resident on import purchase by assessee would be considered as ‘interest’ income (ACIT v. Bhavani Enterprises [2014] 52 taxmann.com 489 (Panaji – Trib.))

3. Usance Interest: ‘Usance interest’ paid to non-residents by Indian company for availing credit under irrevocable letter of credit for delayed payments for purchase of raw materials is interest under section 2(28A), being an income deemed to have accrued or arisen in India under section 9(1)(v)(b) (Uniflex Cables Ltd. V. DCIT [2012] 136 ITD 374 (Mumbai)

4. Access to Database: where assessee, in order to carry out market research for its clients, made payment of fee to specialist agencies located abroad for allowing access to record of online consumers maintained by them, in view of order passed by jurisdictional High Court in case of CIT (International) v. Wipro Ltd. [2011] 203 Taxmann 621/16 taxmann.com 275 (Kar.), payment in question was to be regarded as ‘royalty’ taxable in India and, thus, assessee was liable to deduct tax at source while making said payment (ITO v. Cross Tab Marketing Services (P.) Ltd. [2014] 149 ITD 678 (Bang))

5. Marketing Survey: Payment to a foreign company for marketing survey and identifying potential foreign customers for assessee’sproduct were only consultancy services taxable in India and, hence, assessee was bound to deduct tax under section 195. (English Indian Clays Ltd.v. ACIT [2014] 64 SOT 25 (Cochin – Trib.)(URO))

6. Reimbursement of audit fee to parent company: Tax was required to be deducted at source on share of ISO audit expenses paid to foreign parent company, as element of income was embedded in receipt of auditor. (SPX India (P.) Ltd. V. CIT(A) [2014] 147 ITD 120 (Delhi – Trib.))

7. Issue of Shares: Where non-resident-company provided technology/know-how in form of capital contribution, tax was required to be deducted at source on issue of shares. There was no transfer of capital asset, and joint venture agreement allowed assessee only right to use know-how, issue of shares for same constituted royalty, liable for TDS u/s 195. (BIOCON Biopharmaceuticals (P.) Ltd. V. ITO [2013] 144 ITD 615 (Bang.))

8. Sale of Indian Property by NRI: Where seller of Indian property was NRI according to address given in sale deed, assessee-purchaser ought to have made TDS under section 195 on sale consideration payable to NRI seller, failing which he was to be treated as assessee-in-default under section 201(1). If NRI purchaser fails to take recourse to section 195(2), he would be required under section 195(1) to deduct tax on entire sale consideration payable to NRI seller and not only on capital gain arising on transaction. (Syed Aslam Hashmi v. ITO [2013] 55 SOT 441 (Bangalore) )

9. Sale of Indian Property by NRI: Where assessee purchased a property jointly owned by co-owners, in view of fact that one of co-owners of property was a non-resident, assessee was required to deduct tax at source under section 195 to extent sale-consideration was paid to said co-owner (R. Prakash V. ITO [2013] 38 taxmann.com 123 (Bangalore – Trib.))

10. Downloading software: Payment made by assessee to non-residents for downloading their licenced software amounted to payment of royalty and, thus, assessee was liable to deduct tax at source while making said payment. (Cosmic Circuits (P.) Ltd. V. ITO [2013] 58 SOT 364 (Bangalore))

11. Purchase of Software: Assessee was held liable to deduct TDS on payment made to non-resident for purchase of software because same would constitute ‘royalty’ under section 9. (CIT v. P.S.I. Data System Ltd. [2012] 23taxmann.com 432 (Kar.))

12. Use of Database: Payment made by assessee to a non-resident in order to obtain licence to use database maintained by it, is to be regarded as royalty (CIT v. Infosys Technologies Ltd. ([2012] 204 Taxman 311 (Karnataka))

13. Adjustments between NRs for work done in India liable for TDS: Where, assessee a tax resident of Thailand, was engaged in execution of hydroelectric-power project of NTPC as a sub-contractor of another Thailand based company ITDL, in view of fact that ITDL provided certain machinery on hire to assessee, tax was required to be deducted at source while making payment of hire charges even though said payment was not made in cash and it was merely adjusted from amount due to assessee on account of execution of contract work. (Right Tunneling Co. Ltd. V. ADIT [2014] 64 SOT 109 (Delhi – Trib.)(URO))

14. Transponder Fees: Payment of fees for use of satellite transponder service by assessee to US company taxable as ‘royalty’, under article 12 of India-US DTAA. (Viacom 18 Media (P.) Ltd.v. ADIT [2014] 66 SOT 18 (Mumbai-trib.))

15. Transponder Fees: Transponder fee paid by assessee-company to foreign company was covered by definition of ‘royalty’ that was chargeable to tax under provisions of section 9(1)(vi), assessee should have deducted tax at source (ACIT v. Sanskar Info. T.V.P. Ltd. [2008] 24 SOT 87 (MUM.))

16. Preventive repairs: Assessee availed services of repairs of its machinery from non-residents which included assistance for preventive maintenance – Assessee made payment of repair charges without deducting tax at source since services in question were not mere repairs but were towards preventive maintenance, it was to be concluded that German company was providing technical assistance and services, and, thus, payments made for said services amounted to ‘fee for technical services’ . In view of above, assessee was liable to deduct tax at source while making payments to non-resident. (Bosch Ltd. v. ITO [2013] 141 ITD 38 (Bangalore)).

17. Advisory Services: Payment by assessee to French company in consideration of receiving services in nature of assistance, professional and administrative consultation is fee for technical services liable to TDS under section 195. (Mersen India (P.) Ltd., In re [2013] 353 ITR 628 (AAR-New Delhi))

18. Testing Charges: Where applicant a tax resident of Hong Kong provided inspection, verification, testing and certification (IVTC) services to Indian customers, payment received/receivable by applicant in relation to said services would be chargeable to tax in India as ‘fees for technical services’ under section 9(1)(vii)(b) and liable for deduction of TDS u/s 195. (XYZ Ltd. In re [2012] 348 ITR 20 (AAR-New Delhi))

19. Data Processing:  Assessee-company was engaged in business of providing consultancy services in respect of setting-up of power projects in India and abroad – It had entered into an agreement with a German company for obtaining information which had been used for finalizing its design or removing defects in its power project’s design – It had paid licence fees and data processing charges to German company. HELD, payments made for data processing were for specialized services which were in nature of technical services under section 9(1)(vii), and liable for TDS. (Dr. Hutarew & Partner (India) (P.) Ltd. V. ITO [2008] 25 SOT 347 (DELHI))

20. Access to Portal: Payments made by Indian agent/subscriber to applicant for providing a password to access and use internet based Air Cargo portal hosted from Singapore are in nature of royalties and fees for technical services and taxable under article 12 of DTAA as also under section 9 and subject to deduction of tax at source. (Cargo Community Network (P.) Ltd., In re [2007] 289 ITR 355 (AAR))

(Author can be reached at ca.guptarohit@gmail.com / 9873832979 for any queries )

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3 responses to “Interesting Cases for TDS u/s 195 – Foreign Remittance from India”

  1. John Joseph says:

    Whether TDS is necessary for test fee paid to Non resident for services outside India. Samples are send to Germany for testing and they are sending back test reults.

  2. John Joseph says:

    Testing fee paid to a company in Germany and their residential status is Non Resident. Samples are send to germany for testing and their are sending back the test results. Whether TDS is applicable in this case.

  3. V.Vivek Rajan says:

    Nice compilation ,CA Rohit

    CA . Vivek Rajan

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