Prasad Production Ltd. (Taxpayer) was awarded a contract by the Government of the State of Andhra Pradesh to establish IMAX Theatre at Hyderabad. The Taxpayer entered into an agreement with IMAX Ltd., Canada for purchase of the system (which included supply of equipment, installation, testing and initial training) as well as transfer of technology. As per the agreement, the total consideration for purchase of the system was US$ 1,365,000 and US$ 950,000 was towards technology transfer fee.
During the year under consideration, the Taxpayer remitted US$ 902,500 to IMAX Ltd. on account of system cost without withholding tax thereon.
The Assessing Officer (AO) was of the view that the amount remitted by the Taxpayer was for provision of technical services by IMAX and was chargeable to tax in the hands of IMAX. The AO relied on the judgement of Supreme Court in the case of Transmission Corporation of AP Ltd. (239 ITR 587) to conclude that since the Taxpayer has not obtained any order for lower or Nil tax withholding, the gross sum remitted by the Taxpayer was liable to tax and accordingly raised the tax demand against the Taxpayer. The Commissioner (Appeals) cancelled the order of the AO holding that the amount of remittance represents a part of sales consideration of the equipment and hence not chargeable to tax at all. Aggrieved by the said order of the Commissioner (Appeals), the Revenue filed an appeal before the Income Tax Appellate Tribunal (“ITAT”).
Issues before ITAT
