Case Law Details
The Director of Income-Tax Vs IBM India Private Limited (Karnataka High Court)
The Hon’ble Karnataka High Court in The Director of Income-Tax v. IBM India Private Limited [I.T.A NO. 218 of 2014 dated January 16, 2023] has held that, the pay roll related services by assessee outsourced to its foreign company would be treated as business income earned by the foreign company and not a technical service therefore, would not be liable for Tax Deducted at Source (“TDS”) under Section 195 of the Income Tax Act, 1961 (“the IT Act”). Further held that, the payments received by foreign company, would be chargeable to tax outside India.
Facts:
IBM India Private Limited (“the Respondent”) is a company engaged in the business of information technology services. IBM USA had entered into a global arrangement with Procter and Gamble (“P&G”), USA for rendering payroll related services to P&G USA, for which IBM India entered into an agreement with P&G India. Further, the payroll related services and certain human resource services to be rendered by IBM India to P&G India was outsourced to IBM Philippines.
Thereafter, an Order-in-Original dated September 14, 2012 (“the OIO”) was passed by the Revenue Department (“the Appellant”) wherein, it was alleged that the Respondent had made payments to IBM, Philippines for payroll services without deducting tax at source under Section 195 of the IT Act therefore, the Respondent was treated as ‘assessee in default’ as per Section 201 of the IT Act.
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