Director of Income-Tax Vs Abbey Business Services India Pvt. Ltd. (Karnataka High Court)
Karnataka High Court adjudicated the case of Director of Income-Tax vs. Abbey Business Services India Pvt. Ltd., concerning the applicability of tax deduction at source (TDS) on payments made to a non-resident under Section 195 of the Income Tax Act, 1961. The Revenue contended that payments made by Abbey India to Abbey UK for seconded employees constituted “fees for technical services” (FTS) under Section 9(1)(vii) and the India-UK Double Taxation Avoidance Agreement (DTAA). The Assessing Officer deemed Abbey India an “assessee in default” under Section 201(1) for failing to deduct TDS on these payments. The Commissioner of Income Tax (Appeals) upheld this decision, prompting Abbey India to appeal to the Income Tax Appellate Tribunal (ITAT).
The ITAT, in its ruling, set aside the Assessing Officer’s order, holding that the payments made for seconded employees were not in the nature of FTS and therefore not subject to TDS under Section 195. It emphasized that the seconded employees worked under the direct control of Abbey India, making Abbey India their economic employer. The ITAT relied on judicial precedents, including the Delhi High Court’s ruling in DIT vs. HCL Infosystems Ltd., which held that reimbursements for seconded employees did not constitute FTS. The Revenue, dissatisfied with the ITAT’s decision, appealed to the Karnataka High Court, arguing that similar agreements had been scrutinized in Centrica India Offshore Pvt. Ltd. vs. CIT, where the Delhi High Court ruled in favor of TDS applicability.
