Applicability of TDS is to be determined having regard to nature of transaction not by terminology

Applicability of TDS to be determined having regard to the agreement between the contracting parties and not by particular assumption of the deductee about the nature of transaction

Brief Facts of the case:

During the course of assessment proceedings, for AY 2004-05, the Assessing Officer (AO) noticed that the assessee Company made payment of Rs.56,54,963/- to M/s. CGS International, UAE and Rs. Rs 37,76,863/- to M/s. Marble Arts & Crafts LLC, UAE (aggregating to Rs.94,31,826/-) The AO noted that no TDS had been deducted by the assessee while making the payment to the said two foreign concerns. Accordingly, AO required the assessee to show cause why the said expenditure should not be disallowed under Section 40(a)(i) of the Act. The assessee contended that the payments were made towards commission and that neither of these concerns had any business in India nor had they filed any income tax return in India.

The AO during the course of cross confirmation came to know about that those two concerns had credited the said sum paid to them under the head “consultancy charges”. Thus, AO treating those payments as fee for rendering technical services disallowed the said amounts.

Aggrieved by the order of AO, assessee preferred an appeal before the CIT (A).

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