ITO Vs Hari Krishna Exports Private Limited (ITAT Mumbai)
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) dismissed the Revenue’s appeals for Assessment Years 2013-14 and 2014-15 in the case of Hari Krishna Exports Private Limited, holding that payments made to foreign entities towards diamond grading and certification services were not in the nature of Fees for Technical Services (FTS).
The assessee was engaged in importing, manufacturing, trading and exporting diamonds and manufacturing and exporting jewellery. Pursuant to a spot verification under Section 133A(2A) of the Income-tax Act, the Revenue noticed that the assessee had made payments to non-resident entities towards diamond grading and certification charges without deducting tax at source under Section 195.
The Assessing Officer treated the payments as Fees for Technical Services chargeable to tax in India and consequently treated the assessee as an assessee in default under Section 201(1), along with consequential interest under Section 201(1A).
The CIT(A), however, deleted the demand, holding that diamond grading and certification did not constitute FTS. The Revenue challenged the decision before the Tribunal.
Tribunal’s Findings
The Tribunal examined whether the payments constituted Fees for Technical Services under Section 9(1)(vii), whether the payments to GIA, USA satisfied the more restrictive “make available” test under Article 12(4) of the India-USA DTAA, and who was the actual recipient in respect of payments made to entities situated in Thailand and Hong Kong.
