Case Law Details
Agreement signed on 18.1.1997 between the assessee and M/s Oceaneering International AG (OIAG) registered at Switzerland. The OIAG was stated to be sole, lawful and absolute owner of the machinery provided to the assessee. It was further stated that actual physical possession of the said machinery could be delivered by the OIAG to the assessee outside India.It was further given in the agreement that the risk and reward pertaining to ownerships remained with OIAG. Further, the consideration was to be paid at the rates specified in Annexure B in the Agreement. Referring to the relationship between the parties, the agreement specified that it did not create the partnership joint venture between the two parties. The agreement was entered on a principle to principle basis. Thus, we find that as per the agreement the machinery was to be delivered to the assessee outside the country. Hence, there can be no case of the vendor having a permanent establishment in India. Moreover, there is no case for a business connection in India. There is no finding in the impugned order which would suggest that the vendor had a PE or a business connection in India.
INCOME TAX APPELLATE TRIBUNAL, DELHI
I.T.A. No. 1782/Del/2011
A.Y.: 2000-01
Deputy Commissioner of Income Tax
vs.
M/s Calcutta Test House Pvt. Ltd.
ORDER
This appeal by the Revenue is directed against the order of the Ld. Commissioner of Income Tax (Appeals) dated 14.2.2011 pertaining to assessment year 2000- 01.
2. The grounds raised read as under:-
“(i) The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in deleting addition of B 38,26,696/- made on account of dis-allowance of hiring charges by invoking the provisions of section 40(a)(ia) of the IT Act, ignoring that the assessee failed to deduct the TDS and also failed to submit the original agreement with the OIGA as directed by the Honourable ITAT.
(ii) The appellant craves leave for resolving the right to amend, modify, after, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”
3. In this case Assessing Officer referred to the provision of section 195 and section 40(a)(i). The Assessing Officer noted that assessee had hired machinery on lease from UK Company, and paid hiring charges to such foreign company. The said UK Company had ‘business connection’ with the assessee. Thus, considering the fact of the case and legal provisions mentioned u/s 195 and section 40(a)(i), the Assessing Officer held that assessee was liable to deduct the TDS on hiring charges paid 38,26,696/- to the foreign company. As the assessee failed to deduct the tax and also failed to submit the original agreement with the foreign company, the expenditure was added back.
4. Upon assessee’s appeal Ld. Commissioner of Income Tax (Appeals) noted that the matter has earlier travelled to the Tribunal and the tribunal in its order dated 06.2.2009 has given the following finding:-
“We have duly considered the rival contentions and gone through the records carefully. It is true that assessee failed to produce the agreement executed between it and OAIG. In the absence of this agreement, it was quite difficult to determine the true nature of the transaction between the assessee and the foreign collaborators for which it has made payment of hire charges. The Assessing Officer proceeded on the premises that hire charges paid by the assessee are to be disallowed because it failed to deduct the TDS. However, in case assessee is able to demonstrate that such payments are not the sums chargeable to tax in India then probably it cannot be fastened with the liability of tax required to be deduct while making the payment of crediting the account of non-resident. Since this amount is an essential document for adjudicating the controversy between the parties, therefore, we permit the assessee to place this document on record and set aside the issue to the file of the Assessing Officer for adjudication. However, it is needless to say that whatever observations made by us while setting aside these appeals to the file of the Assessing Officer, would not impair or injur the Assessing Officer’s case or would cause prejudice to the defence or explanation of the assessee.”
4.1 From the above Ld. Commissioner of Income Tax (Appeals) noted that the tribunal had already taken the agreement with the foreign company on record. Hence, he noted that thus if the assessee was not able to attend on one occasion with the copy of agreement, it cannot be taken as a serious issue. Ld. Commissioner of Income Tax (Appeals) further observed that when the assessee was remitting money for the payment, he obtained the certificate from the Chartered Accountants. This was in accordance with the Board’s Circular No. 759. In the impugned order, it is not a finding of the Assessing Officer that the foreign entity had a permanent establishment or a business connection. Ld. Commissioner of Income Tax (Appeals) has held that this was only an allegation. He observed that a close perusal of the agreement clearly shows that the delivery of the plant and machinery was to be outside India, which makes the case of permanent establishment or business connection even more weaker. Further, Ld. Commissioner of Income Tax (Appeals) observed that there was nothing in the impugned order which would suggest that the foreign entity was taxable in India. Moreover, the payment had already been made. Hence, Ld. Commissioner of Income Tax (Appeals) held that in these circumstances, the addition u/s 40(a)(ia) cannot be upheld. Hence, he decided the issue in favour of the assessee.
5. Against the above order the Revenue is in appeal before us.
6. We have heard the rival contentions in light of the material produced and precedent relied upon. We have gone through the agreement signed on 18.1.1997 between the assessee and M/s Oceaneering International AG (OIAG) registered at Switzerland. The OIAG was stated to be sole, lawful and absolute owner of the machinery provided to the assessee. It was further stated that actual physical possession of the said machinery could be delivered by the OIAG to the assessee outside India. It was further given in the agreement that the risk and reward pertaining to ownerships remained with OIAG. Further, the consideration was to be paid at the rates specified in Annexure B in the Agreement. Referring to the relationship between the parties, the agreement specified that it did not create the partnership joint venture between the two parties. The agreement was entered on a principle to principle basis. Thus, we find that as per the agreement the machinery was to be delivered to the assessee outside the country. Hence, there can be no case of the vendor having a permanent establishment in India. Moreover, there is no case for a business connection in India. There is no finding in the impugned order which would suggest that the vendor had a PE or a business connection in India.
7. The addition in the present case has been made only on the ground that assessee has not deducted tax at source from the payments made by it to OIAG. It has already been mentioned that there is no material on record on the basis of which it can be said that OIAG was having any presence in India, by which it could be said that the said concern has maintained its PE in India. The obligation to deduct tax on the payments made by a person to a non-resident is described in Section 195 of the Act, which stipulate of any amount paid which is chargeable under the provisions of this Act. Unless the payment made to non-resident is chargeable to tax in India, there is no obligation on the payer to deduct tax at source according to the provisions of Section 195. There is no material on record to suggest that the income of the payee was chargeable to tax in India in any manner. Therefore, the question of deduction at source from such payment does not arise. Hence, we hold that Ld. Commissioner of Income Tax (Appeals) has rightly held that impugned dis-allowance u/s 40(a)(ia) could not be made. Accordingly, we confirm the order of the Ld. Commissioner of Income Tax (Appeals) and decide the issue in favour of the assessee.
8. In the result, the appeal filed by the Revenue stands dismissed.
Order pronounced in the open court on 28/10/2011.
