Case Law Details

Case Name : DCIT Vs M/s AT & S India Pvt . Ltd. (ITAT Kolkata)
Appeal Number : IT Appeal No. 1160 & 2305 of 2013
Date of Judgement/Order : 15/10/2015
Related Assessment Year : 2008-09 & 2004-05
Courts : All ITAT (5374) ITAT Kolkata (422)

Brief of the case:

The ITAT Kolkata in the case of M/s AT & S India P. Ltd. held that the reimbursement made to holding co. by its subsidiary towards the share technology services is not taxable in the hands of receiving co. (holding co.) because the reimbursement is not an income for the holding co. and, therefore, such payments made by assessee are not subject to TDS provisions u/s 195 of the Act.
Facts of the case:

  • The assessee is a private limited company and engaged into business of manufacture and sale of professional grade printed circuit boards. The assessee-company is a subsidiary of AT&S Austria. AT&S Austria has entered into global arrangements with various companies located in different part of world for various facilities and services, which are to be used by AT&S Austria and its group companies located in different countries, including India.
  • During the year under consideration, assessee company has claimed an expense of Rs.1,59,95,287/- towards share technology services paid to its Austria based holding co.- AT&S Austria towards reimbursement of its share paid by the holding co.
  • AO found that assessee has failed to deduct TDS of such expenses and after considering assessee’s explanation added the same to the total income of assessee for violating the provision of Sec. 40(a)(ia) of the Act.
  • On appeal to CIT(A), it was held by him that the expenses are out of the purview of TDS being reimbursed and also not chargeable of tax in India. Therefore, the addition made by AO stands deleted.
  • Aggrieved revenue is in appeal before ITAT.

Contention of the Assessee:

The learned counsel for the assessee presented two fold arguments:

i) The payment made by the assessee to M/s AT &S, Austria was only towards reimbursement made by it to its holding for share technology services cost. He pointed out that the allocation of the actual expenditure incurred has been made on a rational basis that is on the basis of number of PCs used by the assessee and other group concerns, the details of which were duly furnished before the AO and the CIT(A). He submitted that there is no liability of TDS for reimbursement of the expenditure. In support of this contention reliance was placed on the AAR decision in the case of Cholamandalam Ms General Insurance Co. Ltd. 142 ITR 493 (Cal.) 309 ITR 356 (AAR) and Hon’ble Calcutta HC in the case of CIT vs. Dunlop Rubber Co. Ltd.

ii)The assessee company was given a license to use the copy right products by its holding co. , but the license to use copy right products does not amount to rendering of technical services within the meaning of section 9(1)(vii) of the Act. Thus, no income can be deemed to accrue or arise in India and accordingly no liability to deduct any tax at source.

Contention of the Revenue:                                                        

  • The learned Departmental Representative argued that the assessee has utilized the services being provided by various service provider companies as it is also a consumer of services provided by the ultimate service provider companies.
  • Therefore, in effect, the payment was made by the assessee to various service providing companies through M/S AT & S Austria. In the whole story AT & S Austria was only a medium through which payment was made to service providers.
  • The services utilized by the assessee were highly technical and therefore, the same falls in the definition of technical services as given u/s. 9(1)(vii) of the Act. Consequently, assessee was liable to deduct and pay tax to the govt. which it has so failed. Therefore, such failure would attract disallowance u/s 40(a)(ia).

  Held by ITAT Kolkata:

  • The tribunal relied on its own decision in assessee’s own case in 2005-06- ITA 1262-186/Kol/2010, 2006-07-ITA 2071/Kol/2010 & 2007-08 – ITA 779/Kol/ 2012 vide order dated 29-01- 2015, wherein this Tribunal has deleted the addition made by AO on account of TDS share technology services.
  • Tribunal followed the judgement of Hon’ble Calcutta HC in the case of Dunlop Rubber Co. Ltd. and held that where the assessee paid its share of expenses to its holding co in the nature of reimbursement of expenditure incurred by holding company for procuring services for the group , then the reimbursement cost incurred by the assessee is out of the purview of the TDS provision as it does not generate any income in the hands of the recipient and consequently the provisions of section 40(a)(ia) could not be invoked.
  • The above decision of Hon’ble Calcutta HC was also relied upon by the Authority for Advance Rulings in the case of Cholamandalam Ms Generai insurance Co. Ltd.
  • In result appeal of revenue was dismissed.
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