No tax on amount paid for certification services rendered by foreign entities in absence of fixed place of business in India

DCIT Vs Elitecore Technologies Pvt Ltd (ITAT Ahmedabad)

Conclusion: Payments made for certification services by foreign entities were not subject to withholding tax in India if there was no fixed place of business existed in India, aligning with DTAA provisions and judicial interpretations.

AO had disallowed deductions related to product certification expenses paid by Elitecore Technologies to non-resident entities from the USA, UK, Korea, and China. These expenses were challenged under Section 40(a)(i) of the Act for non-deduction of withholding tax (TDS) under Section 195. The primary contention was whether these payments constituted “Fees for Technical Services” (FTS) under Section 9(1)(vii), thereby attracting withholding tax obligations. The company argued that the services provided were essentially certification services and did not fall within the ambit of FTS as per the Act and the Double Taxation Avoidance Agreements (DTAA) with respective countries. It was held considering the facts of the case and judicial pronouncements, it could be concluded that the services rendered to the assessee for product certification, which included evaluating technical quality and issuing certificates, did not fall under the definition of Fees for Technical Services as per Section 9(1)(vii). Assessee provided sufficient evidence, including certificates, invoices, and agreements, to establish the genuineness and business necessity of the expenses. AO’s contention on the non-genuineness of the expenditure was not substantiated by any contradictory evidence.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

This appeal is filed by the Revenue as against the order passed by the Ld. Commissioner of Income-tax(Appeals)-10, Ahmedabad [hereinafter referred to as “the Ld.CIT(A)”], dated 04/09/2019, arising out of the assessment order passed by the Assessing Officer (AO) under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) dated 25/03/2015 relevant to the Assessment Year (AY) 2011-12.

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