Case Law Details

Case Name : ACIT Vs. Monitor India Pvt. Ltd. (ITAT Mumbai)
Appeal Number : [2010-TII-138-ITAT-MUM-INTL]
Date of Judgement/Order : 08/10/2010
Related Assessment Year : 1999- 2000
Courts : All ITAT (4443) ITAT Mumbai (1464)

Court: Mumbai bench of the Income-tax Appellate Tribunal

Citation: ACIT Vs. Monitor India Pvt. Ltd. [2010-TII-138-ITAT-MUM-INTL] (Judgment date- 8 October 2010, Assessment Year 1999- 2000)

Brief : Recently, the Mumbai bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of ACIT v. Monitor India Pvt. Ltd [2010-TII-138-ITAT-MUM-INTL] (Judgment date – 8 October 2010, Assessment Year 1999-2000).held that the taxpayer is under no obligation to approach the Assessing Officer and is entitled to remit monies abroad without deduction of tax at source if it is of the opinion that the remittance was wholly exempt from Indian taxes.

Facts of the case

  • The taxpayer is a company engaged in the management, technical advisory and consultancy services.
  • The taxpayer made payments of professional fees to Monitor Group of Companies which were companies outside India. On the basis of legal opinion, the taxpayer did not deduct any taxes from the remittance of the professional fees.
  • The Assessing Officer (AO) disallowed the claim for professional fees under section 40(a)(i) of the Income-tax Act, 1961 (the Act).

Tax department’s contention

  • Payment of professional fees to Monitor Group of companies resident in Madrid, Manila, Paris and Seoul should not be allowed as a deduction since the taxpayer did not deduct taxes at source from those payments.
  • The taxpayer ought to have approached the AO with an application under section 195(2) of the Act, seeking permission to remit the monies without deduction of tax.

Tribunal’s ruling

  • The consultants of the Monitor Group of companies based in Madrid, Manila, Paris and Seoul did not stay in India for a period exceeding number of minimum days prescribed in Article 5 of the respective tax treaties and accordingly did not have a permanent establishment in India.
  • Accordingly, the tribunal held that no income accrued to the non­resident companies in India and the taxpayer was not required to deduct tax at source.
  • The Tribunal relied on the decision of the Supreme Court in the case of GE India Technology Centre Private Ltd. v. CIT & Another [2010-TII-07-SC-INTL] in which it was held that:

o Section 195(2) of the Act gets attracted only where the payment made is a composite payment in which a certain proportion of payment has an element of income chargeable to tax.

o If the payment has no element of income chargeable to tax in India, then the taxpayer is under no obligation to approach the AO seeking permission to effect the payment without deduction of tax.

  • Relying on the Supreme Court decision in the case of GE India Technology Centre Private Ltd. the Tribunal held that the taxpayer was under no obligation to approach the AO under section 195(2) of the Act. Further the taxpayer was entitled to effect the remittances without deduction of tax at source if it was of the opinion that the remittance was wholly exempt from Indian taxes.

Our Comments

This is a welcome ruling wherein the Mumbai Tribunal has held that the taxpayer was under no obligation to approach the AO under section 195(2) of the Act if it is of the opinion that the remittance was wholly exempt from Indian taxes.

It is pertinent to note that the Karnataka High Court in the case of CIT and ITO v. Samsung Electronics Co. Ltd. had held that the payer cannot decide whether the payment made to a non-resident would constitute income chargeable to tax in India. Further, the High Court held that the payer can be relieved from the withholding obligation only by obtaining a NIL withholding under Section 195(2) of the Act from the AO.

Recently, the Supreme Court in the case of GE India Technology Centre Private Ltd overruled the aforesaid decision of the Karnataka High Court.

It is also pertinent to note that the Special Bench of the Chennai Tribunal in the case of ITO v. Prasad Productions [2010] 129 TTJ 641 (Chennai) (SB) also departed from the reasoning given by the Karnataka High Court and ruled that any payment made to a non-resident would be subject to withholding tax, only if such payment constituted income chargeable to tax in India.

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Posted Under

Category : Income Tax (25527)
Type : Judiciary (10278)
Tags : ITAT Judgments (4623) section 195 (140)

0 responses to “Taxpayer can remit monies abroad without tax deduction if it is of opinion that remittance is wholly exempt from tax”

  1. N.L.N.SWAMY says:

    please give the rate of deduction u/s 80-c whether rs 100000or 120000 .kindly confirm

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