TDS on Foreign Payment for Event to be held outside India

This article discusses the issue of TDS applicability on Foreign Payment for Event to be held outside India. While discussing this query author has given reference of various well known judgement related to the concern topics.

Applicability of TDS on payment for services availed

Facts: XYZ India Private Limited (India) has been awarded a contract from MNO Event Organisor to organize an event to be held in USA. XYZ India Private limited has further subcontracted the said work to PQR USA (resident of USA). PQR USA has organized said event in USA and raised the bill for such work to XYZ India Private Limited. XYZ India Private limited has made payment in respect of such bill to PQR USA. Now question arise as to whether such payment comes under the purview of TDS?

Legal Position:

1. As per section 195(1) of Income Tax Act, any person responsible to for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable to tax shall, at the time of credit of such income or at the time of payment, whichever is earlier, deduct income-tax thereon at the rates as applicable.

2. Further section 9(1) of Income Tax Act deals with income chargeable in India as under:

“Section 9(1)(i) states that all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India.”

Here “Business Connection” includes any business activity carried out through a person who, acting on behalf of the non-resident,—

(a) Has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the non-resident; or

(b) Has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or

(c) Habitually secures orders in India, mainly or wholly for the non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident.

Relevant Decided Cases

HIGH COURT OF BOMBAY, Director of Income-tax(IT)-I, Mumbai v.Credit Lyonnais FEBRUARY 22, 2016

Where an arranger of bank engaged in mobilizing deposits in India for Deposits Scheme appointed non-resident sub-arrangers for mobilizing fund outside India, services rendered by non-resident sub-arrangers would not fall within category of managerial, technical or consultancy services; assessee arranger had no TDS liability.

HIGH COURT OF KERALA,Commissioner of Income-tax v. Malayala Manorama Co.Ltd

Income Deemed to accrue or arise in India (Business profits) :Assessee claimed exemption from deducting tax at source in respect of membership fee contribution payable to International Press Institute (IPI) – Assessing Officer called upon assessee to deduct tax at source at normal rate under section 195(1) – Section 195(1) can have application only if payment is made to an income tax assessee in India since IPI, a non-resident body, had no permanent establishment in India and assessee was not an agent of IPI, section 9(1)(i) would not apply and, consequently, assessee was not liable to comply with provisions under section 195.

Conclusion:

Income of PQR USA is in the nature of business income and has no business connection in India since XYZ India Private limited is not acting on behalf of PQR USA.

Further amount received by PQR USA is not in the nature of fees or technical services or Royalty as specified in section clause (vi) and (vii) of section 9(1) of Income Tax Act.

Thus income of PQR USA is not taxable in India and consequently XYZ India Private Limited is not required to deduct TDS.

(Republished with Amendments)