The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the provisions of Tax Deduction at Source (TDS) cannot be made applicable to fees for client referrals as the same would not amount to “Fee for Technical Services” (FTS) under the provisions of Income Tax Act, 1961.
While concluding the income tax proceedings against the assessee, M/s. Hemera India Pvt. Ltd, the AO made addition of Rs. 32,02,446/- u/s 40(a)(ia) of the Act treating the same in the nature of “Fee for technical services”. Further, learned AO had given credit of TDS of only Rs. 23,04,688/- instead of Rs. 37,09,355/ claimed by the assessee in ITR form without giving any reason or basis for doing the same.
Sh. Shamim Yahya, Accountant Member and Sh. Anubhav Sharma, Judicial Member has observed that once the revenue admitted that they were consultancy charges paid for the introduction of client then that would fall in the definition of payments made to intermediary or liaison agents for channelizing, arranging or soliciting work order.
“There is no finding whatsoever that any inquiry was made by the Ld. Tax Authorities below as to what was the nature of agreement between the assessee and the foreign entity in terms to find out if the foreign entity was extending any technical know-how or expertise in the field of procurement of business or any other purpose, on a permanent basis. Thus, the finding arrived by the Ld. CIT(A) are liable to be reversed and it is held that the nature of transaction between the assessee and the foreign entity was not of providing any technical service but was a payment in the nature of a normal business payment to a intermediary,” the Tribunal said.
Sh. Ranjan Chopra, FCA appeared for the assessee.
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