In a recent decision the Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) observed that the amount of Tax Deducted at Source ( TDS ) can be reduced while calculating advance tax and interest under Section 234B of Income Tax Act, 1961, cannot be levied.
The assessee asserted that within the Infrastructure Services category, all services are intended to be operated offshore, with minimal support provided by onshore teams. These support services are directly offered to customers by the assessee, with no services rendered to HCLT. Therefore, there was no scenario where the assessee provides technology to HCLT or transfers technical plans or designs. Consequently, the funds received by the assessee from HCLT for these services would not qualify as Fees for Included Services (FIS) falling under Article 12 of the Double Taxation Avoidance Agreement ( DTAA ). Instead, they could be categorized as Business Profits.
Income categorized as Business Profits for a non-resident is regulated by Article 7 of the DTAA. According to this article, only the portion of profits attributable to a Permanent Establishment (PE), if any, in the other Contracting State (in this case, India) where the income was generated, is taxable in that state. Since the assessee does not have a PE in India, the income generated from the aforementioned payments is not taxable in India.
The interest levied for delay in filing the return of income comes under section 234A of the Income Tax Act. If the taxpayer files their income tax return after the due date specified by the authorities, an interest under this section will be levied.
The Income Tax Act 1961 said that if a taxpayer defaults to abide by the rules and regulations stated in the act then he or she will be charged with certain penalties as punishments. This will be in the form of penal interest levied on taxable amounts. The act slabbed these penalties under Section 234 of the Income Tax Act 1961. In other words, the interest imposed for incomplete tax payments comes under the Section 234B of the Income Tax Act 1961 or if the taxpayer fails to make advance tax payment online.”
If the taxpayer delays the advance tax payment online charged to him or her, he or she will have to pay interest under Section 234B of the Income Tax Act 1961. This interest can also be levied on you if you have paid the advance tax and the amount is less than 90% of the assessed tax.
The two member bench of the tribunal comprising Kul Bharat ( Judicial member ) and M.Balaganesh (Accountant member) observed that the payments made by HCLT to the assessee are not subject to taxation in India under domestic law. Consequently, the assessee is not required to pay advance tax, and therefore, no interest under Section 234B of the Income Tax Act, 961, can be imposed.
Even if the payments received from HCLT were considered Fees for Technical Services (FTS), they would still be subject to tax deduction at the source, falling under the responsibility of HCLT. It’s important to note that the amendment to Section 209(1) of the Income Tax Act, 1961, effective from April 1, 2012, does not apply to the assessment year 2012-13 under consideration.
The Supreme Court, in the case of DIT Vs. Mitsubishi Corporation, explicitly stated that prior to the financial year 2012-13, the amount of tax deductible at source can be reduced while calculating advance tax, thereby precluding the imposition of interest under Section 234B of the Income Tax Act, 1961
Hence, there would be no obligation on the part of the non-resident assessee, like the one before us, to pay any advance tax under section 209 of the Act. Consequently, there was no basis for charging interest under Section 234B of the Income Tax Act, 1961 on the assessee.
In the result, the appeal of the assessee was allowed for statistical purposes
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