The Income Tax Appellate Tribunal (ITAT), Bangalore held assessee, M/s Subex Technologies Limited not eligible for TDS on the ground that the consideration received was not income deemed to accrue in India.
During the impugned assessment year, under the scheme of arrangement approved by the Karnataka High Court, certain businesses of Subex Limited (the parent company of the assessee) were transferred to the assessee. All the contracts entered by the parent company of the assessee with its AE, i.e., Subex Technologies INC, USA (STI) were also transferred to the assessee. Accordingly, STI became direct overseas wholly owned subsidiary of the assessee. For the assessment year 2008-2009, the return of income was filed by the assessee declaring total income of Rs.1,70,10,894.
The TPO passed order u/s 92CA concluding that no adjustment was required to be made to the ALP. Later on, the A.O. passed an order u/s 143(3) by disallowing the payment made by the assessee to its overseas subsidiary, namely, STI by invoking the provisions of section 40(a)(i). The A.O. made the disallowance of Rs.62,49,85,438 holding that the payments made to STI requires tax deduction at source u/s 195 andsince the assessee has not deducted tax at source, the same is liable to be disallowed u/s 40(a)(i).
The CIT(A) on appeal concluded that all evidence on record points to the fact that the payments are in the nature of FTS and tax was required to be deducted at source. Aggrieved the assessee is in appeal before the Tribunal.
A Division Bench of the Tribunal consisting of George George K, Judicial Member and Padmavathy S, Accountant Member observed that “Hence, the assessee is not liable to deduct tax at source for the reason that consideration received by the STI from the assessee could not have been regarded as income deemed to accrue or arise in India as per the law then existing. We hold that the assessee is not liable to deduct tax at source at the relevant point of time.”
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