The Income Tax Appellate Tribunal (ITAT), Delhi bench held that the Fee for Technical Service (FTS) and interest income earned from the joint venture Indian company should be taxed as per the order passed by the Tax Deduction at Source Officer under Section 195 of the Income Tax Act, 1961.
The assessee, Foundation Co. of Canada Ltd., is a non-resident corporate entity incorporated under the laws of Canada. The assessee is engaged in the business of construction and infrastructure development.
The assessee had entered into a joint venture (“JV”) with Continental Construction Limited, an Indian entity, for the execution of Nathpajhakri Hydroelectric Project in 1993. The JV is assessed to tax in India in the status of Association of Persons.
The joint venture partners’ profit-sharing ratio is 45:55. The JV paid Rs. 32,78,54,377 as a financial commitment fee and Rs. 37,78,54,377 as a fee for technical know-how in the assessment year that is in question.
The assessee failed to submit any income returns. The Assessing Officer then learned that the assessee had been paid the two amounts mentioned above. Since the assessee had not filed any return of income, the Assessing Officer reopened assessment under section 147 of the Income-tax Act, 1961. Therefore, several notices were sent to the assessee for participation in the assessment proceedings. However, the assessee did not respond. Hence, the Assessing Officer proceeded to complete the assessment under section 144 of the Act to the best of his judgment.
Aggrieved by the order, the assessee filed an appeal before the CIT(A). Before the CIT(A), the assessee submitted that since the JV has withheld tax on the payments made towards technical know-how fee and financial commitment fee at the rate of 10% and 15%, respectively, in accordance with an order passed by the TDS Officer under section 195 of the Income Tax Act. Thus, the assessee is willing to offer the income subject to the settlement of tax liability at the rate at which TDS has been deducted in order to put the matter to rest.
The CIT(A) allowed the claim of the assessee. Therefore, the aggrieved order revenue filed an appeal before the tribunal. It was observed by the tribunal that the JV has paid the assessee Rs. 32,78,54,377 as a financial commitment charge and Rs. 37,15,00,000 as a technical know-how cost.
Under section 195 of the Act, the JV approached the TDS Officer to request guidance on the TDS rate on the aforementioned payments. The TDS officer has issued an order under section 195 of the Income Tax Act, wherein he has directed the JV to deduct tax at the rate of 10% on technical know-how fee and at the rate of 15% on financial commitment fee.
Furthermore, since the assessee is a resident of Canada and is entitled to get benefit under India – Canada DTAA. After reviewing the facts and records, the two-member bench of Dr. B.R.R. Kumar (Accountant member) and Saktijit Dey (Vice-President) held that, in fact, the TDS Officer has issued an order under section 195 of the Income Tax Act instructing the payer to deduct tax at the rates of 10% and 15%, respectively, in recognition of this factual condition.
Therefore, the bench dismissed the appeal of revenue. Ananya Kapoor, Counsel appeared for the assessee, and Vizay B. Vasanta, counsel appeared for revenue.
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