The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ), set aside an assessment order as by the exception provided under Section 9(1)(vii)(b) of the Income Tax Act, 1961 where the income earned by non-residents cannot be considered to accrue or arise in India, and the fees for technical services cannot be taxed.
The assessee, QAI India Ltd., had filed an Income Tax Return (ITR) declaring an income of Rs. 8561870/- on 30-11-2013 for the assessment year 2013-14. A notice was sent under Section 143 (2) on 05-09-2014 to the assessee for scrutiny. The Income Tax Assessing Officer ( AO ) added an amount of Rs. 69,97,143/- to the total income and assessed it at Rs 1,55,59013/-.
The assessee, being aggrieved by the assessment order, preferred an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The appeal was only partly allowed by the CIT(A) due to which they have filed an appeal before the Income Tax Appellate Tribunal.
The appellate income tax commissioner was of the opinion that the appellant’s explanation for paying Rs.16,44,268/- to Everest Global Inc. for software training services is irrational. The taxable event that triggered TDS occurred when the assessee when it made payment of royalty of Rs. 54,65,508/- to Everest Global Inc. It was held that the appellant’s payments to Everest Global Inc. constituted royalty and were to be taxed accordingly.
Amaninder Singh who was representing the revenue, submitted that the order of CIT(A) be upheld and that the paperwork by the assessee has been fabricated to evade taxes. He also contended that the assessee was required to deduct tax at source, even though the source of receipt was outside India but the source of income was from India, so the assessee was bound to deduct the tax at source, and this was not done.
Ved Jain and Supriya Mehta, appearing for the assessee contended that since the project was carried out and the services were outside India, the income of the non-resident is not liable for TDS according to Section 9(1) (vii)(b) of the Act.
In this case, the assessee company had entered into an arrangement with Everest Global Inc, and a work order was issued, for the services of Everest Global Inc. In the present case assessee company has entered into an agreement with Everest Global Inc. and a work order was issued and services of Everest global Inc were used for carrying out the project work, the source of income was located outside of India and payments were also made outside of India.
It is vital to note that the assessee company used and paid for services provided outside of India, and as such, the assessee is not liable for tax deductions under Section 195 of the Income Tax legislation.
The bench, comprising B.R.R. Kumar and Sudhir Kumar, held that in this present case, there is a clear application of Section 9(1)(vii)(b) of the Income Tax statute, and the income earned by non-residents cannot be deemed to accrue or arise in India, and the fees for technical services cannot be taxed. As the work order was issued outside the country to generate income outside the country, the amount so paid comes within the purview of the exception provided under Section 9(1)(vii)(b) of the Income Tax Act. Thus, it is not required for the assessee to deduct tax at source.
The appeal was allowed, and the addition made by the AO and which was confirmed by CIT(A) has been deleted by the bench.
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