ITAT orders Re-examination on Applicability of TDS u/s 195 of Income Tax Act on Payment made to Non-Residents [Read Order]

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT), ordered re-examination on applicability of TDS under Section 195 of the Income Tax Act, 1961 on payment made to non-resident.

The assessee, M/s. BASF Catalysts India Pvt Ltdentered into a Cost Sharing Agreement (CSA) with BASF SE, Germany as one of the pool members and the said agreement came into effect from 1st January, 2010. The assessee filed an application under section 195(2) of the Income Tax Act to the Assessing Officer for certificate under section 197 of the Act to make payment to the parent company without deduction of tax at source under section 195 of the Act.

The Assessing Officer has issued certificate under section 197 of the Act and directed the assessee to make the payment after deducting TDS at 10% as per section 195 of the Act. The assessee has remitted payment to its parent company and paid necessary TDS as directed by the Assessing Officer at 10% on amount remitted to its parent company.

However, the assessee has filed an appeal before the CIT(A) under section 248 of the Act and to declare that the assessee is not liable to pay TDS on payment to non-resident. The CIT(A), after considering relevant facts and also analysis of various provisions of the Act, including Double Taxation Avoidance Agreement (DTAA) between India and Germany, rejected the appeal filed by the assessee and upheld the action of the Assessing Officer on levying 10% TDS payment.

An identical issue has been considered by the Tribunal in assessee’s own case for earlier years in ITA Nos. 1187 & 3122/Chny/2016 & 1690 & 1691/Chny/2017, wherein it was held that the issue needs to go back to the Assessing Officer for further verification and accordingly, we direct the Assessing Officer to re-examine the issue of applicability of TDS as per section 195 of the Income Tax Act on payment made to non-resident and decide the issue in accordance with law.

A Bench consisting of Mahavir Singh, Vice President and G Manjunatha, Accountant Member observed that “We set aside the issue to the file of the AO and direct the Assessing Officer to re-examine the claim of the assessee in light of agreement between the parties and also provisions of section 195 of the Income Tax Act to decide whether payment made to non-resident is liable for TDS under provisions of section 195 of the Income Tax Act, 1961.”

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