The Delhi Bench of Income Tax Appellate Tribunal(ITAT) upheld the deletion of demand for non-deduction of tax on agency fees paid by Bharti Airtel Limited. The tribunal dismissed the Revenue’s appeal and confirmed that the assessee had no obligation to deduct tax on the agency fees.
The Revenue-appellant raised an issue concerning the deletion of demand for non-deduction of tax on agency fees paid by the Bharti Airtel Limited,the respondent-assessee,to Deutsche Bank AG, London Branch, and Royal Bank of Scotland PLC, UK.
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The assessee submitted that these payments were made to facility agents who were responsible for collecting funds from the borrower for further transfer to the ultimate beneficiary. They argued that the payments were for administrative services and were taxable as business income in the hands of the recipients.
Furthermore, since these foreign entities did not have a permanent establishment (PE) in India, there was no requirement to deduct tax at source.
The Assessing Officer(AO) disagreed with this argument, holding that the assessee was liable to deduct tax on such agency fees. As a result, the assessee appealed the decision to the first appellate authority.
Upon review, the first appellate authority ruled in favor of the assessee, stating that although both banks had branches in India, the Indian branches did not play any role in arranging loans or handling
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reimbursements. The appellate authority concluded that no part of the agency fees could be attributed to the Indian branches, and therefore, there was no obligation to deduct tax at source in India.
The Revenue appealed this decision, but the tribunal examined the materials on record and the submissions of both parties. It found that the first appellate authority had provided a clear factual determination, establishing that the Indian branches of the payee banks had not been involved in the transactions in question. Additionally, the Tribunal noted that the AO failed to present any factual evidence showing the involvement of the Indian branches.
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The two member bench comprising Saktijit Dey(Vice President) and Naveen Chandra (Accountant Member) upheld the decision of the first appellate authority. Accordingly, the appeal was dismissed, confirming that the assessee was not liable to deduct tax on the agency fees paid to the foreign banks.
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