No TDS shall made towards Management Fee paid to Associated Enterprises which cannot be categorized as “FTS”: Delhi HC disposes Notice issued by ITD [Read Order]

In a recent case, the Delhi High Court, while disposing of the notice issued by the Income Tax Department (ITD), held that no Tax Deduction at Source should be made towards the management fee paid to Associated Enterprises (AE) that could not be categorized as Fee for Technical Service (FTS).

The writ petition was filed by the petitioner, Intertek India Private Limited, against the notice issued by the Income Tax Department for purported failure to deduct Tax at Source (TAS) against the remittance of management fees amounting to Rs. 2,06,29,647/-. During the assessment proceedings, the Assessing Officer (AO) disallowed the amount under section 40(a)(i) of the Income-Tax Act. The matter was then considered before the CIT(A), who deleted the addition made by the AO. The CIT(A) held that management fees paid by the petitioner/assessee to its Associated Enterprises (AEs) could not be categorized as “Fee for Technical Services” (FTS), and thus, it was not liable to deduction of tax at source under Section 195 of the Income Tax Act.

The tribunal also sustained the order of the CIT(A) by observing that the AO had failed to list out the “highly technical services” provided by the AEs to the petitioner/assessee. The AO also failed to allude to the relevant clause of the agreement demonstrating that the expertise available with the AEs was “made available” to the petitioner/assessee.

Zoheb Hossain, senior standing counsel appearing on behalf of the respondent/revenue, stated that the appeal against the Tribunal’s order was not preferred due to low tax effect.

After reviewing the facts and records, the division bench of Justice Rajiv Shakdher and Justice Girish Kathpalia disposed of the notice issued by the Income Tax Department, holding that no Tax Deduction at Source should be made towards the management fee paid to Associated Enterprises (AE) that could not be categorized as Fee for Technical Service (FTS).

Advocates Kamal Sawheny, Nikhil Agarwal, Nishank, and Harshita Agrawal appeared for the petitioner.

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