The Income Tax Appellate Tribunal ( ITAT ) Ahmadabad Bench recently in an appeal filed before it held that provision prescribing the time limit for Tax Deducted at Source ( TDS ) is not applicable to Non Residents.
The Assessee engaged in the business of software development services and during the year the AO observed that the assessee did not deduct TDS under Section 195 of the Income Tax Act on international transaction for payment made on account of Data Line Charges .The AO issued show-cause notice for non-deduction of TDS and further observed that the assessee was rendering software development services to Allscripts US, the ultimate holding company which was non-resident in India and had entered into an agreement for third party services provider for providing end-to-end MPLS network facility (lease line connectivity) to connect development centre offices of the assessee with the offices of Allscripts US to access standard communication line for private and highly secure information and said third party vendor provided the same standard services to itsother customers across the globe. The AO pass order under Section 201 /201(1A) of the Income Tax Act, 1961. Assessee filed appeal before the CIT (Appeals).The appeal was allowed .Against the order made by the CIT (A) Revenue filed an appeal.
TheAR Shri Nikhil Mutha, for the assessee contended that “the notice for non-deduction of TDS was issued after four years from the end of relevant assessment year, thus, the order under Section 201 / 201(1A) is time barred. Section 201(3) did not specify that the limitation will not be applicable to payment to non-resident”.
A.R. further submitted that “there was no express provision under Section 201 which prescribes a time frame within which an order has to be passed for failure to deduct appropriate taxes from a person who is a non-resident”
The contention of the DR assubmitted by Shri. Atul Pandey, “observation of the CIT (A) that the notice under Section 201 of the Act issued beyond the period of four years is not sustainable.And the statute defines the period of limitation for passing of order under Section 201 / 201(1A) of the Act with respect to payments to resident assessee whereas the assessee made payments to a non-resident and thus, bar of limitation under Section 201(3) of the Act did not apply to the payments to non-resident”.
DR further contended that “payment made by the assessee to its holding company was in the nature of reimbursement, therefore, tax was not required to be deducted under Section 195 of the Act, is not a proper proposition holding by the CIT(A) as the assessee did not provide the agreement made between holding company and third party vendor”.
After considering the contention of the both side the division bench of Tribunal compraising Sri. Ms. Suchitra Kamble (Judicial Member) and Shri Waseem Ahmed, (Accountant Member) dismiss the Appeal file by the Revenue and held that “The payment made to the non-resident was at no point of time pointed out by the Revenue that the said is coming under the purview of TDS deduction. The amount paid to Allscripts USA is on actual cost basis without any element of markup and for the reimbursement of expenses incurred by way of using the network connectivity provided by the service provider and the amount is not chargeable to tax on any accounts.”
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