In a major ruling the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ), Chennai Bench noted that the responsibility shifts to an Indian resident, to meet with TDS obligation when one party to the agreement is non-resident having no Permanent Establishment ( PE ).
The assessee, M/s. VSL India Private Limited had entered into an ‘Offshore Services Agreement’ with their holding company namely, M/s. VSL International Ltd., Switzerland (‘M/s. VSLI’) whereby the holding company was to provide the appellant with requisite technical assistance in the fields of consultancy, advisory, operation and other services, as per the terms contained in the above agreement.
It was also clear that the above services were to be provided by the VSL group as such, including M/s. VSLI and all other subsidiary and affiliate companies with whom separate service agreements could be entered into. Thus, an agreement was signed between the appellant and M/s. VSL, Hong Kong for providing assistance in managerial, financial, sales, marketing, controls and audit, taxes, personnel and training and technical services.
The argument advanced for the Revenue that as per the terms of the agreement, it is for the appellants to bear the TDS and thus it is to be treated as part of the consideration.
When it is contended that the assessee ‘grossed up’ the TDS, it is understood to mean that the assessee has indeed received only the amount as agreed towards value/consideration and the expenditure towards TDS is met by the assessee. So, when such TDS is not received from the non-resident since it is not towards value/consideration, there is no merit in requiring such assessee to include even the TDS it paid in the value of services, as in the case on hand.
The Coram comprising P Dinesha, Judicial Member and M Ajit Kumar, Technical Member observed that “In agreements where one is a non-resident and such nonresident doesn’t have any PE, then it becomes the responsibility of the other party who is an Indian resident, to meet with the TDS obligation arising on account of the agreement in question.”
“Even if such clause is not there in the agreement, still the resident cannot escape the tax liability and hence it becomes incumbent upon it to deduct tax at appropriate rate, at source, before making the payment” the Tribunal concluded.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
