Supportive Services with Certificate for Non-Deduction of TDS issued u/s 195(2), Entitled to Allowance: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has recently, in an appeal filed before it, held that supportive services with certificate for non-deduction of TDS, issued u/s 195(2) of the Act, is entitled to allowance.

The aforesaid observation was made by the Tribunal when an appeal was filed before it by the Revenue, challenging the impugned order dated 27/03/2019, passed under section 250 of the Income Tax Act, 1961, by the learned Commissioner of Income Tax (Appeals)–12, Mumbai, CIT(A), for the assessment year 2015– 16.

The ground of the appeal being the question as to whether on the facts and circumstances of the case as well as in law , the CIT(A) has erred in deleting the amount of Rs 5,40,49,783/- made by the assessing officer under section 40(a)(i) read with section 195 of Income Tax Act , in the income as per normal provisions of Income Tax Act, 1961, the DR’s submission for the Revenue was that the certificate issued under section 195(2) of the Income Tax Act being a provisional certificate ,the same cannot be relied upon for determining the liability of the assessee to deduct tax at source in respect of payment made to the Australian group entity, and further that the services provided by the foreign company to the assessee being technical in nature ,the assessee was liable to deduct tax at source under section 195 of the Income Tax Act.

However, with the AR’s counter submission that no technical knowledge was being shared by the foreign company with the assessee, and that the agreement was only for business support services to provide common template of services, the Tribunal observed as follows:

“We find that the Australian entity agreed to provide administration/business support services including actuarial, finance support, growth and innovation support, human resource support, infrastructure support, design of marketing and sales brochure and development of group marketing strategy, to the assessee. As per the agreement, the services are merely support services and are neither technical nor managerial nor consulting in nature and are not intended to transfer/make available any knowledge/experience/skill to the assessee.”

“Further, we find that the purpose of the activities undertaken under the aforesaid agreement is to give direction to the assessee so that they adopt or follow standard procedure or template in various matters. It is further mentioned that the services are non-technical in nature and are availed by the group companies with the intention of carrying on business in line with the best practices followed by Cover-More group. And in consideration of services received under the aforesaid agreement, the assessee paid amount of Rs. 5,40,49,783 to the Australian entity during the year”, the Bench added.

Thus, dismissing the Revenue’s appeal while adding to its observation, the Tribunal commented:

“The Hon‟ble Supreme Court of India in GE India Technology Cen. (P.) Ltd. vs CIT: [2010] 327 ITR 456, has held that section 195(2) provides a remedy by which a person may seek a determination of the "appropriate proportion of such sum so chargeable", where a proportion of the sum so chargeable is liable to tax. Once, the assessee has sought the remedy provided under the Act and the Competent Authority of the Income Tax Department after consideration of the facts, which are similar to the facts for the year under consideration, came to the conclusion under section 195(2) of the Act that Nil tax is liable to be withheld, in such a situation submission of the Revenue that assessee has failed to deduct tax at source on the payment made to the Australian entity is completely contrary to its own determination of such liability in the case of  the assessee. And in view of the above, we find no infirmity in the impugned order passed by the learned CIT(A).”

To Read the full text of the Order CLICK HERE

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