Warranty Obligation being Part and Parcel of Sales Transactions, TDS not applicable as FTS: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Chennai bench has held that the warranty obligation being part and parcel of sales transactions cannot be treated as technical services for the purpose of TDS obligation.

The assessee, M/s. Tractors and Farm Equipment Ltd, is primarily engaged as manufacturer of agricultural tractors. It has sold tractors overseas through non-resident distributors. As part of the sales obligations, the assessee has to provide warranty. This warranty expenditure is incurred by the overseas distributors and the same are later on reimbursed by the assessee.

The assessee claimed that warranty expenditure is part of overall sales obligations and the expenditure is reimbursed on actual basis. The warranty obligation being part and parcel of sales transactions and therefore, the same could not be held to be ‘fees for technical services’. Another line of argument is that services have been carried as well as utilized outside India and therefore, there is no TDS obligation on the part of the assessee in view of the fact that the payees do not have any permanent establishment in India.

Concurring with the arguments of the assessee, the Tribunal bench comprising Shri V. Durga Rao, Judicial Member and Hon’ble Shri Manoj Kumar Aggarwal, AM held that “the services have been carried as well as utilized outside India. There is nothing on record that any of the payees has any permanent establishment in India. Therefore, as held by the bench, in such a case, there would be no obligation for assessee to deduct tax at source. We also concur with the submissions of Ld. AR that the warranty obligation being part and parcel of sales transactions and therefore, the same could not be held to be ‘fees for technical services’.”

To Read the full text of the Order CLICK HERE

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