IN THE INCOME TAX APPELLATE TRIBUNAL, NEW DELHI BENCH
Assessment Year 2023-24
Assessee: [Name of the Company]
Income Tax Officer, Ward X, New Delhi
v.
[Name of the Company]
Date of Pronouncement: [Date]
The issue before the ITAT concerned the liability of the taxpayer company for deduction of tax at source u/s 195 of the Income Tax Act in a case where the company utilized the services of a non-resident company located outside India, and the payment was also made outside India.
Section 195 of the Income Tax Act mandates the deduction of tax at the time of credit or payment for certain sums payable to non-residents, including interest, royalty, and fees for technical services, among others.
The Bench, comprising of B.R.R. Kumar (Accountant Member) and Sudhir Kumar (Judicial Member), observed that the taxpayer is not liable to deduct tax at source u/s 195 except in two circumstances: (i) where the services are utilized in a business conducted by the assessee outside India, or (ii) where the fee is paid for the purpose of earning income from any source outside India.
In the present case, the assessee company, engaged in software development, made a payment to Everest Global Inc without deducting tax at source u/s 195. The Assessing Officer (“AO”) contended that the taxable event and the occasion for TDS arose when the assessee made a payment of royalty to Everest Global Inc. as a result, made a disallowance u/s 40(a)(i).
Upon review of the CIT(A)’s order, the Bench found that Everest Global Inc does not have a permanent establishment in India, and the services were provided from outside India to the assessee. It was also noted that, as per the agreement between the assessee and Everest Global Inc, the services were utilized for project work, and the source of income was located outside India, with payment also being made outside India.
The ITAT concluded that the amount paid by the assessee to Everest Global Inc was covered by the exception provided u/s 9(1)(vii)(b) as the services were utilized for making income from a source outside India. Therefore, the assessee was not required to deduct tax at source.
In view of the above, the ITAT ruled in favor of the assessee and deleted the addition made by the AO.
The appeal of the assessee is allowed.