AMD Research & Development Center India (P) Ltd. v. Dy. CIT

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The Tax Publishers2014 TaxPub(DT) 4157 (Hyd-Trib) : (2015) 167 TTJ 0613 : (2015) 115 DTR 0273 : (2015) 040 ITR (Trib) 0397 AMD Research & Development Center India (P) Ltd. v. Dy. CIT INCOME TAX ACT, 1961 --TDS--Assessee-in-defaultPayments to non-resident parent-company for 'fee for included services'--The assessee was a company, which was a subsidiary of ATI Canada during the years under consideration. It is basically set up as a R&D and Design Centre for providing captive services to its parent company in Canada. The services rendered by it mainly included development of software and hardware solutions in support of handheld and digital TV products, graphics and CPU and testing and validation of developed software and hardware and assistance in designs, development and support for the software and hardware solutions. During the years under consideration, the assessee had made the following payments to its parent company, ATI, Canada on account of software expenses and engineering expenses. Since no tax at source was deducted by the assessee from the above remittances made to its parent company abroad, as required by the provisions of section 195 the assessee was called upon by the AO to explain why it should not be treated as an assessee in default for its failure to do so. On the basis of the above findings, the AO came to the conclusion that the remittances made by the assessee to ATI Technologies, Canada in the guise of reimbursement of engineering and software expense actually represented fresh cash/income paid to the said non-resident company and the same, therefore, the amount so remitted was chargeable to tax in the hands of the ATI Technologies, Canada in India under the head 'Income from other sources' as per Income Tax Act, 1961. For this conclusion, he also relied on article 21(3) of India Canada DTAA, which provides that the income arising to the non-residents in India from other sources shall be taxable in India. In reply thereto, it was submitted by the assessee that the amount on account of engineering expenses was paid by it to ATI Technologies, Canada for the engineering services, which were actually received from M/s. Soctronics. It was contended that payment for the said services availed by the assessee was initially made by ATI, Canada to Soctronics India Private Limited and the same was subsequently reimbursed by the assessee company to ATI Canada. It was contended that the payment made by the assessee company to ATI Technologies, Canada towards engineering services thus was nothing but reimbursement of expenses incurred by ATI, Canada on behalf of the assessee company and there being no element of profit involved in the said payment, there was no requirement of deduction of tax at source. The AO accordingly held that the remittance made by the assessee to ATI Technologies, Canada constituting income from other sources was chargeable to tax in the hands of the said foreign company at the rate of 40% with surcharge and education cess as applicable and the assessee was liable to be treated as in default to the extent of such tax liability under section 201(1) of the Act, having failed to deduct tax at source as per the provisions of section 195 of the Act. He accordingly quantified the amount payable by the assessee under section 201(1). The contention of the assessee was not found acceptable by the AO in the absence of any agreement between the assessee and the ATI, Canada or between the assessee and Soctronics produced for his verification. The only evidence produced by the assessee in the form of invoices raised by its parent company ATI Technologies, Canada was not found to be sufficient by the AO to support the claim of the assessee. He also recorded the statement of the Chartered Accountant who had issued certificates in Form Nos.15CA/15CB for 'No TDS' from the remittances of reimbursement by the assessee to ATI, Canada and inferred from the said statement that the certificates were issued by the said Chartered Accountant on the basis of oral explanation given by the officers of the assessee company without any specific analysis or verification. The AO also found from the information provided by the Directors of Soctronics that the payments received by the said concern from ATI, Canada were recorded as export sales during the years under consideration. The AO accordingly held that the remittance made by the assessee to ATI Technologies, Canada constituting income from other sources was chargeable to tax in the hands of the said foreign company at the rate of 40% with surcharge and education cess as applicable and the assessee was liable to be treated as in default to the extent of such tax liability under section 201(1), having failed to deduct tax at source as per the provisions of section 195. He accordingly quantified the amount payable by the assessee under section 201(1). As regards the balance amount of 50%, he held hat it was the excess payment made by the assessee company to its parent company and the same, therefore, was chargeable to tax in India in the hands of ATI Technologies, as per article 12(8) of India Canada DTAA as rightly held by the AO. *Held:* At the time of hearing when this position was confronted to the counsel for the assessee, he has also agreed that if the case of the assessee for reimbursement of actual cost to ATI T, Canada, without any profit element is not found acceptable by the Tribunal, the amount in question is liable to be treated as “fee for included servicesâ€, which is chargeable to tax in India in the hands of ATI, Canada as per the domestic law and India Canada DTAA. It accordingly follows that the assessee company was liable to deduct tax at source from this amount as per the provisions of section 195, and having failed do so, it has to be treated as an assessee-in-default under section 201(1) to the extent of tax payable by ATI, Canada in India on the amount in question which is in the nature of 'fee for included services'. Tribunal accordingly modifies the order of the CIT(A) on this issue and sustain the order of the AO in treating the assessee as assessee-in-default under section 201(1) to the extent of tax payable by ATI, Canada in India on the amount in question which is chargeable as 'fee for included services' along with interest payable thereon under section 201(1A). SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2014 TaxPub(DT) 4157 (Hyd-Trib) : (2015) 167 TTJ 0613 : (2015) 115 DTR 0273 : (2015) 040 ITR (Trib) 0397

AMD Research & Development Center India (P) Ltd. v. Dy. CIT

INCOME TAX ACT, 1961

--TDS--Assessee-in-defaultPayments to non-resident parent-company for 'fee for included services'--The assessee was a company, which was a subsidiary of ATI Canada during the years under consideration. It is basically set up as a R&D and Design Centre for providing captive services to its parent company in Canada. The services rendered by it mainly included development of software and hardware solutions in support of handheld and digital TV products, graphics and CPU and testing and validation of developed software and hardware and assistance in designs, development and support for the software and hardware solutions. During the years under consideration, the assessee had made the following payments to its parent company, ATI, Canada on account of software expenses and engineering expenses. Since no tax at source was deducted by the assessee from the above remittances made to its parent company abroad, as required by the provisions of section 195 the assessee was called upon by the AO to explain why it should not be treated as an assessee in default for its failure to do so. On the basis of the above findings, the AO came to the conclusion that the remittances made by the assessee to ATI Technologies, Canada in the guise of reimbursement of engineering and software expense actually represented fresh cash/income paid to the said non-resident company and the same, therefore, the amount so remitted was chargeable to tax in the hands of the ATI Technologies, Canada in India under the head 'Income from other sources' as per Income Tax Act, 1961. For this conclusion, he also relied on article 21(3) of India Canada DTAA, which provides that the income arising to the non-residents in India from other sources shall be taxable in India. In reply thereto, it was submitted by the assessee that the amount on account of engineering expenses was paid by it to ATI Technologies, Canada for the engineering services, which were actually received from M/s. Soctronics. It was contended that payment for the said services availed by the assessee was initially made by ATI, Canada to Soctronics India Private Limited and the same was subsequently reimbursed by the assessee company to ATI Canada. It was contended that the payment made by the assessee company to ATI Technologies, Canada towards engineering services thus was nothing but reimbursement of expenses incurred by ATI, Canada on behalf of the assessee company and there being no element of profit involved in the said payment, there was no requirement of deduction of tax at source. The AO accordingly held that the remittance made by the assessee to ATI Technologies, Canada constituting income from other sources was chargeable to tax in the hands of the said foreign company at the rate of 40% with surcharge and education cess as applicable and the assessee was liable to be treated as in default to the extent of such tax liability under section 201(1) of the Act, having failed to deduct tax at source as per the provisions of section 195 of the Act. He accordingly quantified the amount payable by the assessee under section 201(1). The contention of the assessee was not found acceptable by the AO in the absence of any agreement between the assessee and the ATI, Canada or between the assessee and Soctronics produced for his verification. The only evidence produced by the assessee in the form of invoices raised by its parent company ATI Technologies, Canada was not found to be sufficient by the AO to support the claim of the assessee. He also recorded the statement of the Chartered Accountant who had issued certificates in Form Nos.15CA/15CB for 'No TDS' from the remittances of reimbursement by the assessee to ATI, Canada and inferred from the said statement that the certificates were issued by the said Chartered Accountant on the basis of oral explanation given by the officers of the assessee company without any specific analysis or verification. The AO also found from the information provided by the Directors of Soctronics that the payments received by the said concern from ATI, Canada were recorded as export sales during the years under consideration. The AO accordingly held that the remittance made by the assessee to ATI Technologies, Canada constituting income from other sources was chargeable to tax in the hands of the said foreign company at the rate of 40% with surcharge and education cess as applicable and the assessee was liable to be treated as in default to the extent of such tax liability under section 201(1), having failed to deduct tax at source as per the provisions of section 195. He accordingly quantified the amount payable by the assessee under section 201(1). As regards the balance amount of 50%, he held hat it was the excess payment made by the assessee company to its parent company and the same, therefore, was chargeable to tax in India in the hands of ATI Technologies, as per article 12(8) of India Canada DTAA as rightly held by the AO. Held: At the time of hearing when this position was confronted to the counsel for the assessee, he has also agreed that if the case of the assessee for reimbursement of actual cost to ATI T, Canada, without any profit element is not found acceptable by the Tribunal, the amount in question is liable to be treated as “fee for included servicesâ€, which is chargeable to tax in India in the hands of ATI, Canada as per the domestic law and India Canada DTAA. It accordingly follows that the assessee company was liable to deduct tax at source from this amount as per the provisions of section 195, and having failed do so, it has to be treated as an assessee-in-default under section 201(1) to the extent of tax payable by ATI, Canada in India on the amount in question which is in the nature of 'fee for included services'. Tribunal accordingly modifies the order of the CIT(A) on this issue and sustain the order of the AO in treating the assessee as assessee-in-default under section 201(1) to the extent of tax payable by ATI, Canada in India on the amount in question which is chargeable as 'fee for included services' along with interest payable thereon under section 201(1A).