INCOME TAX ACT, 1961

Section 195

Tax deduction at source - Under section 195 - Payments in respect of selling and marketing expenses to US subsidiary -

Assessee-company was engaged in business relating to online advertising. AO noticed that the assessee had been making payments in respect of selling and marketing expenses to its US subsidiary. AO took the view that the said payments were in the nature of 'Fees for technical services' and hence, the assessee should have deducted tax at source on the same under section 195. Assessee submitted that the payments made to its subsidiary would not fall under the category of 'Fee for technical services' in terms of Article 12 of India-USA DTAA. However, the AO examined the provisions of section 9(1)(vii) and held that the payments had been made for rendering of any managerial, technical or consultancy services. Further, CIT(A) held that the payments made by the assessee were in respect of composite services (being royalty as well as consultancy services and some others also). Since such services were taxable under the IT Act as well as DTAA, the TDS should have been deducted on the same. Held: AO mainly placed reliance on the provisions of section 9(1)(vii), though he made reference to DTAA at some place. Further, the AO had not properly analyzed the nature of services rendered by the assessee's subsidiary in the context of section 9(1)(vii) or DTAA, even though he extracted the agreement entered between the assessee and its subsidiary. Further, the nature of services provided by the subsidiary had not been analyzed by CIT(A) also. Further, the CIT(A) had also not properly analyzed the provisions of Article 12 of India-USA DTAA. Therefore, it could be said that the CIT(A) rendered the decision without bringing on record supporting materials and also without properly analyzing the provisions and contentions of the assessee. Accordingly, the matter was remanded to the CIT(A) for adjudicating it afresh by properly analyzing the nature of services, bringing on record materials relied upon, contentions of the assessee and the relevant provisions of the Act and DTAA.

REFERRED :

FAVOUR : Matter remanded.

A.Y. : 2014-15 to 2016-17

SUBSCRIBE FOR FULL CONTENT