The Tax Publishers2020 TaxPub(DT) 5338 (Mad-HC)


Section 195 Section 201(1)/201(1A) Article 12(4)

As regards the payments, which were made for sales and marketing promotion of products, question of deduction of tax at source does not arise under section 195.

Tax deduction at source - Withholding of tax under section 195 - Assessee, NRI, having no business connection or PE - Taxability of business development commission (BDC) in India

Assessee was a private limited company and a subsidiary of a company incorporated in the United States (US). The assessee was engaged in business process outsourcing and IT-enabled services to a wide range of industries and primarily caters to third party clients across varied industries such as insurance, health care, banking, etc., apart from providing support services for BPO operations and transaction processing services to its associated enterprises located across the globe. Assessee did not undertake any marketing activity and the US company was responsible for business development of the group, including assessee. The assessee was stated to have entered into an agreement dated 01-7-2005 with the company incorporated in the US for the purpose of rendering marketing services. The US company was remunerated with a business development commission (BDC) to procure business for the assessee. During the assessment year under consideration namely, 2008-09, the assessee incurred an amount of Rs.22,41,69,067 in relation to payment of BDC to the US company. The assessee did not deduct tax at source under Section 195, as, according to them, the income was not chargeable to tax in India and there was no obligation to withhold taxes. In this appeal, though assessee had dealt with the merits of the case as to how they were not required to withhold tax with regard to the BDC paid to the US company, it may be necessary to go into the same only if this court was not convinced. On merits, it is submitted that the BDC was not taxable under the Indian Income Tax Act in the hands of the recipient and more particularly when there was no business connection. It is further submitted that the recipient did not have permanent establishment in India and that the BDC was not taxable in the hands of the recipient in India in view of the Double Taxation Avoidance Agreement (DTAA) between India and the US. Held: The issue as to taxability of BDC was attained finality by the order of CIT(A) who held that payments, which were for sales and marketing promotion for the development of the business of the appellant was neither fee for technical services nor consultancy services under section 9(1)(vi) or fee for included services under article 12(4) of the India US DTAA.

REFERRED : New India Life Assurance Co. Ltd. v. CIT (1957) 31 ITR 844 (Bom-HC) : 1957 TaxPub(DT) 97 (Bom-HC), Omar Salay Mohamed Sait v. CIT (1959) 37 ITR 151 (SC) : 1959 TaxPub(DT) 148 (SC), V. Ramasamy Iyengar v. CIT (1960) 40 ITR 377 (Mad) : 1960 TaxPub(DT) 179 (Mad-HC) and S. Chenniappa Mudaliar v. CIT (1964) 53 ITR 323 (Mad-HC) : 1964 TaxPub(DT) 342 (Mad-HC)

FAVOUR : In assessee's favour.

A.Y. : 2008-09


Section 254


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