The Delhi bench of the Income Tax Appellate tribunal, in a recent ruling held that payments made to foreign entities in the nature of rent, advertisement and exhibition expenses are not subject to TDS since they are business expenditure.The Tribunal opined that such expenses are subject to the provisions of TDS only if the payee had a “PE” in India as per the provisions of the relevant DTAA.
Coming to the facts of the case, an intimation under section 200A of the Income Tax Act was received by the assessee to the effect that a sum of Rs. 2360700/- was determined as payable u/s. 200A by the deductor in the TDS statement for the first quarter of the relevant financial year. The applicant deductor was found to have committed a default of Short Deduction to the tune of Rs. 2001400/-. Accordingly, a demand of Rs. 2360700 (including interest of Rs.358520/-) was determined as payable on account of the said short deduction.The assessee filed a rectification application against the same by submitting that it had made remittances to foreign countries which in connection with rent for office accommodation, expenses incurred toward exhibitions outside India and Advertisement in foreign journals towards display of its products etc for which it had erroneously deducted the TDS at minimum rates. While rejecting these contentions, the assessing officer passed order owing to non-availability of foreign parties, by applying 20% as specified in the intimation.
On appeal, the Commissioner f Income Tax (Appeals) allowed assesses contentions and therefore, the revenue approached the ITAT.
Upholding the order passed by the CIT(A), the Tribunal observed the following; “After going through the findings of the Ld.CIT(A), as aforesaid, I find from the details of payments and TDS as furnished by the assessee that the taxes have been withheld by the assessee after grossing up and taxes so withheld have been deposited into credit of central government. Therefore, pre-conditions as mentioned in section 248 of the Act are satisfied. Further, it is seen that payments made to foreign entities are in nature of rent, advertisement and exhibition expenses and therefore are in thenature of business receipts in hands of payee. Such business receipts are taxable in India only if payee had ‘PE’ in India within meaning of relevant DTAA. From the facts, it has been observed that foreign entities did not have PE in India and therefore payments were not chargeable to tax in India. Accordingly, the assessee was under no obligation to deduct taxes at source while making these payments. Accordingly, Ld. CIT(A) has rightly held that the taxes were not required to be withheld u/s. 195(1) of the Act on the impugned payments made by the assessee and allow the issue in dispute in favour of the assessee which in my considered opinion, does not need any interference on my part, hence, I uphold the order of the Ld. CIT(A) on the issue in dispute and reject the grounds raised by the raised by the Revenue.”
Read the full text of the order below.
