ITAT: Payments Made to Non-Residents Not Subjected to TDS

Tax Deduction at Source is not applicable to payments made to non-residents, according to the Chennai bench of the Income Tax Appellate Tribunal (ITAT).

The manufacturer of turbochargers and engine parts for use in industrial engines, off-road vehicles, commercial vehicles, and passenger automobiles is Assessee Turbo Energy Private Limited. Following the filing of the income tax return, the Assessing Officer rejected any additions made under section 40(a)(i) of the Income Tax Act of 1961 for logistic service payments and any payments for which TDS was not deducted as required by section 195 of the Act.

Against the order, the assessor appealed to CIT (A). The addition made in response to the disallowance under section 40(a)(i) of the Income Tax Act of 1961 for failing to deduct TDS on payments made to non-residents was removed by CIT (A). Revenue appeal brought before ITAT incensed.

R. Bhoopathi, the attorney for the revenue, said that the assessee’s payment to the non-resident service provider is in the nature of management service and so falls under the guidelines of section 9(1)(vii) of the Income Tax Act of 1961. The Assessing Officer must deny the payment under section 40(a)(i) of the Income Tax Act 1961 if the assessee failed to deduct TDS on a payment to a non-resident as required by section 195 of that law.

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R. Vijayaraghavan’s attorney argued that the non-activities residents were limited to liaison work and not management or technical assistance. Further, he maintained that even if services provided outside of India were subject to taxation, they would only be subject to taxation if there was a permanent establishment or another form of commercial relationship in India.

The ITAT bench made up of G. Manjunatha, Vice President, and V. Durga Rao, Judicial Member, removed amendments made toward the disallowance of payment made to non-resident service providers after taking into account the arguments given by both parties.