PER VIKAS AWASTHY, JUDICIAL MEMBER: The set of three appeals for the Assessment Years (AYs) 2003-04, 2004-05 & 2005-06 have been filed by the Revenue against the order of the Commissioner of Income Tax(Appeals)-V,
I.T.A. Nos. 167, 168 & 169/Mds/2013 2 Chennai for the respective AYs. In all the three appeals, the only issue raised by Revenue is with respect to dis-allowance u/s.40a(i) of the Income Tax Act, 1961 (herein after referred to as the Act) for non-deduction of tax at source on the payment of Royalty and Technical Fee by the assessee.
2. The assessee is in the business of manufacturing and trading of automobile parts and accessories. The assessee- company is in technical collaboration with a Korean Company. As per license and technical agreement between the assessee and the Korean Company, the assessee is under obligation to pay running Royalty and Technical Assistance Fee on regular basis. The Assessing Officer held that the TDS has been deducted but the amount has been deposited after the expiry of statutory time limit prescribed u/s.200(1) of the Act. The Assessing Officer accordingly dis-allowed the expenditure claimed by the assessee on account of payment of Royalty and Technical Fee. Aggrieved against the assessment orders for the respective AYs, the assessee preferred appeals before the CIT(Appeals). The CIT(Appeals) after appreciating the facts of the case and judgments relied upon by the Counsel for the assessee, came to the conclusion that the assessee has deducted tax at source and
I.T.A. Nos. 167, 168 & 169/Mds/2013 3 has paid the same within the prescribed time. However, the tax deducted in the last quarter of the Financial Year has been paid in the next Financial Year. The CIT(Appeals) further observed that the assessee has been following this practice for the past several years and even in the AYs subsequent to the AYs under consideration, the assessee is following the same practice. The assessee has furnished complete details of the tax deducted at source and deposited in the Government Exchequer. The CIT(Appeals) concluded that the liability of the assessee to deduct TDS on Royalties and fee for technical services arises in the year in which such payments were actually paid by the assessee. The CIT(Appeals) deleted the addition made by the Assessing Officer u/s.40a(i) and allowed the appeals of the assessee. Aggrieved against the order of CIT(Appeals), the Revenue has come in appeals before the Tribunal.
3. Shri T.N.Betgeri, appearing on behalf of the Revenue submitted that tax deducted at source has been paid in the next year which is against the law. The ld.DR further submitted that the provisions of DTAA are not applicable on the assessee as claimed by the assessee. The assessee has debited the payments of
I.T.A. Nos. 167, 168 & 169/Mds/2013 4 Royalty and technical fee in one year and has deposited the TDS in the next Financial Year.
4. On the other hand, Shri Raghunathan, appearing on behalf of the assessee vehemently supported the order of the CIT(Appeals) and prayed for the dismissal of the appeals of the assessee. The ld.Counsel for the assessee submitted that the tax deducted at source has been paid within the time limit prescribed under the provisions of section 200(1) of the Act.
5. We have heard the submissions made by the representatives of both the sides. We have also perused the orders of the authorities below. In all the three appeals of the Revenue, common issue with regard to dis-allowance u/s.40a(i) on account of non-deduction of tax at source on payment of Royalty and Technical Fee has been raised. Before the CIT(Appeals), the ld.Counsel for the assessee has placed reliance on the following case laws in support of his contentions:
i. Pizza Hut International LLC c/o. Diesh Mehta & Co Vs. DDIT International Taxation {(2012) 6 TMI 328-ITAT Delhi}.
I.T.A. Nos. 167, 168 & 169/Mds/2013 5
ii. CSC Technology Singapore Private Limited, Singapore vs Assistant Director of Income Tax (ITAT Delhi, date of announcement 17.02.2012).
iii. DCIT vs. UHDE GMBH (1996) 54 TTJ 355 (Bom).
iv. National Organic Chemical Industries limited versus DCIT (2006) 5 SOT 317 (Mum). The CIT(Appeals) after considering the same and the facts of the case has held as under: 6.4.1. In view of the above discussed decisions as the income of the recipient of the royalty and fees for technical services becomes liable to be taxed on the receipt basis under the Income Tax Act, the liability to deduct TDS on such payments arises in the year of payment. This, as observed in the case of Pizza Hut International LLC (supra) can lead to deferment of payment of tax for some time or for indefinite time. However, after considering this matter the ITAT held that this issue has to be decided on the basis of conduct of the two parties. It was further observed that it is no doubt true that the provision may be used as a device to defer the tax for any length of time by mutual understanding of the parties, however, to come to such a conclusion in a particular case, the conduct of the parties has to be seen and thereafter a conclusion has to be arrived at that deferment of payment was a device used for the purpose of delaying the payment of tax.
I.T.A. Nos. 167, 168 & 169/Mds/2013 6 In the present case no such conclusion has been drawn. Rather it has been submitted on behalf of the appellant that the same practice has been followed for the past several years and that the AO has picked up the cases for three assessment years viz 2003-04, 2004-05 & 2005-06 for making the aforesaid disallowances. It was further submitted that there was no intention of the appellant to defer the payment of tax and from the details of payment to the licensor and the TDS deducted that were filed during the course of appeal proceedings it were shown that the TDS has been deducted by the appellant while making the payment in the subsequent year that is during the assessment year 2004-05. Similar details filed for the subsequent assessment years also support the claim of the appellant. In view of the above discussion and respectfully following the decisions as discussed above, I hold that the liability of the appellant to deduct TDS on a royalties and fees for technical services would arise in the year in which such payment is actually made by the appellant. The AO, therefore, is directed to delete the aforesaid disallowances made on account of non-deduction of TDS under section 40(a)(i). The grounds of appeal with regard to this issue, therefore, are allowed. We find that the order of the CIT(Appeals) is well reasoned and detailed. The assessee has been consistently following this method of deducting and depositing of tax at source for the past several years. Even after the AYs under consideration i.e., AYs.