ENKAY INDIA RUBBER CO PVT LTD,DELHI V. ACIT, CIRCLE 8(2), NEW DELHI

ITA 1268/DEL/2023

AI Insights

The case involves Enkay India Rubber Co. Pvt. Ltd, which appealed against the order of the Commissioner of Income Tax (Appeals) concerning the assessment year 2017-18. The primary issue was the disallowance under section 40(a)(i) of the Income Tax Act for non-deduction of tax at source on overseas payments for patent and trademark services. The Tribunal examined whether these payments, made to non-resident attorneys and government agencies for services rendered outside India, were subject to TDS under Indian law. The Tribunal referenced a similar case, Chander Mohan Lall vs. ACIT, where it was held that such payments were not chargeable to tax in India, thus not attracting the provisions of section 195 of the Act.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 298893 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 21-10-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 28-04-2023
• Other Referred Cases: Chander Mohan Lall vs. ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K.K MISHRA
• Assessee Lawyers: M.K MADAN; CHARTERED ACCOUNTANT
• Keywords: Set aside; TDS; Permanent establishment; Services rendered outside India
• Section: 195

Judgement Text

"आयकर अपीलीय अिधकरण िदʟी पीठ “डी”, िदʟी ŵी िवकास अव̾थी, Ɋाियक सद˟ एवं ŵी अवधेश क ुमार िमŵा, लेखाकार सद˟ क े समƗ IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “D”, DELHI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI AVDHESH KUMAR MISHRA, ACCOUNTANT MEMBER आअसं.1268/िदʟी/2023 (िन.व. 2017-18) ITA No. 1268/DEL/2023 (A.Y.2017-18) Enkay India Rubber Co. Pvt. Ltd, B-3, SMA Industrial Estate, Delhi 110033 PAN: AAACE-0097-Q ...... अपीलाथᱮ/Appellant बनाम Vs. Assistant Commissioner of Income Tax, Circle-8(2), Delhi ..... ᮧितवादी/Respondent अपीलाथŎ Ȫारा/ Appellant by : Shri M.K Madan, Chartered Accountant ŮितवादीȪारा/Respondent by : Shri K.K Mishra, Sr. DR सुनवाई कᳱ ितिथ/ Date of hearing : 21/10/2024 घोषणा कᳱ ितिथ/ Date of pronouncement : : 25/10/2024 आदेश/ORDER PER VIKAS AWASTHY, JM: This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (hereinafter referred to as 'the CIT(A)’) dated 08.03.2023, for assessment year 2017-18. 2. In this appeal the assessee has assailed the order of CIT(A) in confirming disallowance u/s. 40(a)(i) of the Income Tax Act, 1961 (hereinafter referred to as 2 ITA No. 1268/Del/2023 (AY 2017-18) ‘the Act’) for non deduction of tax at source (TDS) on overseas payment towards patent fees, reimbursement of official fees and professional fees, by treating such payments as Royalty taxable in India even though the income had accrued or arisen outside India. 3. Mr. M.K Madan, representing the assessee, stated that the assessee is involved in manufacturing of rubber surgical goods, footwear soles, and automotive parts. The assessee also exports products such as hot water bottles and football bladders. The assessee in order to protect its invention has applied for patents abroad. The assessee had to pay official fees to protect its patent trademark on yearly basis and had to renew it regularly. The assessee hired services of professionals outside India to comply with patent and trademark regulations. Legal and professional fees were paid to attorneys overseas after obtaining certification that they have no Permanent Establishment (PE) in India. As the payments were made for services rendered outside India, there was no question of deduction of TDS on professional fees. In the case of official fees, as the payments were made to government agencies for trademark registration, deduction of TDS on such payments is not warranted under the Act. The authorities below failed to appreciate these facts and disallowed the payments under section 40(a)(i) of the Act. Details of the parties and payments made were furnished to the AO/CIT(A) and the same has been reproduced in tabular form on pages 4 and 5 of the impugned order. 4. The ld. AR submits that similar issue had come before the Tribunal in the case of Chander Mohan Lall vs. ACIT in ITA No. 1869/Del/2019 for assessment year 2015-16. The Tribunal vide order dated 09.12.2021 after considering facts of 3 ITA No. 1268/Del/2023 (AY 2017-18) the case held that the payments are not chargeable to tax in India hence the provisions of section 195 of the Act are not attracted. 5. Per contra, Shri K.K Mishra representing the department vehemently defending the impugned order prayed for dismissing appeal of the assessee. 6. We have heard the submissions made by rival sides and have examined the orders of authorities below. The short question before us for consideration is: Whether the assessee was liable to deduct tax at source on payments made to non-resident attorneys where such payments are in the nature of official fees, reimbursement of renewal fees and professional fees? 7. The department has not disputed the fact that the overseas payments made by the assessee are towards reimbursement of expenses incurred by the non-resident attorneys towards renewal of registration of patents abroad and payments to registration authorities. Further, the Revenue has not controverted the fact that professional fee paid to the foreign attorneys who are non residents have no Permanent Establishment (PE) in India and none of the Attorneys have visited India during the year under assessment. The payments made by the assessee to non-resident attorneys for their services rendered are as under:- PARTY NAME PARTICULARS USD/EUR FIGURES INR FIGURES DrSchon, Neymeyr and Partner ANNUITY Bill Dated July 26,2016 2160 EUR @ 74.4060 160716.96 DrSchon, Neymeyr and Partner OFFICIAL FEES Bill dtd July, 26 2016 7820.59 EUR @ 74.4060 581898.81 Dr Schon, Neymeyr and Partner ANNUITY Bill Dated July 26,2016 1944 EUR @ 74.4060 144645.26 Dr Schon, Neymeyr and Partner OFFICIAL FEES Bill dtd July, 262016 7412.59 EUR @74.4060 551541.17 4 ITA No. 1268/Del/2023 (AY 2017-18) TOTAL PAYMENT 19337.18 EUR @ 74.4060 1438800 (A) Meyertons, Hood, Kivlin, Kowert & Goetzel PC FEES Bill Dated March 01,2017 16 USD @ 64.80 1036.8 Meyertons, Hood, Kivlin, Kowert & Goetzel PC Disbursements Bill Dated March 01,2017 3700 USD @ 64.80 239760 TOTAL PAYMENT 3716 USD @ 64.80 240797(B) GRAND TOTAL (A) +(B) 1679597 8. After examining the nature of payments made by assessee, we are of considered view that the AO and the CIT(A) have erred in coming to the conclusion that the assessee is liable to deduct tax at source on the aforesaid payments. 9. The coordinate bench in the case of Chandra Mohan Lall (supra) had occasion to deal with similar issue wherein the payments were made by the assessee therein to non-resident professionals and overseas authorities for renewal/registration of trademarks and patents. The assessee had made payments to overseas attorneys towards professional fee as well as reimbursement of Govt. fee paid by them on behalf of assessee.; The AO and the CIT(A) held that the assessee ought to have deducted tax at source on such payments. In appeal by the assessee, the Tribunal held as under:- “16. A careful perusal of the information furnished in the tabular form reveals that payment of Rs.10,68,995/- to Eli Lilly and company, New Zealand, is towards remittance of amount recovered in court proceeding on behalf of the client in litigation. Further, a payment of Rs.2,56,973/- was made to World Intellectual Property, Switzerland, towards official fee for international application. Similarly, amount of Rs.4,15,484/- was paid to two entities in United Kingdom and Maldives for publication and trade fair services. In our considered view, these payments being in the nature of reimbursement and payment 5 ITA No. 1268/Del/2023 (AY 2017-18) made for official purpose and trade fair services cannot come within the purview of either professional or technical services. Therefore, such payments aggregating to Rs.17,41,450/- not being in the nature of income chargeable to tax in India in terms of section 195 of the Act, there was no obligation on the assessee to deduct tax at source on such payment. Therefore, we delete the disallowance of the aforesaid amount. “ (Emphasized by us) 10. Thus, in the facts of instant case, we see no reason to take a different view. The payments made by assessee to non-resident attorneys who have no permanent establishment in India for the services rendered overseas are not subject to TDS provisions u/s. 195 of the Act. Similarly, the payments made towards reimbursement of renewal fee and official fee are not subject to TDS provisions. Thus, the assessee was not under obligation to deduct tax at source on such payments. In view of above, the impugned order is set aside and appeal of the assessee is allowed. Order pronounced in the open court on Friday the 25th day of October, 2024. Sd/- Sd/- (AVDHESH KUMAR MISHRA) (VIKAS AWASTHY) लेखाकार सद᭭य/ACCOUNTANT MEMBER ᭠याियक सद᭭य/JUDICIAL MEMBER िदʟी/Delhi, ᳰदनांक/Dated 25/10/2024 NV/- 6 ITA No. 1268/Del/2023 (AY 2017-18) ᮧितिलिप अᮕेिषतCopy of the Order forwarded to : 1. अपीलाथᱮ/The Appellant , 2. ᮧितवादी/ The Respondent. 3. The PCIT 4. िवभागीय ᮧितिनिध, आय.अपी.अिध., िदʟी /DR, ITAT, िदʟी 5. गाडᭅ फाइल/Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, DELHI "