May 2019

Sub-sections 9(1)(vii), 40(a)(i) of the Act – payments made to foreign agent for services rendered outside India, which assessee was contractually required to perform, were not covered within section 9(1)(vii); hence, payments were not subject to tax withholding; payment for market survey, being for managerial, technical or consultancy services, was subject to tax withholding

Geeta Jani | Dhishat B. Mehta
Chartered Accountants

6. TS-183-ITAT-2019 (Ahd) Jogendra L. Bhati vs. DCIT ITA No.: 2136/Ahd/2017 A.Y.s.: 2013-14 Dated: 5th April, 2019

 

Sub-sections 9(1)(vii), 40(a)(i) of the Act – payments made to foreign agent for services rendered outside India, which assessee was contractually required to perform, were not covered within section 9(1)(vii); hence, payments were not subject to tax withholding; payment for market survey, being for managerial, technical or consultancy services, was subject to tax withholding

 

FACTS


The assessee had a sole proprietary business of trading and export of medicines. The assessee had procured an order from the Government of Ecuador for supply of medicines to 300 hospitals in Ecuador.

 

The assessee had hired a local agency of Ecuador (FCo) to undertake various activities to fulfil the conditions of the order. Such activities included liaising with the local authorities, registration of products at Ecuador, export of goods to Ecuador, clearing of goods from customs authorities, storage in warehouse, and physical delivery of goods to various hospitals across the country; the assessee did not withhold taxes on such payments.

 

Further, the assessee also made certain payments towards market survey for new products or territory to other non-resident entities (FCo1). However, it did not withhold tax while making payments for such services.

 

According to the AO, since the services rendered by FCo were specialised services in the field of pharmaceuticals, they were covered within the expression “management technical or consultancy services” used in Explanation 2 to section 9(1)(vii) of the Act. Since the assessee had not withheld tax from such payments, the AO disallowed the expenditure u/s. 40(a)(i) of the Act.

 

However, the assessee contended that payments made to FCo and FCo1 did not accrue

--->

Past Issues

Flip-Book
HTML View
Current Issue