Commissioner of Incometax v. Havells India Ltd.

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The Tax Publishers2012 TaxPub(DT) 2370 (Del-HC) : (2013) 049 (I) ITCL 0482 : (2013) 352 ITR 0376 : (2012) 253 CTR 0271 : (2012) 208 TAXMAN 0114 : (2012) 073 DTR 0057 INCOME TAX ACT, 1961 Tax deduction at source- Under section 195-Payment for technical services to foreign company-whether taxable on source of receipt or source of income Assessee was engaged in manufacture of switch gears, energy meters, cables and wires and related components. In course of its business, for obtaining witness testing of AC contractor it entered into agreement with USA company. It made payment to foreign company without deduction of TDS on same. Assessing officer disallowed the said payment by invoking the provisions of section 40(a)(ia). Assessee contended that as testing was carried outside India, no income arose or accrued to the US company in India and, therefore, the provisions of section 40(a)(ia) was not applicable. Assessing officer held that the amount paid to foreign company was for technical services within the meaning of Explanation 2 below section 9(1)(vii)(b) and, therefore, the amount was assessable in the hands of the US company as income deemed to have accrued or arisen in India. The question arose as to whether exception provided under provisions of section 9(1)(vii)(b), was applicable on source of income or source of receipt, to be outside India. HELD: The export contracts obviously were concluded in India and products were export outside India. The manufacturing activity was located in India. The point of source of income was levy at the moment when the export contracts were concluded in India. Thereafter, the goods were exported in pursuance of the contract and the export proceeds were received in India. To claim the second exception provided under provisions of section 9(1)(vii)(b ), was the source of the income, and not the source of receipt, should be situated outside India and therefore it was required to show that the technical services were utilized in a business carried on outside India. Hence fees for technical services were taxable in the hands of the US company under the provisions of the Act. Income-tax Act, 1961, Section 195 read with Section 9 Decision: In favour of revenue A.Y.: 2005-06 *Case Law Analysis:* CIT v. Anglo French Textiles 1993 TaxPub(DT) 185 (Mad-HC) : (1993) 199 ITR 785 (Mad.) SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 2370 (Del-HC) : (2013) 049 (I) ITCL 0482 : (2013) 352 ITR 0376 : (2012) 253 CTR 0271 : (2012) 208 TAXMAN 0114 : (2012) 073 DTR 0057

INCOME TAX ACT, 1961

Tax deduction at source- Under section 195-Payment for technical services to foreign company-whether taxable on source of receipt or source of income

Assessee was engaged in manufacture of switch gears, energy meters, cables and wires and related components. In course of its business, for obtaining witness testing of AC contractor it entered into agreement with USA company. It made payment to foreign company without deduction of TDS on same. Assessing officer disallowed the said payment by invoking the provisions of section 40(a)(ia). Assessee contended that as testing was carried outside India, no income arose or accrued to the US company in India and, therefore, the provisions of section 40(a)(ia) was not applicable. Assessing officer held that the amount paid to foreign company was for technical services within the meaning of Explanation 2 below section 9(1)(vii)(b) and, therefore, the amount was assessable in the hands of the US company as income deemed to have accrued or arisen in India. The question arose as to whether exception provided under provisions of section 9(1)(vii)(b), was applicable on source of income or source of receipt, to be outside India. HELD: The export contracts obviously were concluded in India and products were export outside India. The manufacturing activity was located in India. The point of source of income was levy at the moment when the export contracts were concluded in India. Thereafter, the goods were exported in pursuance of the contract and the export proceeds were received in India. To claim the second exception provided under provisions of section 9(1)(vii)(b ), was the source of the income, and not the source of receipt, should be situated outside India and therefore it was required to show that the technical services were utilized in a business carried on outside India. Hence fees for technical services were taxable in the hands of the US company under the provisions of the Act.

Income-tax Act, 1961, Section 195 read with Section 9

Decision: In favour of revenue

A.Y.: 2005-06

Case Law Analysis: CIT v. Anglo French Textiles 1993 TaxPub(DT) 185 (Mad-HC) : (1993) 199 ITR 785 (Mad.)