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Assessee making payment to Foreign Agencies for access to record of online consumers, liable to deduct TDS

ITAT Bangalore Bench recently in an appeal held that any fees paid by the assessee to foreign agencies  for availing the service of access to record of online consumers maintained by them, to carry out market research for its clients, will be regarded as royalty and liable to deduct tax at source while making payment in question.

Facts of the case:

The assessee is engaged in market research activity in India and abroad. It involves processes like preparing questionnaire, collecting data from a sample representative of the population which uses or has some experience with the desired product/service, analyzing the results and then preparing reports based on the results of the analysis. The assessee sends questionnaire and conducts survey through e-mail from consumers and decision makers worldwide. To enable to carry out its market research for its clients, the assessee approaches specialist agencies that maintain records of online consumers and pay fee to them for allowing access to the record of online consumers maintained by them.

The grounds of appeal raised by the assessee was with regard to the action of the Revenue authorities in disallowing as a deduction, payments made by the assessee to non-residents on the ground that tax was not deducted at source as required u/s.195(1) of the Act. The Revenue authorities disallowed the claim of the assessee for deduction by invoking the provisions of Section 40(a)(i) of the Act.

The learned counsel for the assessee held the payments were made for providing access to information and the panel companies merely help the assessee in reaching out faster to the samples and do not take part in survey form or analysis of the data. It was his submission that in the present case, all the payments to panel companies were made outside India. Therefore, the said receipts are not chargeable in India on ‘receipt basis’. The payments to non-resident cannot be said to be income which is deemed to be received in India is set out in section 7 and section 198 of the Act.

The question that arises for consideration in the appeal by the assessee is as to whether the fee paid to such specialists (who are all admittedly non-residents) for allowing access to the data is chargeable to tax in India and therefore, the assessee ought to have deducted tax at source when making payments to them u/s.195 of the Act.Hence, the appeal was made by the assessee before the Tribunal.

The decision of the Appellate Tribunal:

The CIT(A) concluded that the payments by the assessee to the non-resident was in the nature of fees paid for rendering “Fees for Technical Services”. AO held that the payments were not for rendering any technical or management services but were for rendering Consultancy Services and therefore would fall within the ambit of “Fees for technical Services”. The CIT(A) upheld the order of the AO. The Appellate Tribunal stated that even if for argument sake, the plea of the learned counsel for the assessee ,that the payments made by the assessee to the nonresident is not “Fees for Technical Services” is considered, the assessee cannot avoid its obligation to deduct tax at source u/s.195 of the Act.

In view of the decision of the Hon’ble Karnataka High Court, which is the jurisdictional High Court, the Tribunal was of the view that the payment in question is in the nature of “Royalty”.

Source: Mr. Alok Patnia, founder of Taxmantra.com 

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No TDS to be deducted if commission paid to foreign agents for rendering services abroad

ITAT Chennai Bench recently held that assessee is not liable to deduct tax at source for making payment to its foreign agents for rendering services abroad, if the foreign agent does not have a permanent establishment in India and the service rendered is not in the nature of technical service.

 Facts of the case:

The assessee, a private limited company, manufactures and exports leather garments and incurred expenditure towards commission paid to non-residents for the purpose of procuring orders abroad. The A.O disallowed the same, by observing that section 9 of the Act applied in this case as the commission amount had accrued to a non-resident/ payee principally on account of a business activity in India which required TDS deduction. The Assessing Officer further held that the certificate under section 195(2) of the Act had also not been produced. Accordingly, he disallowed/added the commission amount in assessee’s income.

 The Appellate Tribunal held that:

The Revenue’s only grievance is that the aforesaid foreign agency commission paid by the assessee to the non residents/payee attracts disallowance under section 40 (a)(i) for non deduction of TDS. It is made clear that in support of this plea, no cogent evidence has been produced. It transpires from the case file the assessee has paid foreign exchange commission to its non-resident agent who do not have any permanent establishment in India. There is no material to prove that these payment have arisen out of an agreement executed in India. Nor there is any evidence to conclude that the non-resident/payee has rendered any technical service to the assessee. The Revenue also fails to prove the payments to have been accrued, arisen or paid in India so as to make it taxable under provision of the Act.

Taking into consideration all these circumstances, CIT(A) held that the assessee was not liable to deduct TDS on above stated commission paid to its non-resident payees.

Source: Mr. Alok Patnia, founder of Taxmantra.com

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Reasons to reject the correction in challan detail by TDS-CPC

Rejection reasons pertaining to challan details are as follows:

  • Challan detail record on which correction has been filed does not exist in regular / previous statement
  • In a correction statement, verification keys from challan data should match with the corresponding fields in regular statement
    • Verification keys for Non Nil Statement – Last transfer voucher number, Last Bank-Branch Code / Form 24G Receipt Number, Last date of transfer voucher / bank Challan, Last deposit amount as per challan
    • Verification keys for Nil challan – Last date of transfer voucher number / bank challan, last total deposit amount as per challan
  • If an unmatched challan is being corrected, then the sum of deposit amount of all the active deductee rows in the regular and correction statement and corrected values of claimed TDS interest and claimed TDS Others amount should be less than or equal to Total deposit amount of challan given in statement
  • If a matched challan is being corrected, then available balance amount in the challan should be sufficient for consumption of updated sum of deposit amount of all the active deductee rows in correction and corrected values of claimed TDS interest and claimed TDS Others amount
  • In case of existing matched / partially matched challan, deductor can only update Cheque / DD Number, claimed TDS Interest amount, claimed TDS Others amount and Section code
  • If deductor updates only deductee details, then claimed TDS Interest amount and claimed TDS Others amount as given in the challan should match with the corresponding values present in regular / previous return

 

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