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ITO (TDS) vs. Air India Ltd., New Delhi - (Income Tax Appellate Tribunal) (20 Jul 2022)

Liability to deduct tax under Section 195 of IT Act arises only when the "sum" being paid is chargeable to tax under the IT Act

MANU/ID/1144/2022

Direct Taxation

The Assessee had entered into an agreement with GSI Engine B.V., {a tax resident of Netherland, having its head office at Netherland} qua an aircraft engine taken for the purpose of Assessee's own flight operation on a lease rent of US$ 65000 per month and user charges.

The Assessee had filed an application under Section 195 of the Income Tax Act, 1961 for issue of certificate at "Nil" before the ITO(TDS). The said application filed by the Assessee was rejected by the Assessing Officer by holding that the rental payment for engine hired by the Assessee is taxable as royalty @ 10% under Article 12(4) of the DTAA between India and Netherland. The Assessing Officer further held that the 'engine' is a part of aircraft and cannot be said to be an 'aircraft'. The payment is being made for the rent of engine, which is covered as equipment under Article 12(4) of the DTAA between India and Netherland and is taxable as royalty @ 10%. Therefore, the payer is authorized to make maximum payment of US$65000 per month during the F.Y. 2014-15 at 10% withholding. The Assessing Officer further held that this certificate is provisional and is subject to final determination of tax at the time of regular assessment.

The Assessee being aggrieved with the order under Section 195(2) of the IT Act, preferred first appeal before the learned Commissioner, who vide impugned order, allowed the appeal of the assessee by holding that the rental income of aircraft engine does not get covered under Article 12 of India - Netherland DTAA. Further, Article 7 is also not applicable as there is no PE of GSI Engine B.V. in India. Accordingly, the rental income of aircraft engine is not chargeable to tax in India as per DTAA.

Commissioner further held that, it is a settled position that liability to deduct tax under section 195 of IT Act arises only when the "sum" being paid is chargeable to tax under the Income Tax Act and since in the present case, there is no sum chargeable to tax under the provisions of the Act in view of Article 7 & 12 of the Avoidance of Double Taxation Treaty between India and Netherland, there is no requirement to withhold tax on such remittance.

Question involved in this case relates to withholding the tax on payment made to the non- resident/foreign entity who do not have 'PE' in India. It is trite to say that the liability to deduct tax under section 195 arises only, when the amount being paid is chargeable to tax under the IT Act of India and if the person or supplier or manufacturer to whom payment made, is a tax resident of a foreign country or non- resident, having no 'PE' in India, then such entity cannot be subjected to taxation in India and consequently payment made to it not liable to deduct any TDS under Section 195 of the IT Act.

In present case, GSI Engine B.V. from whom the Assessee had taken 'Aircraft Engine' on a lease rent basis, admittedly is a tax resident of Netherland, having no 'PE' in India and consequently cannot be subjected to taxation in India and thus payment made to GSI Engine B.V. does not attract the provisions of Act for withholding the tax, hence present Tribunal is inclined to sustain the impugned order passed by the Learned Commissioner, as the same does not suffers from any perversity, impropriety and/or illegality. Appeals of the Revenue Department dismissed.

Tags : TAX   PROVISION   APPLICABILITY  

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