• Notification Date: 19-01-2023
• Notification No: N/A

TDS Not Applicable to Payments made to Non-Residents

The Income Tax Appellate Tribunal (ITAT) Chennai bench held that Tax Deduction at Source not applicable to payment made to Non-Residents. The assessee, Turbo Energy Private Limited company, is a manufacturer of turbo-chargers and components for engine application in passenger cars, commercial vehicles, off highway vehicles and industrial engines. After filing the income tax return, the Assessing Officer disallowed additions under section 40(a)(i) of the Income Tax Act 1961 towards logistic service a payment for non-deduction of TDS under section 195 of the Act against the order assessee filed appeal before CIT (A).  

CIT (A) deleted the addition made towards disallowance u/s. 40(a)(i) of the Income Tax Act, 1961 on the grounds of non-deduction of TDS on payment made to non-resident. Aggrieved revenue appeal before ITAT. 

The counsel for the revenue R. Bhoopathi contented that payment made by the assessee to non-resident service provider is in the nature of managerial service which comes under the provisions of section 9 (1)(vii) of the Income Tax Act, 1961. If the assessee fails to deduct TDS on payment to non-resident under section 195 of the Income Tax Act 1961, the Assessing Officer will disallow payment under section 40(a)(i) of the Income Tax Act, 1961. Counsel for the assessee, R. Vijayaraghavan contended that Services rendered by the non-resident are liaising services but not the managerial and technical services. He further argued that even if the services are rendered outside India, it is taxable as business profits in which case, only the profits are applicable for taxation, if there is a permanent establishment or business connection in India.