Facts of the Case

The petitioner, Intertek India Private Limited, challenged:

  • Notice dated 10.10.2017 issued under Section 201 of the Income-tax Act, 1961, and
  • Order dated 25.03.2021 rejecting objections against the said notice.

The dispute arose due to alleged failure to deduct Tax at Source (TDS) on remittance of management fees amounting to ₹2,06,29,647 paid to Associated Enterprises (AEs).

The Assessing Officer (AO) had earlier disallowed the amount under Section 40(a)(i) while framing the assessment under Section 143(3).

However:

  • The Commissioner of Income Tax (Appeals) deleted the addition holding that the payment did not qualify as “fees for technical services (FTS)”.
  • The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)’s order and confirmed that no TDS liability arose.

Issues Involved

  1. Whether management fees paid to Associated Enterprises constitute “fees for technical services (FTS)” under the Income-tax Act.
  2. Whether failure to deduct TDS under Section 195 attracts proceedings under Section 201.
  3. Whether proceedings under Section 201 can survive when the underlying disallowance has already been deleted by appellate authorities.

Petitioner’s Arguments

  • The payment of management fees did not qualify as “fees for technical services.”
  • No technical knowledge or expertise was “made available” to the petitioner.
  • CIT(A) and ITAT had already ruled in favour of the petitioner on identical facts.
  • Therefore, initiation and continuation of proceedings under Section 201 was unjustified.

Respondent’s Arguments

  • The Revenue contended that the petitioner failed to deduct TDS on payments made to Associated Enterprises.
  • However, it was admitted that:
    • The Tribunal had already upheld deletion of addition.
    • No appeal was filed due to low tax effect.
    • The limitation period for filing appeal had expired.

Court’s Findings / Order

  • The addition made by the Assessing Officer had already been deleted by CIT(A) and upheld by ITAT.
  • The Tribunal clearly held that:
    • No “highly technical services” were identified by the AO.
    • There was no material to show that technical expertise was “made available.”
  • The Revenue did not challenge the Tribunal’s order within limitation.
  • Once the foundational addition does not survive, proceedings under Section 201 cannot continue.
  • Accordingly:
    • Impugned notice dated 10.10.2017 and order dated 25.03.2021 were set aside.
    • Writ petition was disposed of in favour of the petitioner.

Important Clarification

  • Proceedings under Section 201 are dependent on the existence of a valid TDS liability.
  • If the underlying transaction is held not liable for TDS, then:
    → Section 201 proceedings automatically fail.
  • The concept of “make available” is crucial in determining whether a payment qualifies as fees for technical services (FTS).

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS24112023CW46532021_115309.pdf

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