Delhi High Court Quashes Notice and Letter in Tax Deduction Case

Case Name:

W.P.(C) 4653/2021 & CM Appl.14312/2021 - Intertek India Private Limited v. Income Tax Officer Ward International Taxation

Key Takeaways:

1. The High Court of Delhi has set aside the notice and letter issued by the Income Tax Officer in a tax deduction case.
2. The petitioner had challenged the notice and letter regarding the alleged failure to deduct Tax at Source (TAS) against remittance of management fees.
3. The Commissioner of Income Tax (Appeals) had previously deleted the disallowed amount, and the Tribunal upheld the decision.
4. The respondent did not appeal the Tribunal’s order due to low tax effect, and the appeal is now time-barred.

Case Synopsis:

The case is W.P.(C) 4653/2021 & CM Appl.14312/2021, between Intertek India Private Limited (the petitioner) and the Income Tax Officer Ward International Taxation 2 1 1 New Delhi (the respondent).

The petitioner has sought a writ of certiorarified mandamus or any other appropriate writ, order, or direction to quash the impugned order dated 25.03.2021 disposing of objections along with the impugned notice dated 10.10.2017 issued under section 201 (of Income Tax Act, 1961) of the Income Tax Act, 1961, and all the consequential proceedings under section 201 (of Income Tax Act, 1961).

The impugned notice was issued to the petitioner on account of the alleged failure to deduct Tax at Source (TAS) against remittance of management fees amounting to Rs. 2,06,29,647/-. The Assessing Officer (AO) disallowed this amount under Section 40(a)(i) (of Income Tax Act, 1961) of the Income-tax Act, 1961, while framing the assessment order under Section 143(3) (of Income Tax Act, 1961) of the Act on 27.12.2016.

However, the Commissioner of Income Tax (Appeals) (CIT(A)) had deleted the aforementioned addition of Rs. 2,06,29,647/- through an order dated 30.04.2019. The CIT(A) held that the management fees paid by the petitioner to its Associated Enterprises (AEs) cannot be categorized as ‘fee for technical services’ (FTS) and therefore, were not liable for deduction of tax at source under Section 195 (of Income Tax Act, 1961) of the Act.

The Tribunal, via an order dated 29.09.2022, upheld the order of the CIT(A) and held that the findings of the CIT(A) had not been rebutted. The Tribunal also observed that the AO had failed to list out the ‘highly technical services’ provided by the AEs to the petitioner and failed to allude to the relevant clause of the agreement that demonstrates the expertise available with the AEs was ‘made available’ to the petitioner. The Tribunal further noted that the CIT(A) had decided similar issues in favor of the petitioner in matters concerning AYs 2010-11 and 2014-15, and those decisions were not challenged before the Tribunal.

The respondent/revenue did not prefer an appeal against the order of the Tribunal due to low tax effect, and in any event, the appeal is time-barred. Given this position, the High Court ordered that both the impugned notice and the impugned letter be set aside.

FAQ:

Q1: What was the petitioner’s claim in the case?

A1: The petitioner sought a writ to quash the impugned notice and letter issued by the Income Tax Officer regarding the alleged failure to deduct Tax at Source (TAS) against remittance of management fees.

Q2: What was the decision of the Commissioner of Income Tax (Appeals)?

A2: The Commissioner of Income Tax (Appeals) deleted the disallowed amount, stating that the management fees paid by the petitioner to its Associated Enterprises (AEs) cannot be categorized as ‘fee for technical services’ (FTS) and were not liable for deduction of tax at source.

Q3: What was the decision of the Tribunal?

A3: The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) and observed that the findings of the Commissioner had not been rebutted. The Tribunal also noted that the Assessing Officer had failed to provide evidence of the ‘highly technical services’ provided by the AEs to the petitioner.

Q4: Why did the respondent not appeal the Tribunal’s order?

A4: The respondent did not appeal the Tribunal’s order due to low tax effect, and the appeal is now time-barred.