Tds

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

08 August 2011 If one domestic company located at delhi having its manufacturing sites in different parts of world makes payment to a company located at ethopia (no DTAA agreement) regarding
1. rent of hiring a car
2. rent of house
3. service charges
whether the indian company is having any obligation to deduct TDS while making the following above payments.

Please reply on the statutory basis and if possible please reply with the relevant section and case law if any bcoz reply is to be prepared and to be submitted to the management.

Thanks in Advance.

CA Kanan Bansal

CA Kanan Bansal (Expert)
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08 August 2011 yes the Indian co hv obligation to deduct TDS and submit the sme with CG. Whn the co consolidate oll a/cs dn it hv 2 shw dt expenditure.

Querist : Anonymous

Querist : Anonymous (Querist)

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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27 July 2025 This is a nuanced case that involves **cross-border payments** to a **non-resident entity located in Ethiopia**—a country with **no DTAA** (Double Taxation Avoidance Agreement) with India. Here's a statutory and structured answer with references to applicable sections and case laws.

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## ✅ **Question:**

Is TDS applicable when an **Indian company** makes the following payments to a **non-resident company based in Ethiopia**, and there is **no DTAA**?

* **1. Rent for car hire**
* **2. Rent of house**
* **3. Service charges**

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## ✅ **Statutory Framework (Income Tax Act, 1961)**

### 🔹 **Section 195** – *TDS on Payments to Non-Residents*

> “Any person responsible for paying to a non-resident…any interest or any other sum chargeable under the provisions of this Act shall… deduct income-tax thereon at the time of credit or payment, whichever is earlier.”

✅ **Key condition**: TDS under section 195 is attracted **only if the payment is "chargeable to tax in India"**.

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## ✅ **Nature-Wise Analysis of Payments**

### **1. Rent for Hiring a Car (Commercial Vehicle)**

* **Not taxable** as royalty or FTS unless there is a transfer of right to use.
* As per **Section 9(1)**, unless the income is accruing/arising in India, **not taxable in India**.
* **Ethiopian company providing vehicle outside India** = **Not taxable**.
* ✅ **No TDS** if car was used **outside India**.

### **2. Rent of House**

* Again, depends on **location of property**:

* If **property is outside India**, payment is **not taxable in India**.
* Hence, **Section 9(1)(i)** (income accruing or arising in India) not triggered.
* ✅ **No TDS**, if **house is outside India**.

### **3. Service Charges**

* If **services are rendered outside India**, and no business connection or permanent establishment (PE) in India:

* As per **Section 9(1)(vii)(b)**, **FTS** is **not taxable** if:

> Services are utilised for business outside India or for making or earning income from outside India.
* If service is used for a **foreign manufacturing site**, then:

* ✅ **Not taxable**, hence **no TDS**.
* But if service relates to **Indian operations**, then:

* ❌ TDS applicable @ 10% (as FTS under Section 9).

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## 🔍 **Case Laws to Support View**

### 📌 **GE India Technology Centre Pvt Ltd vs CIT \[327 ITR 456 (SC)]**

> *TDS obligation under section 195 arises only when the remittance is a sum chargeable under the Act.*

This case **clearly established** that if income is **not chargeable to tax in India**, **no TDS is required under Section 195**.

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## ✅ **Conclusion (Summary Table)**

| Nature of Payment | Taxability in India | TDS Applicable? | Notes |
| ----------------------- | ------------------- | --------------- | ------------------------------------ |
| Rent for car (abroad) | No | ❌ No | If usage & car are outside India |
| Rent for house (abroad) | No | ❌ No | Property outside India |
| Service charges | Depends on use | ✅ Yes / ❌ No | No TDS if service used outside India |

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## 📝 Suggested Wording for Management Memo

> As per Section 195 of the Income Tax Act, TDS is applicable only when the payment made to a non-resident is chargeable to tax in India.
> In the present case, since Ethiopia does not have a DTAA with India, the domestic provisions apply.
> Based on the nature of each transaction and judicial precedent (GE India Technology Centre case), TDS is **not applicable** on rent and service charges **if the use, property, or services are outside India and not connected to Indian operations**.
> However, in case services are rendered in India or for India-sourced income, TDS may be applicable as per Section 9(1)(vii).

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Let me know if you'd like this in an official memo format or need help reviewing documentation for specific payments.

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