15 October 2009
If payment is made towards Sale Price then no TDS to be deducted under Section 195 assuming the payment is made to X LTD ( US Company).
If any technical/consultancy service is done by the Seller ot it's Subsidiary but payment is to be made to X ( US Company) then TDS under Section 195 to be deducted for payment of fees for technical service @ 10.3% if payment is below 1 Crore and 10.5575 if exceeds 1 Crore.
This is very complex issue and I advice you to go for either of below options;
1) Ask AO to determine rate as per below provisions;
Section 195 sub-section (2) provides;
Where the person responsible for paying any such sum chargeable under this Act (other than salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the [Assessing] Officer to determine, [by general or special order], the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable.
2) Take legal opinion from Chartered Accountant and deduct TDS as per legal opinion.
3) Deduct Tax at Maximum Marginal Rate.
Incase no profit is attributable to PE or Income of US company is not deemed to be accrued or arise in India as per section 9, you wont be under obligation for TDS.
Further to your comment on my profile stated below,
"Sir, Thanks for your reply. It was really helpful. But I think my earlier query was not fully clear on the situation. I would request to clarify if Case I - There exists a PE in India for X Ltd., and the services are provided through such PE. What will be withholding impact if we are not able determine such attributable income(PE portion). Case II - There exists a PE in India for X Ltd., and the services are NOT provided through such PE. Will a declaration from X ltd., stating NO income is attributable to such PE is sufficient for not deducting Tds? Thanks & Regards Arihanth"
I would like to mention as under;
I think u have modified the query and for your above query situation 1 my response is same as 1st response.
For your query on situation 2, I would like have clarification as who will diclare that there is no income attributable to PE, is the US Co or CA? If US company say so, I dont think/suggest it would help u. If CA/Legal Advisor say, it is legal opinion and it can prove helpful.
To be on abandan precaution, I suggest you not to go with such declaration of US Co. and if you are going with such declaration make sure you have enough indemnity to protect you.
Also, in case US Co. are providing software releted services then it is possible they may be covered under section 9 and if so situation/casses shall be different.
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