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Pramod Kumar, A.M.

1. The short issue that we are required to adjudicate in this appeal is whether or not the Commissioner (Appeals) was justified in holding that the assessee before us, i.e., Kotak Mahindra Primus Limited, was required to withhold tax @ 16 per cent from payment of Australian Dollars (A$) 3,25,000 made to M/s. Ford Credit Australia Limited, Australia (hereinafter referred as to Australian company,).

2. The developments leading to this litigation before us are as follows. The appellant tax deduct or is an Indian company jointly formed by Kotak Mahindra Finance Limited, India, (hereinafter referred as to KMFL,) and Ford Credit International Inc., USA (hereinafter referred as to FCII,). The appellant is a non-banking finance company and is mainly engaged in the business of providing finance for purchase of cars. On 4-4-2000, the appellant moved an application to the assessing officer for permission to remit A$ 3,25,000 to Australian company without any deduction of withholding taxes. The above payments were made under an agreement dated 30-4-1997 between appellant and FCII. The relevant provisions of the said agreement were as under:

8. It is first necessary to analyze and appreciate correct nature of payment of A$ 3,25,000 made to the Australian company. As preamble to the supplemental investment agreement dated 30-4-1997, under which the payment is made, sets out, the arrangement "contemplated services to be rendered by Ford Credit and or their affiliates, and payment therefore to be made by the joint venture company, namely Kotak Mahindra Primus Limited". It was in this background, and upon obtaining the approval of the Government of India, that the Indian company entered into this agreement with the Australian company, which is, beyond any dispute or controversy, an affiliate of the FCII-The relevant provisions of the agreement have already been extracted in second paragraph of this order earlier. The entire payment is in the nature of ongoing payment charges for data processing. No doubt, a part of this data processing cost is in the nature of fixed cost, i.e., US $ 60,000 as annual maintenance and licensing charges, whereas the other part of the cost is in the nature of variable cost, i.e., @ A$ 5.041 per unit of processing of contract. However, both these segments, i.e., fixed as also variable, are only payments for processing of data, and cannot be considered in isolation with each other. The annual maintenance fee charge does not give any independent rights to the Indian company, as it allows the India company only to avail data processing by the Australian company at a specified unit rate. Similarly, per unit cost of data processing is also meaningless unless the fixed annual charge is paid because the Indian company cannot avail this unit cost of processing unless the fixed annual charge is paid. These charges are complementary and can only be considered in conjunction.

19. Having held that the Australian company, i.e., FCAL, did not have any tax liability in India, and as the tax withholding liability is only a vicarious and substitutionary liability, we also hold that the appellant before us, i.e., Indian company by the name of Kotak Mahindra Primus Ltd., did not have any tax withholding liability so far the payment of A$ 3,26,000 to the Australian company was concerned. The plea of the appellant is accepted.

20. For the reasons set out above, we vacate the orders of the authorities below. We also direct the assessing officer to refund the taxes deposited by the appellant-company, after verifying that the appellant-company has not issued tax deduction at source certificate under Section 203 and, accordingly, the credit for the tax deduction at source has not been given to the Australian company in its income-tax assessment in India. The appellant will get the relief, if so admissible in law, accordingly.