Tax Law

PwC Served with Notice by Indian Apex Court

PricewaterhouseCoopers (PwC) has been served with a notice by the Supreme Court of India in August to reply as to why it should not pay advance tax on fees charged by it for rendering professional services in India. PwC, a non-resident Indian partnership firm, has been issued this notice on an appeal filed by the Indian revenue authorities for the Court’s intervention on the issue of the application of statutory provisions relating to charging of interest to PwC due to non-payment of advance tax.
Retracing back, the Department had opposed an order by the Income Tax Appellate Tribunal (ITAT), the final fact finding authority in tax matters in India, wherein it held that PwC could not be held liable to pay any advance tax even, though the entire receipts from its clients were subject to withholding tax or TDS (tax deducted at source) under section 195 of the Income-tax Act, 1961. The Department also sought to get the Court’s directions on the liability of PwC to pay advance tax on its entire receipts of professional fees, which were subject to TDS, and on chargeability of interest on the same under sections 234A, 234B and 234C of the Act.
During the assessment year 2001-02, PwC had returned total aggregate consultancy fees receipts of Rs. 58.8 million (approximately 1.4 million USD) out of various professional services rendered to its clients. On this amount of total declared income, PwC had computed a total tax liability of approximately Rs. 20.2 million (480,000 USD). The TDS, which was already deducted from its fee receipts, amounted to about Rs. 14.7 million (350,000 USD). Accordingly, in its final statement of income, PwC adjusted the TDS against the total tax liability computed, and the shortfall in tax of Rs. 6.66 million (approximately 160,000 USD) was deposited as tax under section 140A of the Act.
However, during assessment, the assessing officer (AO) raised a total tax demand on PwC of about Rs. 26 million (approximately 600,000 USD), which was deleted by the Commissioner of Income Tax. In its order, the CIT deleted the excess 15% tax demand raised by the AO with directions to the AO to allow the appeal after due verification of the TDS claimed as deducted by PwC. The AO was also directed not to levy any interest in the order.
The Department preferred an appeal against this order before the ITAT on the ground that the CIT was unjustified in obviating the additional tax liability raised by the AO and holding the tax liability as only 15% as against 30% computed by the Department, as it was assessed by the AO in the status of an Association of Persons (AOP), which entity is taxed at the higher rate applicable to all resident assesses in India.
Another ground raised in the appeal was against the order of the CIT holding PwC as not liable to pay advance tax despite the fact that it had already paid a sum of about Rs. 0.66 million (approximately 158,000 USD). Before the ITAT, PwC had strongly opposed the Department’s appeal and submitted that it, being a non-resident Indian firm providing professional services to various companies in India, these companies were legally responsible to deduct tax at source from the fees before remitting to it under section 195 of the Act. Further, it was submitted that in the absence of being provided an opportunity of being heard, it was not liable to pay advance tax. The matter is now pending for reply before the Supreme Court and the outcome should soon follow.