Exporters question TDS on foreign payment post Vodafone ruling

The Supreme Court judgement on Vodafone tax case seems to have opened a Pandora's box with exporters too expressing reservation on tax deducted at source (TDS) for payment with regard to overseas transactions.

Exporters' body FIEO today questioned the applicability of Section 195 of the Income Tax Act, under which they are asked to pay TDS on payments made for foreign agency commissions, royalties and offshore professional services.

"With this landmark judgement (Vodafone), the applicability of Section 195 on payments made in the course of exports as foreign agency commissions/royalties/offshore and professional services would require to be revisited/ reconsidered," President of the Federation of Indian Export Organisations (FIEO) M Rafeeque Ahmed said in a statement here.

This is so because "there is no permanent establishment/ territorial nexus and the situs (place) of service provided is outside the jurisdiction of tax authorities," he said.

Lauding the apex court's judgement, the FIEO chief said payments made in the course of exports as foreign agency commissions, royalties, offshore and professional services may "find a logical settlement".

There has been a plethora of litigation with regard to these payments. "Consensus has been that the anomaly is interpretational and superficial rather than an anomaly in law which we hope will be clarified by the Central Board of Direct Taxes (CBDT) given the historic judgement," Ahmed said.

Essar is also likely to seek refund of $883 million, the amount deducted as withholding tax related to 22% stake sale by its Mauritius entities in Vodafone Essar, from the I-T department.

In a far-reaching judgement, the Supreme Court had held last week that the Indian tax authorities had no jurisdiction to levy TDS on Vodafone in regard to its multi-billion dollar deal with Hutchison in 2007.