DCIT-8(3)(2), MUMBAI vs. ZOOMIN ONLINE INDIA PVT. LTD., MUMBAI

The Revenue has raised the following grounds of appeal which read as under:

The relevant facts, in brief, are that the Assessing Officer completed assessment vide order dated 26.02.2015, at assessed loss of INR 12,42,76,949/- as against return loss of INR 14,01,01,020/- after making following disallowances under section 40 (a)(i) of the Act – (a) disallowance of INR 88,11,937/- being server charges and web hosting charges paid to various parties outside India by the Assessee during the relevant previous year without deducting tax at source, and (b) disallowance of INR 70,12,134/- being payments made to parties outside India for rendering services for display of advertisements of the Assessee on the web portals.

Being aggrieved, the Assessee preferred an appeal before CIT(A) against the above disallowances. The CIT(A) allowed the appeal of the Assessee vide order dated 20.08.2018 and deleted both the disallowances holding that the payments to parties outside India were not liable to tax in India in terms of the provisions of the Act and/or the provision of the applicable double taxation avoidance agreements.

Being aggrieved the revenue is in appeal before us.

We have heard the Ld. Departmental Representative, considered the contentions that were raised on behalf of the Assessee before lower authorities and perused the material on 3 Assessment Year: 2012-13 record. Having examined the order passed by the CIT(A) we note that the CIT(A) accepted the contentions of the Assessee and deleted the disallowances. In respect of server charges and web hosting charges aggregating to INR 88,11,973/-, the CIT(A) concluded that the payments made to foreign payees were not in the nature of fee for included services as per the provisions of Section 9 of the Act read with Article 12 of Double Taxation Avoidance Agreement between India and USA, being country of tax residence of the payees as the foreign payees did not make available to the Assessee any technical knowledge, skill, experience etc. Further, the CIT(A) returned a finding that the foreign payees did not have a permanent establishment in India, and therefore, payments to the foreign payees were not liable to tax in India. Thus, the provisions of Section 195 as well as the provisions of Section 40(a)(i) of the Act were not attracted in respect of such payments. Similarly, as regards the payment of INR 70,12,134/- pertaining display of advertisement of the Assessee on the platforms of the foreign payees, the CIT(A) concluded that the services were neither specialised nor exclusive, and did not cater to specific requirements of the Assessee. The foreign payees were merely providing a „facility‟ and the payment for the same was not liable to tax as Fee for Technical Services in terms of the provisions of the Act as per the decision of the Hon‟ble Supreme Court in the case of CIT Vs. Kotak Securities Ltd: 383 ITR 1 SC. Further, the payments made to foreign payees, being in the nature of business profits, were not liable to tax in India in absence of the foreign payees having a permanent establishment in India. CIT(A) relied upon the decision of the Tribunal in the case of Pinstorm Technologies (P.) Ltd versus ITO: 54 SOT 78 (Mumbai).

A perusal of assessment order shows that even during the assessment proceedings the Assessee had raised a contention that Assessee was not under obligation to deduct tax from payments to the foreign payees in terms of Section 40(a)(ia) read with Section 195 of the Act as the payments made to foreign payees were not in the nature of royalties and/or fee for included/technical service and therefore, not liable to be taxed in India in terms of Double Taxation Avoidance Agreement between India and country of tax residence of the foreign payee. However, the Assessing Officer completely ignored the aforesaid contention and did not examine the relevant provisions of the applicable double taxation avoidance agreements. The Assessing Officer relying upon the provisions of the Act concluded that the Assessee was under obligation to deduct tax in terms of section 195 of the Act, and made a disallowance of the payments made by the Assessee to foreign payees on the ground that the Assessee had failed to deduct tax at source in terms of Section 40(a)(ia) of the Act. The approach adopted by the Assessing Officer cannot be countenanced. Without relying upon any evidence/ additional evidence, and merely on perusal of Assessment Order it becomes clear that no factual foundation was laid during the assessment proceedings to establish the chargeability to tax in India of the payments made by the Assessee to the foreign payees which was necessary to attract provisions of Section 195 read with Section 40(a)(ia) of the Act. Further, the findings returned by the CIT(A) have also not been established to be perverse or contrary to record in proceedings before us. The reliance by the Revenue on the decision of the Tribunal in the case of Google India P Ltd. (2018) 93 Taxmann.com 183 5 Assessment Year: 2012-13 (Bangalore-Tribunal) is also misplaced. In paragraph 116 of the aforesaid decision, the Tribunal has made following observations:

In view of the above, we are not persuaded to overturn the decision of CIT(A) on the issues raised by the Revenue in the present appeal. Ground No. 1, 2 and 3 raised by the Revenue in the appeal are dismissed.

In result, the present appeal filed by the Revenue is dismissed.