Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI ANIL CHATURVEDI, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER PER ANIL CHATURVEDI, AM :
This appeal filed by the assessee is emanating out of the order of 1. Commissioner of Income Tax (Appeal) – 13, Pune dated 30.12.2016 for A.Y. 2009-10.
The relevant facts as culled out from the material on record are as under :-
Assessee is a company stated to be engaged in the business of provisions of IT (Information Technology) and IT enabled services in the field of Engineering, Design, Development and Valuation etc. AO noticed that during F.Y. 2008-09 assessee had made payments to foreign company i.e., Deere & Co., USA for SAP License, email facility, Disk storage and
other system but had not deducted TDS while making the payments. AO
was of the view that the payments made by the assessee were liable to tax
as it was in the nature of royalty / FTS as per Sec.9(1)(vi) & 9(1)(vii) of the
I.T. Act as well as Article 12 of Double Taxation Avoidance Agreement
(DTAA) between India & USA. Assessee was therefore asked to explain the
reasons for not deducting TDS while making the payment to US entity.
Assessee made the submissions which were not found acceptable to the
AO. AO noted that identical issue arose in assessee’s own case in A.Ys.
2007-08 and his predecessor had vide order dated 06.02.2014 passed u/s
201(1A) of the Act held that assessee was liable to deduct TDS. He
therefore following his Predecessor’s order held that assessee was liable to
deduct TDS and since assessee has failed to deduct TDS, assessee has
committed a default and therefore assessee was treated as “assessee in
default” as per provisions of Sec.201(1) of the Act. AO thereafter
calculated the liability of the tax as per the list detailed from Pages 3 to 17
of the assessment order and determined the total income at
Rs.4,37,95,332/-. Aggrieved by the order of AO, assessee carried the
matter before Ld.CIT(A), who vide order dt.30.12.2016 (in appeal
No.PN/CIT(A)-13/DDIT(IT-I)/11/2016-17) dismissed the appeal of the
assessee. Aggrieved by the order of Ld.CIT(A), assessee is now before us
and has raised the following grounds :
“1. The learned CIT(A) erred in holding that the assessee company should have deducted TDS on the payments made to Deere & Co. USA of Rs. 196,596,2701- on account of for software license fees and IT support services on the ground that the same was taxable under the Income Tax Act as well as under the DTAA as Royalty. 2. The learned CIT(A) erred in not appreciating that the amount of Rs. 196,596,2701- was not covered under Royalties and 1 or fees for technical services of the DT AA between India and USA as well as under the Income Tax Act and therefore, the Appellant Company was not required to withhold tax u/s. 195 on above amounts and accordingly, the demands raised of tax and interest u/s 201 (1) and 201(1A) may kindly be deleted.
The learned CIT(A) ought to have appreciated that the payments made to Deere & Co. USA was on account of reimbursement of software license fees and IT support services and since there was no income earned by the said entity, no TDS was required to be deducted on such reimbursement of expenditure.
The learned CIT(A) erred holding that payment for leaseline charges to Deere & Co. USA is taxable as "Royalty" under the DT AA as well as per Regular provisions of the Income Tax Act, 1961.
The learned CIT(A) erred in not appreciating that --
(a) the payment of lease line charges to Deere & Co. USA was not covered under clause "Royalty and / or Fees for Technical services" of the DT AA between India and USA and hence the Appellant Company was not required to withhold tax u/s. 195 on above amounts;
(b) the payment of lease line charges to Deere & Co. USA were not covered under the definition of 'royalty' in Section 9(1)(vi) of the Act and hence, the assessee company was not required to deduct any TDS on the said payments.
(c) the payment of lease line charges to Deere & Co. USA was in the nature of reimbursement of expenses and no tax was deductible at source.
The learned CIT(A) erred in making an enhancement by holding that the appellant company ought to have deducted TDS on the charges on account of training and reimbursement of salary paid to Deere & Co. USA without appreciating that the appellant company was not required to deduct any TDS on the above referred payments and accordingly, the enhancement made by the learned CIT(A) is not justified at all and the demand raised may kindly be deleted.
The learned CIT(A) erred in holding that the appellant company should have deducted TDS on the training fees paid to Deere & Co. USA of Rs.9,179,764/- on the ground that the same constituted fees for technical services under the Income Tax Act as well as under the DT AA between India and USA.
The learned CIT(A) failed to appreciate that the payments were made to Deere & Co. on account of web based training which did not make available any technical service and hence, the same was not taxable under Article 12 of the DTAA between India and USA and hence, there was no reason for the appellant company to deduct TDS on the said payments.
The learned CIT(A) erred in holding that the assessee was required to deduct TDS on the charges paid to Deere & Co. on account of reimbursement of salary of expat employees of Rs. 133,484,7261- on the ground that the said payment constituted fees for technical services and hence, the appellant company was required to deduct TDS on the said payments.
The learned CIT(A) erred in holding that Deere & Co. by deputing its employees to the appellant company was providing technical services to the appellant company and accordingly, the TDS was required to be deducted on such payments.
The learned CIT(A) failed to appreciate that as per the secondment agreement between the appellant company and Deere & Co., all the expat employees are on the roll of the appellant company and TDS u/s 192 is deducted in respect of the salary paid to them and hence, there is no question of holding that the services rendered by 'these employees constituted fees for technical services under the Income Tax Act as well as under the DT AA between India and USA.
The learned CIT(A) erred in not appreciating that Deere & Co. was not providing any fees for technical services to the appellant company by deputing its employees to the appellant company and therefore, there was no question of deducting any TDS on the reimbursement of the salaries of the expat employees.
Without prejudice to the above grounds, the learned CIT(A) erred in not appreciating that the A.O. had grossed up the amounts chargeable to TDS u/s 195A for the purposes of computing tax and interest, without appreciating that the said section was not applicable while determining the tax and interest u/s. 201 and 201(1A) and hence, the grossing up of the amounts was not justified at all.”
Before us, at the outset, Ld.A.R. submitted that the issue is covered
by the decision of the Tribunal in assessee’s own case for A.Ys. 2007-08
and 2008-09 (in ITA Nos.905 to 908/PUN/2015 order dt.23.01.2019). He
placed on record the copy of the aforesaid order and pointed to the
similarities between the grounds raised in those years and the impugned
year. He thereafter pointed to Para 90 at Page 78 of the order wherein the
Tribunal has held that purchase of software by the assessee being
copyrighted article was not covered by royalty and assessee cannot be held
to be in default.
With respect to the payment made with regard to provisions of IT
support charges i.e., internet charges, use of e-mail charges, backup
support services etc., he pointed to the findings of the Tribunal at Para 93
of the aforesaid order wherein it has held that internet charges, line
charges paid were not in the nature of royalty and are not even for making
available of any technical services. With respect to the leased line charges,
he pointed to Para 101 at Page 85 of the order. Similarly, with respect to
payment of training fee, he pointed to Para 106 at Page 88 and with respect
to salary of expat employees, he pointed to Para 110 at Page 90 of the
order. He further submitted that since the facts in the year under appeal
are identical to that of assessee’s own case in A.Ys. 2007-08 and 2008-09
and therefore following the aforesaid order of the Tribunal, the issue be
decided accordingly. Ld. D.R on the other hand did not controvert the
submissions made by Ld.A.R. but however supported the order of lower
authorities.
We have heard the rival submissions and perused the material on
record. The issue in the present appeal is with respect to the payment of
tax and interest received u/s 201(1) and 201(1A) of the Act on account of
non-deduction of tax on the payments made by the assessee to Deere &
Co., USA. We find that identical issue arose in assessee’s own case in A.Ys.
2007-08 and 2008-09 in ITA Nos.905 to 908/PUN/2015 (supra) wherein
the Co-ordinate Bench of the Tribunal has held that assessee is not liable
to deduct the TDS on the payment. The relevant findings of the Tribunal
are as under :
“90. In conclusion, we hold that purchase of software by the assessee being copyrighted article is not covered by the term ‘royalty’ under section 9(1)(vi) of the Act. Where the assessee did not acquire any copyright in the software, is not covered under Explanation 2 to section 9(1)(vi) of the Act. We further hold that amended definition of ‘royalty’ under the domestic law cannot be extended to the definition of ‘royalty’ under DTAA, where the term ‘royalty’ originally defined has not been amended. As per definition of ‘royalty’ under DTAA, it is payment received in consideration for use or right to use any copyright of literary, artistic or scientific work, etc.; thus, purchase of copyrighted article does not fall in realm of ‘royalty’. We also hold that since the provisions of DTAA overrides the provisions of Income Tax Act and are more beneficial and the definition of ‘royalty’ having not undergone any amendment in DTAA, the assessee was not liable to deduct tax for payments made for purchase of software. In such scenario, the assessee cannot be held to be in default and the demand created under section 201(1) and interest charged under section 201(1A) of the Act is thus, cancelled. ………….. 93. The assessee has filed breakup of expenses at pages 164 and 165 of factual Paper Book. Accordingly, we hold that internet charges paid of ₹ 27,09,701/-, line charges of ₹ 39,87,960/-, service charges of ₹ 6,63,652/- and other charges i.e. VPN charges, online meeting charges, etc. of ₹ 22,94,256/- are not payment of ‘royalty’ and are not even for make available
of any technical services and hence, there was no requirement to deduct tax at source out of such payments. In the said breakup, the assessee has also pointed out that software charges paid were to the tune of ₹ 4,22,73,399/-, which we have already held in the paras hereinabove, not liable for deduction of tax at source.
……………
Applying the said propositions to the facts of present case, we hold that the assessee has not defaulted in non deduction of tax at source out of payments made for lease line charges. We also uphold the alternate plea of assessee that the said lease line charges are at best reimbursement of expenses and hence, not liable for deduction of tax at source. The grounds of appeal No.4 to 5 are allowed.
……………….
In the facts before Ahmedabad Bench of Tribunal, where services rendered by service provider were general in nature and which did not involve any transfer of technology, it was held that where the onus was on Revenue authorities to demonstrate that these services too involve any transfer of technology and since that onus was not discharged, then the payment was not covered by the definition of ‘Fees for Technical Services’. The facts of the said case are similar to the facts before us, wherein training availed by employees of assessee were web based services available on internet and no technical knowledge was being imparted by service provider and the Revenue has failed to demonstrate that the services did involve transfer of technology and in the absence of same, it cannot be said to be payments in the nature of Fees for Technical Services. Applying the said ratio, we hold that there was no liability upon the assessee to deduct tax at source on the aforesaid payments and hence, assessee cannot be held to be in default under section 201(1) and 201(1A) of the Act. The grounds of appeal No.6 to 8 are thus, allowed.
……………………….
On the other hand, the learned Authorized Representative for the assessee has pointed out that factual aspects of said case were entirely different, where a offshore entity had deputed technical personnel to train Indian employees and hence, it was case of ‘make available of skill behind services’, to other parties. In this regard, he has placed reliance on the ratio laid down by the Ahmedabad Bench of Tribunal in the case of Burt Hill Design (P.) Ltd. (supra), wherein tax was deducted out of salary and it was held that there was no liability to deduct tax under section 201(1) of the Act. In respect of ratio laid down by the Hon’ble High Court of Delhi in the case of Centrica India Offshore Pvt. Ltd. Vs. CIT (supra), it was pointed out that where SLP has been dismissed, then it cannot be held to be law of land as propounded by the Hon'ble Supreme Court in V.M. Salgaocar & Bros. (P.) Ltd. Vs. CIT (supra) and Palam Gas Service Vs. CIT (supra). Accordingly, we hold that where the Hon'ble Supreme Court has only dismissed SLP, then no ruling on principle being laid down by the Apex Court, the proposition laid down by the jurisdictional High Court of Bombay in DIT Vs. M/s. Mark & Spencer Reliance India P. Ltd. (supra) would rule. Accordingly, we further hold that the assessee having deducted tax at source out of salary paid to employees deputed, has not defaulted under section 201(1) / 201(1A) of the Act. The grounds of appeal No.9 to 12 are thus, allowed.”
Before us, no material has been placed by Revenue to demonstrate
that the order of Tribunal in assessee’s own case for A.Ys. 2007-08 and
2008-09 (supra) has been set aside / stayed by higher Judicial Forum. Revenue has also not pointed out any distinguishing feature in the facts of the present case and in the case of assessee’s own case in earlier years. We therefore, relying on the decision of the Tribunal in assessee’s own case in earlier years (supra) and for similar reasons hold that assessee has not defaulted in deduction of TDS on the impugned payments made. We therefore set aside the order of AO passed u/s 201(1) / 201(1A) of the Act. Thus, the grounds of the assessee are allowed.
In the result, the appeal of assessee is allowed.
Order pronounced on 1st day of August, 2019.
Sd/- Sd/- (VIKAS AWASTHY) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER
पुणे Pune; �दनांक Dated : 1st August, 2019. Yamini
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to :
अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. CIT(A)-13, Pune. 4. Pr. CIT- 5, Pune. 5 �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” / DR, ITAT, “B” Pune; गाड� फाईल / Guard file. 6.
आदेशानुसार/ BY ORDER
// True Copy // व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.