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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI DUVVURU RL REDDY & SHRI S. JAYARAMAN
PAN: AAECP 0062G (अपीलाथ�/Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से/ Appellant by : Shri T. Banusekar, CA ��यथ� क� ओर से /Respondent by : Shri Clement Ramesh Kumar,Addl.CIT सुनवाई क� तार�ख/Date of Hearing : 19.08.2019 घोषणा क� तार�ख /Date of : 15.11.2019 Pronouncement आदेश / O R D E R PER SHRI S. JAYARAMAN, ACCOUNTANT MEMBER:
The assessee filed this appeal against the order of the Commissioner of Income Tax (Appeals)-3, Chennai in 11/CIT(A)-3 dated 28.10.2016 for the assessment year 2008-09.
2 -: 2. M/s. Paymate India P. Ltd., the assessee, claimed Rs.1,75,976/- incurred in foreign currency toward ‘server charges’ paid to M/s. Enet Inc & M/s. Verisign Inc for providing connectivity in the US in its return for the assessment year 2008-09. It explained that these changes were paid for the use of internet access facility of certain bandwidth and not for any services of technical or managerial in nature and therefore not liable for any TDS. However, the Assessing Officer held that the assessee has used the server (commercial equipment) in USA for internet access facility and hence the assessee case falls within the scope of clause (iva) of Explanation 2 to Section 9(1)(vi) i.e., it is a royalty paid for the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in Section 44AB. Therefore, the assessee ought to have deducted TDS. Since, it has failed to deduct TDS, the Assessing Officer disallowed this claim. Further, the Assessing Officer disallowed Rs.2,18,935/- pre- operative expenses written off under the head ‘General Expenses’. Aggrieved against that order, the assessee filed an appeal before the CIT(A). The ld.CIT(A) dismissed the appeal. Aggrieved against that order, the assessee filed this appeal.
3 -: 3. The ld.AR submitted that the ld.CIT(A) failed to appreciate the facts and circumstances that the server charges are neither in the nature of fees for technical or managerial services nor are they any kind of royalty paid. They are mere charges paid for use of internet access facility of certain bandwidth paid for providing connectivity in the US. In this regard, the ld.AR relied on various decisions, particularly, the case of ITO vs. People Interactive (I) P. Ltd., in to 2182/Mum/2009 dated 29.02.2012, (2012) 33 CCH 0261 Mum Trib, and submitted that when the equipments were not operated, used or under the control of assessee, then payments made for availing services cannot be said as royalty, and when the payments are not in nature of royalty as per Indo-USA DTAA as well as per Explanation 2 (via) of s 9(1) of IT Act, then recipient of said payments, being non-resident, having no PE, is not liable to tax in India- Therefore, payments in their hands are not taxable in India and consequently, no tax required to be deducted under s 195 on such payment / remittance by assessee. Further, the ld.AR relied on the decision DCIT v. Virola International (2014) 147 ITD 0519 (Agra) and submitted that the retrospective amendment w.e.f. 01.06.1976 in Section 9 brought out by the Finance Act, 2010 can’t change the tax withholding liability in respect of an 4 -: income, with retrospective effect and it depends on the law as it existed at the point of time when the payments, from which taxes ought to have been withheld were made. The tax deductor can’t be expected to have clairvoyance of knowing how the law will change in future. Therefore, the ld.AR pleaded that the assessee’s appeal on this issue may be allowed. With respect to the issue of pre-operative expenses disallowance, the ld.AR submitted that the lower authorities failed to appreciate the fact that these expenses which were incurred at the time of commencement of commercial production in the year 2006-07 for Rs.21,89,349/- and had been amortized over the period of 10 years. Therefore, the assessee has rightly claimed this sum for this assessment year and took our attention to the copy of the break-up of such expenditure as on 28.12.2006 and submitted that the assessee’s appeal may be allowed.
Per contra, the ld.DR submitted that it is not clear from the order of the lower authorities, the nature of services rendered by the US parties and whether the US parties had any PE in India, etc., and therefore supported the orders of the lower authorities.
5 -: 5. We heard the rival submissions and gone through the material. From the above, it is clear that the facts and circumstances associated with the issues have not been properly examined by the Assessing Officer. Therefore, we deem it fit to remit these issues back to the Assessing Officer for a fresh examination. The assessee shall lay all materials in support of its contention before the Assessing Officer and comply with the requirements of the Assessing Officer in accordance with law. The Assessing Officer is also free to conduct appropriate enquiry as deemed fit, however, he shall furnish due opportunity to the assessee on the materials etc., to be used against the assessee and on due consideration of the assessee’s clarification / explanation shall pass the order in accordance with law.
In the result, the appeal of the assessee is treated as allowed for statistical purpose.
Order pronounced in the Court on 15th November, 2019 in Chennai.