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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) – 1, Chennai, dated 02.12.2016 and pertains to assessment year 2012-13.
Shri S. Sridhar, the Ld.counsel for the assessee, submitted that the Assessing Officer disallowed a sum of ₹46,99,302/- for non- deduction of tax. According to the Ld. counsel, the assessee has paid co-location charges of ₹23,02,515/-. The Ld.counsel clarified that co-location charges is nothing but charges paid by the assessee outside the country for storage of electronic data. According to the Ld. counsel, the assessee transferred the electronic data through cable network and such data could be stored outside the country for the use of customers outside the country. For the purpose of keeping the electronic data in a manner which can be retrived by the customers outside the country, the assessee has paid storage charges which is known as co-location charges. Apart from that, according to the Ld. counsel, the assessee has also paid international call charges of ₹23,96,787/-. The Ld.counsel further submitted that the provisions of Section 195 of the Income-tax Act, 1961 (in short 'the Act') is not applicable at all. The Assessing Officer as well as the CIT(Appeals) misconstrued the provisions of Section 9(1)(vi) of the Act and disallowed the claim of the assessee under Section 40(a)(i) of the Act. The Ld.counsel further submitted that the CIT(Appeals) wrongly placed reliance on the judgment of Madras High Court in Verizon Communications Singapore Pvt. Ltd. v. ITO in T.C.A.
Nos.147 to 149 of 2011 and 230 of 2012. In the case before the Madras High Court, the issue arose for consideration is for providing bandwidth / telecom services in India. In the present case, according to the Ld. counsel, the recipient company has not rendered any service to Indian customers. The recipient is keeping the storage equipment outside the country and data was transmitted by the assessee to the storage equipment provided by the non- resident Indian. The storage equipment otherwise known as Server is meant for retrieving data by the customers outside the country. According to the Ld. counsel, the assessee has paid only storage charges to the company who is maintaining the Server outside the country, therefore, it cannot be treated as royalty. Hence, according to the Ld. counsel, the non-resident company is not liable to pay tax in India, therefore, there cannot be any disallowance under Section 40(a)(ia) of the Act.
On the contrary, Shri AR.V. Sreenivasan, the Ld. Departmental Representative, submitted that the assessee has debited an amount of ₹62,88,522/- towards connectivity charges. The assessee clarified before the Assessing Officer that the co- location charges was ₹23,02,515/- and international call charges was ₹23,93,863/-. The Ld. D.R. further submitted that the entire services and operations were made available by Cinenet Communications Inc. The Ld. D.R. further submitted that Novatel Ltd. provides international telecommunication services to the assessee. Referring to Explanation (vi) to Section 9(1) of the Act, the Ld. D.R. submitted that these payments were in the nature of royalty, therefore, the Assessing Officer has rightly found that the assessee is liable for deduction of tax at source.
We have considered the rival submissions on either side and perused the relevant material available on record. From the material available on record it appears that Cinenet Communications Inc. USA is in the business of providing Data Centre Racks. The assessee has utilised racks space provided in Data Centre Racks owned and maintained by Cinenet Communications Inc USA. In case of technical issue, Cinenet Communications Inc appears to have provided basic support for use of racks. Moreover, payment made to Novatel Ltd. and Tata Communication (US) Inc, the assessee claims before the CIT(Appeals) that the service was utilised outside the country.
Therefore, admittedly, the payment was made to the company in USA. In the case of Verizon Communications Singapore Pvt. Ltd. (supra), the payment was made to Singapore company. Therefore, here we have to examine the Double Taxation Avoidance Agreement between India and USA.
Both the authorities had no occasion to examine the Double Taxation Avoidance Agreement between India and USA.
Moreover, it is also to be examined how the electronic data was transmitted to USA. Whether the data stored in Data Centre Racks of Cinenet Communications Inc was used by any other Indian customers also needs to be examined. In other words, whether the recipient company in USA has any permanent establishment in India or whether they have any business connection in India needs to be examined in the light of Double Taxation Avoidance Agreement between India and USA. Since such an exercise was not done by both the authorities below, this Tribunal is of the considered opinion that the matter needs to be re-examined.
Accordingly, orders of both the authorities below are set aside and the entire issue raised by the assessee is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the matter in the light of the material that may be filed by the assessee and the Double Taxation Avoidance Agreement between India and USA and decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on 28th December, 2017 at Chennai.