CEEQUENCE TECHNOLOGIES P LTD.,CHENNAI vs. DCIT, CHENNAI

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.

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.

Both the authorities had no occasion to examine the Double Taxation Avoidance Agreement between India and USA.

In the result, the appeal filed by the assessee is allowed for statistical purposes.