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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI C.N. PRASAD, JM, & SHRI N.K. PRADHAN, AM
आदेश / O R D E R
PER C.N. PRASAD, JM:
This appeal is filed by the assessee against the order of the CIT(A)-59 Mumbai, dated 24.04.2015 for the assessment year 2012-13 arising out of the order passed by the assessing officer Under Section 201(1)/201(1A).
(A.Y: 2012-13) M/s. Lintas India Pvt. LtdVs.DCIT(TDA)-2(1)
The first issue in the appeal of the assessee is that the CIT(A) erred in confirming order passed by the Assessing Officer u/s 201(1) of the Act for short deduction of TDS on the amount paid towards charges for internet connectivity.
The Assessing Officer noticed that the assessee incurred internet charges amounting to Rs. 72,93,471/- and deducted TDS on such amount u/s 194C of the Act. The assessee stated that the internet charges paid for the usage of internet connection provided by the service provider are not for any technical, managerial or consultancy services so as to deduct tax u/s 194J of the Act. Since such charges paid are for availing standard facilities available to all and they are not paid for any technical, managerial or consultancy services requiring TDS u/s 194J of the Act, the Assessing Officer rejected the contentions of the assessee and passed order u/s 201(1) treating the assessee as defaulter for non-deduction of tax u/s 194J of the Act. On appeal by the assessee, Ld. CIT(A) sustained the order of the Assessing Officer. The CIT(A) further observed that the internet charges are process covered in the definition of “royalty”, therefore, the assessee is liable to deduct tax on such payment for internet charges u/s 194J of the Act.
The Ld. Counsel for the assessee at the very outset submits that an identical issue has come up before the coordinate bench of the Tribunal in assessee’s own case for the assessment year 2010-11 in dated 2/08/2016, holding that the provision u/s 194J have no application for the payment made towards internet charges. A copy of the order is placed on the record.
We have perused order of the coordinate bench of the Tribunal in assessee’s own case and find that the issue under consideration has been decided in favor of the assessee by observing as under :-
“5. We have considered rival contentions. The issue under consideration is squarely covered by various decisions of High Court and Tribunal. The Hon’ble Delhi High had an occasion to examine a similar issue in the case of CIT vs. Estel Communications (P) Ltd. MANU/DE/0838/2008: 217 CTR 102(Del) wherein the Hon’ble Delhi High Court held that mere payment by assessee for an internet bandwidth to a US company did not mean that technical services were rendered by the US company to the assessee and, therefore, provisions of section (A.Y: 2012-13) M/s. Lintas India Pvt. LtdVs.DCIT(TDA)-2(1)
9(1)(vii) did not apply so as to warrant any deduction of tax from payment made by the assessee to the US company. The Hon’ble Madras High Court in Skycell Communications Ltd. and Another Vs. DCIT and others (2011) 251 ITR has considered the provisions of section 9(1)(vii). Similarly, ITAT Chandigarh Bench in the case of HFCL Infotel Limited Vs. ITO MANU/IG/5036/2005: (2006) 99 TTJ 440, referred to the decision of Madras High Court in the case of Skycell Communications Ltd. Further, ITAT Mumbai bench in Pacific Internet (India) Pvt. Ltd. Vs. ITO MANU/WB/0620/2008 : (2009) 318 ITR 179 (AT) has relied upon the observations rendered in Estel Communications Pvt. Ltd. (Supra) and Skycell Communications Ltd(supra) and held that payment for use of internet is not covered by the provision of Section 194J.
6. In the case of Ushodaya Enterprises P. Ltd. Vs. ACIT(2012) 53 SOT 193, Hyderabad Bench held the payment made towards internet charges are similar in nature to Bandwith charges and are similar to the use of telephone lines, payments made for circuit charges to VSNL, bandwith charges do not come under TDS provisions and therefore no deduction is required u/s.194J, as the provision is not applicable.
In view of the above discussion, we do not find any merit in the action of lower authorities for holding the assessee in default for non-deduction of tax at source in respect of payment for internet charges.”
Respectfully following the above decision we hold that the payments made by the assessee towards internet charges does not fall within the definition of technical services as envisaged in the provisions of Sec. 194J of the Act. Therefore, we do not find merit in the action of the Assessing Officer in holding that the assessee is in default for non-deduction of TDS u/s 194J in respect of the payment made for internet charges.
7. The next issue in the appeal of the assessee is that the CIT(A) erred in confirming the action of the Assessing Officer in passing the order u/s 201(1) for non-deduction of tax u/s 194J in respect of the amounts paid towards purchase of computer software. The Ld. Counsel for assessee at the outset submits that this issue is also decided by the coordinate bench in assessee’s own case for the assessment year 2010-11 in para 9 to 12 of the order holding that on the payments made by the assessee for purchase of software, tax is not required to be deducted at (A.Y: 2012-13) M/s. Lintas India Pvt. LtdVs.DCIT(TDA)-2(1)
source u/s 194J of the Act as the payments made were only to purchase software required for assessee’s business purposes and the same was capitalized, the payments were not made for any technical services and the payments would not fall under fees for technical service. The Ld. Counsel for the assessee further submits that this software purchased by the assessee is a regular software for accounting purposes, not copywrited software and, therefore, it will not fall within the definition of “Royalty” as defined in Sec. 194J of the Act. He placed reliance on the following decisions in support of his contentions :-
Tata Consultancy Services Ltd.(271 ITR 401) 2. DIT Vs. IRCSSON A.B (TS-769-HC-2011) (Del HC) 3. Motorola Ink Vs. DCIT 96 J1 (Delhi ITAT) 4. Sonata Information Tech. Lmt. Vs. DCIT (TS 286-ITAT 2012) (Mumbai ITAT)
The Ld. DR vehemently supports the order of the authorities below.
We have heard rival submissions, perused the order of the authorities below and the decision of the coordinate bench in assessee’s own case. The Tribunal has considered this issue as to whether the purchase of software by the assessee would fall under fees for technical services so as to attract the provisions of Sec. 194J or not. It was held that the provisions of Sec. 194J have no application observing as under :-
“11. We have considered rival contentions. Explanation 2 of Section 9(vii) defines the words 'Fees for Technical Services' as any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services. A perusal of the aforesaid definition clarifies that the term FTS would include service of the following three types: Managerial, Technical and Consultancy. Therefore, in order to decide whether the service will fall within FTS or not, it is necessary to determine the scope of the aforesaid three terms. Recently Mumbai Tribunal in the case of TUV Bayren (India) Ltd. dated 06.07.2012 in has defined the scope of the aforesaid terms in the following manner:
(A.Y: 2012-13) M/s. Lintas India Pvt. LtdVs.DCIT(TDA)-2(1)
• Technical services require expertise in technology and providing the client such technical expertise. • Managerial services is used in the context of running and management of the business of the client. • Consultancy is 0 be understood as advisory services wherein necessary advise and consultation is given to its clients for the purpose of client's business. In view of the above, the computer software purchased would not fall in the definition of Fees for Technical Services and therefore the provisions of section 194J are not applicable.
12. As per our considered view under Section 194J, TDS is not required to be deducted at source in respect of payment made for purchase of computer software development. In the instant case, assessee has purchased software and not made any payment for technical knowhow, therefore, there is no merit in holding the assessee in default u/s.201(1)&201(1A).”
We noticed from the order passed u/s 201(1) of the Act that the Assessing Officer considered the payments made for purchase of computer software as the payments made for technical services offered to the assessee, therefore, the expenses incurred for purchase of software is in the nature of technical services provided by vendor and the same is to be subjected to TDS under the provisions of Sec. 194J for deducting tax at source.
On a careful consideration of the above order, we find that the issue in appeal has been decided in assessee’s own case by the coordinate bench holding that payments made for purchase of off the shelf software does not fall under the definition of fees for technical services so as to invoke the provisions of Sec. 194J of the Act. Thus, respectfully following the said order we hold that there is no merit in holding that the assessee is a defaulter u/s 201(1) for non-deduction of TDS u/s 194J of the Act on the payments made to purchase software. The grounds raised by the assessee are allowed. The next issue in the appeal of the assessee is that the CIT(A) failed to adjudicate the grounds raised in connection with interest u/s 201(1A) of the Act. This ground is only consequential to the above grounds. Since we have held that the assessee is not required to deduct TDS u/s 194J of the (A.Y: 2012-13) M/s. Lintas India Pvt. LtdVs.DCIT(TDA)-2(1)
Act on the internet usage charges and the amounts paid for purchase of computer software, the calculation of interest u/s 201(1A) will not arise and becomes academic.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open Court on 18th January 2017.