DCIT, CHENGALPUT vs. COSMIC GLOBAL LTD., CHENNAI

आदेश / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER

This appeal of the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)(C)-II, Chennai, dated 08.12.2015, and pertains to assessment year 2011-12.

All the grounds of the appeal are related the disallowances made by 2. the Assessing Officer under Section 40(a)(i) to the tune of Rs.2,33,91,446/- in respect of payment made to foreign freelance translators. During the course

:: 2:: of assessment proceedings, the Assessing Officer found that the assessee company engaged in the business of providing translation services. The company relys upon Foreign service providers for translating the contents for foreign entities and gets translated with the help of translator who are both residents and non-residents. In respect of the fee paid to the non-residents, the assessee company has not deducted the TDS and the translators are belonging to various countries. The total sum incurred was Rs.2,33,91,446/-.

Since, the amount paid to the translators fall under Section 9(1)(vii) of the Income Tax Act, the Assessing Officer issued show cause notice to the assessee and on receipt of the reply, the Assessing Officer held that the payments towards translation services would fall within the ambit of the technical services under Section 9(1)(vii) of the Income Tax Act and disallowed the sum u/s.40(a)(i) of the Act, since, the assessee failed to deduct the tax at source as per section 195 of Income Tax Act.

Aggrieved by the Order of the Assessing Officer, the assessee went 3. on appeal before CIT(A) and the Ld.CIT(A) deleted the addition holding that the fee paid to the translators do not fall within the scope of fee for technical services, managerial or consultancy services. The Ld.CIT(A) deleted the addition as per the discussion made in the CIT(A) order as under:-

“I have carefully considered the facts, order of the AO, submissions made by the Appellant and material on record. I find that in Appellant’s own case in Income Tax Act No.744/Mds/2014 for AY 2009-10 Order dated 30.07.2014 or identical facts has been adjudicated by the Hon’ble ITAT, Chennai. It has been held that the said payment does not fall within the scope of “fees for technical, managerial or consultancy services. Respectfully following the above decision of the ITAT on the facts obtaining in the case which are similar to those before the Hon’ble ITAT, I am

:: 3:: of the considered view that the order of the AO cannot be upheld. The AO is directed to delete the addition made of Rs.2,33,91,446/- u/s.40(a)(i). This ground of appeal is allowed”.

4.0 Aggrieved by the Order of the Ld.CIT(A), Department is in appeal before the Tribunal. Appearing for the revenue, the Ld.DR, Mr. Shiva Srinivas argued that the assessee company provides translation services in nearly 1200 languages including major and minor European, Latin American, Asian, African & Indian languages. Materials translated by the assessee are advertising material, business logistics, company profiles, legal and medical guidance, patent, software and e-learning guides, training manuals for military, technical manuals for machinery, technical manuals for hardware, software and peripherals, training material, mobile phones, cameras and appliances, etc. Therefore, the Ld.DR contended that the translation of these items definitely require technical skill in providing these services. Hence, the services would fall within the meaning of technical services u/s.9(1)(vii).

Further, the Ld.DR argued that the translation works involved some specialized skill about the language to be translated and it involves technical translation service for which one should have essential skill for producing translation and ability to deeply understand the source text and the source language. Accordingly, the Ld.DR contended that the services rendered by the assessee are in the nature of technical services which attracts the provisions of Section 195 of Income Tax Act and failure to comply with the provisions of Section 195 of Income Tax Act attracts the provisions of Section :: 4:: 40(a)(i) of Income Tax Act and Assessing Officer has rightly made the disallowance. Therefore, the Ld.DR contended that the addition made by the Assessing Officer should be sustained.

4.1 On the other hand, the Ld.AR argued that the company is engaged in the services of translators in India as well as from outside India to carry out such translation jobs. While engaging translators, which is done based on the availability of the translators by sourcing them through Internet. Accordingly, the requirement of customers and also the rates quoted by them, there is no continuous business engagement and no contract is entered into our company by any agreement with translators while engaging them. The translator either from India or from outside to whom translation jobs are given are expected to possess mainly the knowledge of the languages required for translation of particular job rather than possessing the knowledge of the content of the translation job given and they are not expected to have the knowledge of the content of the translation job given to them. The Ld.AR further argued that the company deducted TDS towards payment to resident translators only.

The deduction of TDS, resident translators were made on conservative basis as the income of the resident individuals are chargeable to taxing in India.

Further, the Ld.AR submitted that the assessee deducted TDS from the payment to the resident translators not because of the reason that it constitute technical services but because such payment gives rise to income chargeable tax in the hand of the resident translators. In case of the non-

:: 5:: resident translators, they are sourced through Internet and rendered services residing abroad and so does not result in source of income in India and the payment was made to them does not come under the purview of chargeable section of Income Tax Act. The payment made to them is not liable to tax in India due to which TDS was not deducted on such payment. The Ld.AR relied on the order of CIT(A) and relied on the decision of this ITAT in assessee’s own case for the AY 2009-10 in of 2014 dated 30.07.2014.

6.0 We have heard the rival submissions and perusal of the material placed before us. The Ld.AR relied on the decision of assessee’s own case for the AY 2009-10 on similar facts and held as under:

“We have heard the submissions made by the representatives of both the sides and have perused the orders of the authorities below. The Assessing Officer has made disallowance of Rs.2.63 Crores under Section 40(a)(i) on account of non-deduction of tax at source on the payments made to non-resident translators. The authorities below have held translation services to be technical in nature. On the other hand, the contention of the assessee is that the payment for translation services to non- residents does not fall within the ambit of “fees for technical, managerial or consultancy services”. Let us first understand the scope of the term “technical services”. The expression “technical services” has not been defined anywhere in the Act. However, “fees for technical services” has been defined in Explanation 2 to Section 9(1)(vii) of the Act, which reads as under:- “Explanation (2) – for the purposes of this clause, “fees for technical services” means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “Salaries”” The dictionary meaning of the word “technical” as given in Oxford English Dictionary is – “(1) relating to a particular subject, art, or craft, or its techniques requiring special knowledge to be understood;

:: 6:: (2) involving or concerned with applied and industrial sciences relating to the operation of machines; (3) according to a strict application or interpretation of the law or rules”. The Chambers English Dictionary explains the term “technical” as – “(1) relating to practical skill or applied science, especially those sciences useful to industry; (2) relating to a particular subject or requiring knowledge of particular subject to be understood; (3) according to a strict interpretation of the law or rules; (4) belonging or relating to or showing a quality of technique”. In the present case, the assessee is getting the translation of the text from one language to another. The only requirement for translation from one language to other is, the proficiency of the translators in both the languages, i.e. the language from which the text is to be translated, to the language in which it is to be translated. The translator is not contributing anything more to the text which is to be translated. He is not supposed to explain or elaborate the meaning of the text. Apart from the knowledge of the language, the translator is not expected to have the knowledge of applied science or the craft or the techniques in respect of the text which is to be translated. A bare perusal of Explanation 2 to Section 9(1)(vii), which explains “fees for technical service” and the dictionary meaning of the word “technical” makes it unambiguously clear that translation services rendered by the assessee are not technical services. Therefore, the payment made by the assessee to the non-resident translators would not fall within the scope of “fees for technical, managerial or consultancy service” as detailed in Explanation 2. In our considered view, the CIT(Appeals) has travelled beyond the definition of “fees for technical service” to bring the translation services within the compass of the term “fees for technical services”. In our considered opinion, the payments made by the assessee to non-residents on account of translation services do not attract the provisions of Section 194J. The disallowance made under Section 40(a)(i) is thus deleted. This ground of appeal of the assessee is allowed. Respectfully, following the decision of the coordinate Bench of this tribunal, since the facts in the case are identical to the facts of the AY 2009- 10, we hold that the services rendered by the assessee are not technical services as per explanation of Sec.9(i)(vii) of Income Tax Act and the assessee is not required to deduct the tax at source and accordingly, we

:: 7:: confirm the order of the Ld.CIT(A). The Revenue’s ground of appeal on this issue is dismissed.

In the result, the appeal is dismissed. 6.

Order pronounced in the open court on 25th November, 2016, at Chennai.