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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: Ms. MADHUMITA ROY & SHRI BHAGIRATH MAL BIYANI
PER Ms. MADHUMITA ROY - JM:
The instant appeal filed by the Revenue is directed against the order dated 05.07.2018 passed by the Commissioner of Income Tax (Appeals)-I, Indore (in short ‘CIT(A)’), arising out of the order dated 28.03.2016 passed by the Income Tax Officer-2(5), Indore under section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) for Assessment Year 2013-14.
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During the course of assessment proceedings, upon perusal of the financial statement of income filed by the assessee, it revealed that the assessee has debited an amount of Rs.1,05,02,145/- as ‘advertisement expenses’ and Rs.70,32,022/- as ‘ business promotion expenses’ under other expenses in the P&L account. On 02.03.2016, the assessee was asked as to why TDS has not been made at the time of payment in terms of Provision of Section 195 of the Act upon which the assessee submitted that the assessee is carrying business which requires to book slots on Google, Facebook and various website companies. Under the agreement, the company gives details of the bank account and credit card and as soon as these companies provide the space and advertisement, directly deduct the amount from the assessee’s account. Further that providing the space on multiple sites by the companies is a continuous feature and deduction of the payment is consequential impact and the company has no role in quantum of the amount. Since, these companies are foreign entities and have no permanent establishment in India, the income earned by these entities are not chargeable to tax and therefore, no requirement of making TDS and the provision of Section 40(a)(i) of the Act is not applicable at all. However, the plea of the assessee was not accepted by the Ld.AO and the amount of payment of Rs.1,05,02,145/- made to the foreign companies as advertisement expenses and Rs.72,32,022/- as sales promotion were disallowed under Section 40(a)(i) of the Act, which was, in turn, deleted by the Ld.CIT(A) with the following observations:
“4.1.1The section 195 states that any person responsible for paving to a non-resident or a foreign company, any sum chargeable to tax under the Act is required to deduct tax at source at the rates in force. The appellant company is paying advertisement charges/ sales promotion which are the business receipt of those companies and therefore being the entity not chargeable to tax in India, no deduction of tax is
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required. There is no requirement of TDS. The section 40(a)(i) of The Act is also not applicable. The nature of payment in head of Advertisement and Business Promotion is the same however company created two heads. 4.1.2 The explanation to section 195 which has made amendment in Finance Act, 2012 shall be applicable only to the entities which arc taxable in India in any manner but not to the companies which are not liable to be taxed in India. The judicial interpretation always stands that the explanation cannot overrule the main section and in this regard the specific mention in the Tribunal Order in Case of Prithvi Information Solutions Ltd. where the ITAT HYDERABAD Bench has further clarified that “Even though Explanation 2 to section 195 clarifies the position that whether or not a non-resident person has a residence or place of business or business connection in India or any, the Explanation cannot override the main provision of section 195 about ‘sum chargeable’ under4 the provisions of the Act. As defined in section 5, no income accrues or arises or deemed to accrue or arise in India on the payments made in UFS by branch there. Therefore, the payments made abroad cannot be considered as income chargeable under the provisions of the Act.” Hence, in light of the above, the appellant is not liable to deduct TDS on foreign payments not chargeable to tax in India. 4.1.3 The above companies to whom payments of advertisement are made have presence in Canada and USA. Particularly the major companies Airpush Inc., Millennial Media, belong to USA. India has a double taxation treaty with the Government of USA and according to the Article No.7 i.e. Business Profit. As per the Article No.7 it is clear that where there is no permanent establishment in the other country then the income will be liable to be taxed contracting state. In this case the aforesaid companies have no permanent establishment or business connection in India and they are subjected to tax in contracting state i.e. USA and since it is not liable to tax in India. Therefore the payment is not liable to TDS U/S 195. Further as per the Judicial Pronouncement the treaty with any country will always prevail over the Income Tax Act. 1. Union of India vs. Azadi Bachao Andolan [2003] 132 Taxman 373 (SC). 2. Director of Income Tax vs. New Skies Satellite BV. [2016] 68 taxmann.com 8 (Delhi).”
As these companies are of Canada and USA and in view of the Double Taxation Treaty with the Government of USA and India and particularly under Article 7 thereof as there is no permanent establishment of the assessee company in India, the income would liable to be taxed in the contracting state i.e. USA and not in India such view taken by the Ld.CIT(A) is, therefore, found to be just and proper. The ultimate finding of the Ld.CIT(A) that the payment is not liable to TDS under Section 195 of the Act and the consequent
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deletion of addition made by the First Appellate Authority is found to be correct and without any ambiguity so as to warrant interference. Thus, the appeal preferred by the Revenue is found to be devoid of merit and hence dismissed.
In the result, Revenue’s appeal is dismissed.
This Order pronounced on 10 /11/2022
Sd/- Sd/- (BHAGIRATH MAL BIYANI) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Indore; Dated 10/11/2022 TRUE COPY S. K. Sinha, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)- 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Indore 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,
(Sr.PS) ITAT, Indore 1.Date of dictation on 14.09.2022 2.Date on which the typed draft is placed before the Dictating Member 14.09.2022 3.Date on which the approved draft comes to the Sr.P.S./P.S. 4.Date on which the fair order is placed before the Dictating Member for pronouncement 5.Date on which the fair order comes back to the Sr.P.S./P.S 6.Date on which the file goes to the Bench Clerk 7.Date on which the file goes to the Head Clerk…………. 8.The date on which the file goes to the Asstt. Registrar for signature on the order…………………… 9.Date of Despatch of the Order………Date on which the typed draft is placed before the Dictating Member 19.12.2019 1. Other Member………………Date on which the approved draft comes to