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Income Tax Appellate Tribunal, “A”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI, JM
O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT(A), Mumbai, for the assessment year 2010-2011, in the matter of order passed u/s.201(1)/201(1A) of the I.T.Act.
Rival contentions have been heard and record perused. The AO held that assessee is in default for non-deducting tax of internet charges u/s.194J as against 194C. Accordingly, he held the assessee in default u/s.201(1)/201(1A) of the I.T.Act. By the impugned order the CIT(A) confirmed the action of AO.
From the record we found that during the year under consideration assessee has paid internet charges for use of internet connectivity and 2 deducted tax thereon u/s.194C. As per AO payment so made for internet charges comes within the definition of fee for technical services, therefore, assessee was liable for deduction of tax at source u/s.194J of the Act. Accordingly, AO held that assessee is in default u/s. 201(1)/201(1A) of the I.T.Act. While confirming the action of AO, the CIT(A) held that as per the amendment, the domestic payments now covered u/s.194J of the Act, and, therefore, the ratio of decision relied on by the assessee in the case of Skycell Communications Ltd. 251 ITR 53 (Madras High Court) is not applicable in the instant case.
It was contended by ld. AR that even after amendment the Delhi bench of the Tribunal in the case of Global One India P. Ltd., order dated 15-4-2014, M/s Velti India P. Ltd, (ITAT Chennai Bench) order dated 27-2- 2014 and ITAT Hyderabad Bench in the case of Market Tools research P Ltd. order dated 5-2-2014, have held that even after amendment the proposition of law laid down by the Hon’ble Madras High Court in the case of Skycell Communications Ltd. 251 ITR 53, wherein it was held that payments for use of standard facilities by the public at large in which some form of technical service is inherent are not covered u/s.194J, is not applicable even after the amendment to section 9(1)(vi) Explanation 6. Therefore, the assessee cannot be held to be in default.
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.
3 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 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.
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.
The AO also held that assessee having not deducted tax on purchase of computer software development, was in default u/s.201(1)&201(1A). 9. From the record we found that the assessee had purchased computer software amounting to Rs.14,96,240/- for business use and had capitalized the same. No TDS has been deducted by the assessee on the purchase of the softwares. However the AO treated the software purchased, as a 'Technical service' accordingly held that the TDS should be deducted u/s.194J. Accordingly Shortfall of Rs. 1,69,544 was added u/s.201(1) and interest u/s 201(1A) amounting to Rs. 59,341/- was also charged. 10. By the impugned order, the CIT(A) confirmed the action of AO. 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 ITA 5 No 4944/Mum/2002 has defined the scope of the aforesaid terms in the following manner: • 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.
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).
Accordingly, the order of the lower authorities on both the issues are set aside and appeal is allowed in favour of the assessee.
In the result, appeal of assessee is allowed. Order pronounced in the open court on this 02/08/ 2016. Sd/- Sd/- (RAM LAL NEGI) (R.C.SHARMA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक Dated 02/08/2016 प्र.कु.मभ/pkm, नन.स/ PS आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A), Mumbai. 3.