2017 (1) TMI 1421 - AT - Income Tax

Short deduction of TDS on the amount paid towards charges for internet connectivity - TDS u/s 194J - Held that - Held 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. - Decided in favour of assessee. Non-deduction of tax u/s 194J in respect of the amounts paid towards purchase of computer software - Held that - 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.

Summary

Issues:
1. Whether the CIT(A) erred in confirming the order passed by the Assessing Officer under Section 201(1) for short deduction of TDS on charges for internet connectivity.
2. Whether the CIT(A) erred in confirming the action of the Assessing Officer in passing the order under Section 201(1) for non-deduction of tax on amounts paid towards purchase of computer software.

Analysis:
1. The first issue pertains to the deduction of TDS on charges for internet connectivity. The Assessing Officer held the assessee in default for not deducting tax under Section 194J of the Act. The CIT(A) upheld this decision, considering internet charges as falling under the definition of "royalty." However, the Tribunal referred to various decisions, including those of High Courts and Tribunals, to conclude that payment for internet usage does not constitute technical services under Section 194J. The Tribunal held that the payments made for internet charges do not fall within the definition of technical services, as envisaged in Section 194J, thereby overturning the lower authorities' decision.

2. The second issue involves the non-deduction of tax on amounts paid for the purchase of computer software. The Assessing Officer treated these payments as technical services subject to TDS under Section 194J. However, the Tribunal, following a similar decision in the assessee's own case, ruled that the purchase of software does not fall under fees for technical services. The Tribunal clarified that computer software purchases do not qualify as technical services under Section 194J, as they do not involve the rendering of managerial, technical, or consultancy services. Consequently, the Tribunal held that TDS was not required on payments made for the purchase of computer software. The grounds raised by the assessee were allowed, and the appeal was partly allowed, with the interest calculation under Section 201(1A) becoming academic due to the above decisions.