2015 (10) TMI 930 - AT - Income Tax

TDS u/s 194J - Addition under Section 40(a)(i) - fees for translation services paid to non-resident translators without deduction of tax at source - 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 - Held that - 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 contribution 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 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. - Decided in favour of assessee. Invoking of the provisions of Section 115JB - Held that - Assessee has not been able to substantiate as to how the authorities below have erred in applying the provisions of Section 115JB. - Decided against assessee.

Summary

Issues:
1. Delay in filing the appeal.
2. Disallowance under Section 40(a)(i) for non-deduction of tax at source.
3. Interpretation of "fees for technical services" under Section 9(1)(vii).
4. Applicability of Section 115JB.

Issue 1: Delay in filing the appeal:
The appeal was filed with a delay of 5 days, attributed to unintentional miscalculation of the limitation period. The Appellate Tribunal, considering the delay as non-wilful due to a genuine mistake, condoned the delay in the interest of justice, allowing the appeal to be heard on merits.

Issue 2: Disallowance under Section 40(a)(i) for non-deduction of tax at source:
The Assessing Officer disallowed a payment of Rs. 2.63 crores under Section 40(a)(i) due to non-deduction of tax at source on payments made to non-resident translators. The contention arose from whether translation services provided by the assessee constituted "fees for technical services." The CIT(Appeals) upheld the disallowance, considering the services technical in nature. However, the Tribunal held that translation services did not fall within the ambit of technical services, thus deleting the disallowance under Section 40(a)(i).

Issue 3: Interpretation of "fees for technical services" under Section 9(1)(vii):
The Tribunal analyzed the term "technical services" as per Explanation 2 to Section 9(1)(vii) and dictionary definitions. It concluded that translation services, requiring proficiency in languages without additional technical knowledge, did not qualify as technical services. Therefore, the payments to non-resident translators were not subject to Section 194J, leading to the disallowance under Section 40(a)(i) being overturned.

Issue 4: Applicability of Section 115JB:
The assessee contested the application of Section 115JB, but failed to substantiate how the authorities erred in its invocation. Consequently, the Tribunal dismissed the appeal on this ground. Overall, the appeal was partly allowed, with the disallowance under Section 40(a)(i) being overturned, while the application of Section 115JB remained upheld.

This judgment highlights the meticulous analysis of legal provisions and definitions to determine the tax implications of specific services, emphasizing the importance of accurate classification for tax treatment.