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2018 (8) TMI 2091 - ITAT BANGALORETPS u/s 195 - Disallowance u/s 40(a)(i) - non-deduction of TDS in relation to payments made for professional services obtained from non-resident - scope of India-Philippines Double Taxation Avoidance Agreement - whether CIT (Appeals) has erred in upholding a disallowance for non-deduction of TDS on payment for gaming moderation services, to Stratpoint Technologies Inc. ["Stratpoint"/ "Service provider"]? - HELD THAT:- CIT(Appeals) has not spelt out as to which category the payment by the assessee to Startpoint would fall. In our view, it cannot be for the use of or right to use any copyright of literary, artistic or scientific work, etc. It cannot also be for the use of any patent, trademark, etc. It cannot also be for the use of or right to use, industrial, commercial or scientific equipment. If at all, it can be analysed as to whether it can be for the use of or right to use information concerning industrial, commercial or scientific expertise. We have already seen the nature of services rendered by Startpoint. The services rendered by Startpoint was in the nature of moderator for an online game developed by the assessee. As a moderator, certain services are expected to be performed by Startpoint. The results of moderation are given in the form of a report. By giving the results of moderation in the form of a report, assessee does not make payment to Startpoint by the Assessee as a payment for use of or right to use information concerning industrial, commercial or scientific expertise. Therefore, even under this clause of the definition of ‘royalty’, the payment in question cannot be said to be royalty and chargeable to tax under Article 13 of the DTAA. Thus we hold that the payment in question cannot constitute ‘royalty’ under Article 13 of the DTAA. Consequently, the payment in question cannot be brought to tax. Since the sum in question is not taxable in India, the provisions of section 40(a)(ia) of the Act are not applicable and therefore disallowance made by the revenue authorities cannot be sustained. The same is directed to be deleted. Ground No.1 is allowed.
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