9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (4) TMI 1498 - AT - Income TaxTDS u/s 195 - disallowance u/s 40(a)(ia) - amount paid to non resident for non-deduction of TDS - payment made to the vendor s - domestic law override the treaty benefits or not? - whether be treated as fee for technical services , under the Indo-US DTAA? - as per revenue assessee is desirous of securing access to and use of the services that allows the assessee to serve advertisement on Internet - HELD THAT - The payment made by assessee to the vendor s can either be FTS or royalty, under relevant DTAA, or could be categorised to be business income under Article 7, in case there exists permanent establishment in India. All 3 characters cannot be attributed to the same kind of payment made by the assessee of the vendor s. We have perused the decisions relied by both sides. In our view, characterisation of payments for digital goods/services has always been a contentious issue. Sharing of data on world wide web/Internet has become an important marketing tool for the present-day business trend. As observed herein above, there are various decisions on this aspect which are rendered based on the peculiar facts. We note that, the payees are tax residents of various countries with whom India has DTAA. Therefore, in view of Section 90(2) of the Act the provisions of the Act or the DTAA whichever is more beneficial to the assessee shall apply. The conclusions with regard to payment for right to use software will equally apply to these types of payments and these has to be analysed in the light of the agreements entered into between the assessee and vendors in respective countries, in the light of the principles laid down by Hon ble Supreme Court in case of Engineering Analysis Centre of Excellence Pvt.Ltd. 2021 (3) TMI 138 - SUPREME COURT having regard to the DTAA. Various decisions relied by the Ld.AR as well as, the Ld.CIT.DR are based on the facts therein, however the basic principle enunciated by Hon able Supreme Court in case of Engineering Analysis Centre of Excellence Pvt.Ltd.(supra), that domestic law cannot override the treaty benefits, cannot be ignored. We therefore remand this issue back to the Ld.AO for de novo verification, in order to correctly characterise the nature of payment made by the assessee to various vendors. It may also be noted that, treaty benefits available to assessee cannot be done away with, in case it the circumstances so warrant. Disallowance of consultancy fees paid by assessee to various non-residents - revenue treated the consultancy fees paid as fee for technical services , thereby disallowing the expenditure under section 40(a)(ia) - HELD THAT - We note that, the revenue has not considered the agreements between the assessee and various parties located in different jurisdictions qua the DTAA, in order to ascertain the real character of the payment made. In the interest of justice, we remand these issues for both years under consideration back to the Ld.AO to consider it de novo in the light of the agreements entered into by the assessee with various parties having regard to the benefits, available to the assessee under the respective treaties. The assessee is directed to file all requisite details in support of its contention. The Ld.AO shall consider the evidence is filed in accordance with law by granting proper opportunity of being heard to the assessee. The Ld.AO shall take a view considering various decisions passed by this Tribunal as well as Hon ble Supreme Court and High Court. Disallowance of Software payment - AO disallowed the depreciation u/s 40(a)(ia) of the Act, by holding that the computer software was purchased without making TDS on the amount paid to the supplier - HELD THAT - In the facts of the present case, admittedly, the assessee capitalised the cost of the software purchased, on which no tax was deducted at source. It is also an admitted fact that, depreciation is not an outgoing expenditure, and therefore, provisions of section 40 (a)(i)/(ia) cannot be attracted. We draw support from the decision of Coordinate Bench of this Tribunal in case of, Kawasaki Microelectronics 2015 (9) TMI 9 - ITAT BANGALORE We therefore direct the Ld.AO to delete the addition made in the hands of the assessee. Disallowance of provision towards advertisement charges for assessment year 2012-13 - The provision created was in respect of services that was received by the assessee, which was reversed on the 1st day of subsequent year - AO disallowed the provision by holding that, they were uncrystallised liability. This view was sustained by the Ld. CIT(A) - HELD THAT - In the present facts of the case, we note that, the provision was in respect of a contingent liability for which invoices had not received. Under such situation, there is no accrual of income in the hands of the payee and that assessee immediately reverses it on the 1st day of the next accounting year even before the amount accrued to the payee. Therefore, in our view the ratio laid down by Hon ble Karnataka High Court in case of Karnataka Power Transmission Corporation 2016 (2) TMI 412 - KARNATAKA HIGH COURT squarely applies to the present facts of the case. Respectfully following the same, way direct the Ld.AO to delete the disallowance made in respect of the provision, that was made on the last day of the financial year relevant to assessment year under consideration, that stood reversed on the 1st day of next accounting year. Nature of expenses - Disallowance of Expenses on subsidiary - assessee incurred professional fees for establishing a subsidiary in Australia the Ld.AO disallowed the some treating it to be capital in nature, which was upheld by the Ld.CIT(A) - HELD THAT - Tribunal in case of On Mobile Global Ltd 2014 (9) TMI 45 - ITAT BANGALORE was considering an issue where assessee therein had made payment towards the due diligence and feasibility study conducted by a consultant before acquiring a company. Whereas, in the present facts of the case the expenditure has been incurred by assessee in order to establish a subsidiary company in Australia. This is an expenditure incurred for expanding assessee s business and has been rightly treated as capital in nature by the revenue authorities. We therefore do not find any infirmity in the view taken by the Ld.CIT(A). Accordingly this ground raised by assessee for assessment stands dismissed.
Issues Involved:
1. Disallowance of web hosting charges 2. Disallowance of provisions 3. Disallowance of subsidiary establishment expenses 4. Disallowance of consultancy fee 5. Disallowance of software payment 6. Disallowance of recruitment charges Issue-wise Detailed Analysis: 1. Disallowance of Web Hosting Charges: - Assessment Year 2012-13: The assessee made payments to various non-resident vendors for web hosting services without deducting TDS, arguing that the services were rendered outside India. The AO disallowed these payments under Section 40(a)(ia) of the Act, treating them as fees for technical services. The CIT(A) upheld the disallowance, stating that the services made available technical knowledge to the assessee. - Assessment Year 2013-14: Similar disallowance was made for payments to non-resident vendors. The Tribunal noted that the payments could either be categorized as fees for technical services or royalties, but not both. The Tribunal remanded the issue back to the AO for de novo verification, emphasizing that treaty benefits cannot be ignored. 2. Disallowance of Provisions: - Assessment Year 2012-13: The assessee created a provision for advertisement charges, which was reversed at the beginning of the next year. The AO disallowed the provision, considering it an uncrystallized liability. The CIT(A) upheld the disallowance. The Tribunal, relying on precedents, directed the AO to delete the disallowance, as the provision was reversed before any income accrued to the payee. 3. Disallowance of Subsidiary Establishment Expenses: - Assessment Year 2012-13: The AO disallowed professional charges incurred for establishing a subsidiary in Australia, treating them as capital expenditure. The CIT(A) upheld the disallowance, noting that the assessee had agreed to it during the assessment proceedings. The Tribunal found no infirmity in the CIT(A)'s view and dismissed the ground. 4. Disallowance of Consultancy Fee: - Assessment Year 2012-13: The AO disallowed consultancy fees paid to non-residents, treating them as fees for technical services under Section 40(a)(ia) of the Act. The CIT(A) upheld the disallowance. The Tribunal remanded the issue back to the AO for de novo verification, directing the AO to consider the agreements and treaty benefits. - Assessment Year 2013-14: Similar disallowance was made for consultancy fees paid to non-residents. The Tribunal remanded the issue back to the AO for de novo verification. 5. Disallowance of Software Payment: - Assessment Year 2013-14: The AO disallowed depreciation on software purchases for non-deduction of TDS, treating the purchase as revenue expenditure. The CIT(A) upheld the disallowance. The Tribunal directed the AO to delete the addition, noting that depreciation is a statutory deduction and not an outgoing expenditure, thus not attracting Section 40(a)(i)/(ia). 6. Disallowance of Recruitment Charges: - Assessment Year 2013-14: The AO disallowed recruitment charges paid to non-residents for non-deduction of TDS. The CIT(A) upheld the disallowance. The Tribunal remanded the issue back to the AO for de novo verification, directing the AO to consider the agreements and treaty benefits. Conclusion: The Tribunal allowed the appeals for statistical purposes, remanding several issues back to the AO for de novo verification, emphasizing the need to consider treaty benefits and the nature of payments made. The Tribunal directed the AO to delete the disallowance of software payment and provision for advertisement charges, while upholding the disallowance of subsidiary establishment expenses.
|
