2016 (8) TMI 552 - AT - Income Tax

TDS u/s 195 - disallowance made against payment made to Consequence Australia Pty. Ltd., Australia, for purchase of database by treating it as payment made for obtaining technical services which comes within the scope of section 9 consequently attracting the provisions of section 40(a)(i) read with section 195 - Held that - Double Taxation Agreement between India and Australia is not considered by the Revenue while arriving at their respective decisions. Therefore, in the interest of justice, we hereby remit the matter back to the file of the learned Assessing Officer for de novo consideration with a direction to pass appropriate order as per law and merit keeping in view our abovementioned observations. In the result, the appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
1. Disallowance of payment made to Consequence Australia Pty. Ltd. for purchase of database.
2. Interpretation of technical services under section 9 of the Income-tax Act.
3. Applicability of section 40(a)(i) read with section 195 of the Act.
4. Consideration of Double Taxation Agreement between India and Australia.

Analysis:
1. The appeal was filed by the assessee against the order of the Commissioner of Income-tax (Appeals) sustaining the disallowance of payment made to Consequence Australia Pty. Ltd. for purchasing a database. The Assessing Officer disallowed the amount as TDS was not deducted, invoking section 40(a)(i) of the Income-tax Act, 1961.

2. The issue revolved around whether the payment made for the database purchase constituted technical services under section 9 of the Act. The Commissioner of Income-tax (Appeals) considered the database as specialized and tailor-made, involving technical expertise by technically qualified personnel. Therefore, the purchase of such a database was deemed a technical service within the ambit of section 9, necessitating TDS deduction under section 195.

3. The Commissioner upheld the Assessing Officer's decision, emphasizing that the database supplied was customized and not general data available in the market. As the assessee failed to withhold tax under section 195, the disallowance under section 40(a)(i) was deemed appropriate. However, the Tribunal noted that the Double Taxation Agreement between India and Australia was not considered by the Revenue in their decision-making process.

4. In light of the above observation, the Tribunal remitted the matter back to the Assessing Officer for fresh consideration, directing a review of the order in accordance with the law and merits, taking into account the Double Taxation Agreement between India and Australia. Consequently, the appeal of the assessee was allowed for statistical purposes, emphasizing the need for a comprehensive review considering all relevant legal aspects.

This detailed analysis of the judgment highlights the key issues addressed by the Tribunal regarding the disallowance of payment for database purchase, the interpretation of technical services, and the applicability of relevant sections of the Income-tax Act, while also emphasizing the importance of considering international agreements in tax matters.