2017 (8) TMI 846 - AT - Income Tax

TDS u/s. 194J - payments made towards Web Hosting Charges - whether Web Hosting Charges came within the purview of the definition of fees for technical services ? - Held that - Though the provision of Web Hosting Charges by the service provider would involve installation of sophisticated equipment on his part to facilitate rendering of such services to the customers, however the collection of a fee by him for use of such standard facility provided to all those willing to pay for it cannot be characterized and therein brought within the sweep of the term fee for technical services . We further find that a coordinate Bench of the Tribunal, viz. ITAT, Mumbai Bench D in the case of Pacific Internet (India) Pvt. Ltd. Vs. ITO (2008 (12) TMI 429 - ITAT MUMBAI) relying on the judgment in the case of Skycell Communication Ltd. (2001 (2) TMI 57 - MADRAS High Court ) had also held that mere collection of a fee for use of standard facility provided to all those willing to pay for it does not amount to the fee having been received for technical services. We thus are of the considered view that as Web Hosting Charges can safely be construed as a facility which is provided to facilitate hosting of a website, therefore, the fee provided by the assessee for availing such service cannot be characterized as a as a fee for technical service . Thus when web hosting cannot be held to be in the nature of technical service , therefore the amount paid by the assessee as regards the same would not be liable for deduction of tax at source u/s. 194J. - Decided in favour of assessee TDS u/s 194J - amount paid towards renewal of SAP Licence - whether the payment by the assessee towards renewal of SAP Licence was in the nature of payment towards technical services / royalty , as provided in Explanation 2 of Section 9(1)(vii)/Section 9 (1)(vi)? - Held that - We respectfully follow the aforesaid judgment in the case of Infrasoft Ltd. (2013 (11) TMI 1382 - DELHI HIGH COURT) and finding ourselves as being in agreement with the aforesaid view arrived at by the coordinate bench of Tribunal in the case of Reliance Industries Ltd. (2016 (6) TMI 96 - ITAT MUMBAI ), are thus of the considered view that the amount paid by the assessee towards renewal of SAP licence for a period of two years, can neither be characterized as a payment for transfer of a copyright, nor the assessee be held as being in default for having failed to deduct tax at source as per Explanation 4 of Sec. 194J, which was not available at the time of making of the said payment. - Decided in favour of assessee Tds u/s. 194H - amount retained by the banks for facilitating sale of goods through credit cards - Held that - M/s. Kotak Securities Ltd. (2012 (2) TMI 77 - ITAT MUMBAI) had therein concluded that on the footing that an assessee remained under no obligation to deduct tax at source u/s. 194H in respect of Bank Guarantee Charges, it could therefore safely be concluded that no such liability was also cast on the assessee in respect of the amounts retained by the Credit Card company/Banks for facilitating the use credit card internet gateway to the assessee. We have given a thoughtful consideration to the issue under consideration and find that the same is squarely covered by the order of the coordinate bench of the ITAT, Hyderabad in the case of M/s Vah Magna Retail (P) Ltd. (2013 (8) TMI 299 - ITAT HYDERABAD ). - Decided in favour of assessee TDS liability on AMC for computers - Held that - We find that the CIT(A) observing that as each of the respective payments made by the various retail dealers of the assessee company in respect of computer AMC was lower than ₹ 20,000/-, therefore, no liability was cast upon it for deducting tax at source. That during the course of the hearing of the appeal nothing was submitted before us by the ld. D.R to dislodge the aforesaid factual observations of the CIT(A). We thus, finding no infirmity with the order of the CIT(A) on the issue under consideration, therefore, uphold the same. TDS liability on AMC for Pest control - TDS u/s 194C OR 194J - Held that - CIT(A) being of the considered view that the payments made by the assessee towards AMC for pest control did not involve any professional or technical services, but as definitely there was a contract of work, therefore, the assessee had rightly deducted tax at source u/s. 194C, and could not be brought within the sweep of Section 194J. The ld. D.R could not controvert the aforesaid observations of the CIT(A). We find no infirmity in the aforesaid observations of the CIT(A) and are persuaded to be in agreement with him. TDS liability on AMC for Air conditioners - TDS u/s 194C OR 194J - Held that - When the AMC charges for air conditioners paid by the assessee were in term with the contents of the composite contract for supply of spare parts and services, therefore, as observed by the CIT(A), the assessee had rightly deducted tax at source u/s. 194C and could not be held to be liable for deduction or tax at source u/s. 194J. We thus finding no infirmity in the order of the CIT(A), thus uphold the same in respect of the issue under consideration. Short/deficit deduction of tax at source in respect of hoarding charges - TDS u/s 194I OR 194C - Held that - The benevolent circulars issued by the CBDT are binding on the department, and there can be no escape on the part of the department to give effect to the same. We thus are of the considered view that now when the CBDT itself had held that the assessee would be liable for deduction of tax at source in respect of hoarding charges under Sec. 194C, with the sole exception that where such hoarding rights are sub-let by the assessee, the deduction of tax at source in such cases would be under Sec. 194I. We are of the considered view that now when the assessee had paid the hoarding charges in respect of advertisements carried out in respect of its products, and had at no stage sub-let its hoarding rights , therefore, the case of the assessee does not fall in the aforesaid exception and it would remain liable for deduction of tax at source in respect of the payments made towards hoarding charges u/s. 194C. We thus finding no infirmity in the order of the CIT(A). Payments towards AMC for computers - TDS u/s 194C OR 194J - Held that - That as the AMC contract for the computers entered into by the assessee, on a perusal of which alone the fact that as to whether the same was in the nature of normal maintenance contract including supply of spares, or otherwise, could be discerned, is not available before us, we therefore in all fairness restore the matter to the file of the A.O to readjudicate the liability of the assessee after duly taking cognizance of the parameters contemplated by the CBDT in its aforesaid Circular No. 715, dated 08.08.1995. Needless to say, the A.O while re-adjudicating the aforesaid issue shall afford reasonable opportunity of being heard to the assessee, who shall remain at a liberty to adduce additional evidence to substantiate its contention. Levy of interest u/s. 201(1A) for a period of 36 months in respect of the tax determined u/s. 201(1) pertaining to the payments made by the assessee towards AMC for computers. - Held that - We find that as the said contention of the assessee can only be adjudicated after referring to the facts available on record, which are not there before us, therefore, now when we have pursuant to our aforesaid directions called upon the A.O to carry out a fresh adjudication in respect of the liability of the assessee as regards deduction of tax at source u/s 194J, as well as directed him to verify the liability of the assessee towards tax u/s. 201(1), in the backdrop of the claim raised before us that the payee s had already paid the taxes on the aforesaid amount, we therefore further direct the A.O to also verify the aforesaid contention of the assessee that interest u/s. 201(1A) had wrongly been levied u/s 201(1A) for a period of 36 months, in respect of the aforesaid payments TDS u/s 194C or 194J - payments made to M/s Makani Creative Pvt. Ltd. in respect of the work executed by them - nature of work - Held that - We find that the nature of services rendered by M/s. Makani Services Pvt. Ltd.(supra) as elaborated by us hereinabove, squarely falls within the sweep of the definition of Professional services as stands contemplated in the Explanation (A) of Section 194J of the Act . We thus in light of our aforesaid observations are not persuaded to accept the contention of the ld. A.R. that it was under no obligation to deduct tax at source u/s 194J in respect of payments made to the aforesaid concern, viz. M/s Makani Creative (P) Ltd., and being of the considered view that the assessee had availed the professional services of M/s Makani Creative Pvt. Ltd. (supra), therefore, hold that the latter was liable for deduction of tax at source u/s. 194J.

Summary

Issues Involved:
1. Applicability of Section 194J for web hosting charges.
2. Applicability of Section 194J for renewal of SAP license.
3. Levy of interest under Section 201(1A).
4. Applicability of Section 194H for commission paid to banks for credit card sales.
5. Applicability of Section 194C vs. 194J for annual maintenance contracts (AMC) for computers, air conditioners, and pest control.
6. Applicability of Section 194I vs. 194C for hoarding charges.
7. Applicability of Section 194J for retainership fees paid to M/s. Makani Creative Pvt. Ltd.

Detailed Analysis:

1. Applicability of Section 194J for Web Hosting Charges:
The tribunal concluded that web hosting charges do not fall under the purview of "fees for technical services" as defined in Explanation 2 of Section 9(1)(vii). The fee for using a standard facility provided to all those willing to pay does not amount to technical services. Therefore, the assessee was not liable to deduct tax at source under Section 194J for web hosting charges. The tribunal allowed the assessee's appeal on this ground.

2. Applicability of Section 194J for Renewal of SAP License:
The tribunal held that the payment for the renewal of the SAP license does not constitute royalty or technical services under Explanation 2 of Section 9(1)(vii) and Section 9(1)(vi). The payment was for the right to use the software and not for the transfer of copyright. Therefore, the assessee was not liable to deduct tax at source under Section 194J. The tribunal allowed the assessee's appeal on this ground.

3. Levy of Interest under Section 201(1A):
Since the tribunal concluded that the assessee was not liable to deduct tax at source under Section 194J for web hosting charges and SAP license renewal fees, the levy of interest under Section 201(1A) was rendered infructuous. The tribunal dismissed this ground as infructuous.

4. Applicability of Section 194H for Commission Paid to Banks for Credit Card Sales:
The tribunal upheld the CIT(A)'s decision that the amounts retained by banks for facilitating the use of credit card internet gateway do not constitute "commission" or "brokerage" under Section 194H. The tribunal agreed with the CIT(A) and dismissed the revenue's appeal on this ground.

5. Applicability of Section 194C vs. 194J for Annual Maintenance Contracts (AMC):
The tribunal upheld the CIT(A)'s decision that payments for AMC for computers, pest control, and air conditioners were rightly subjected to tax deduction under Section 194C. The tribunal found no infirmity in the CIT(A)'s order and dismissed the revenue's appeal on this ground.

6. Applicability of Section 194I vs. 194C for Hoarding Charges:
The tribunal upheld the CIT(A)'s decision that payments for hoarding charges are covered under Section 194C and not Section 194I, as per CBDT Circular No. 715. The tribunal found no infirmity in the CIT(A)'s order and dismissed the revenue's appeal on this ground.

7. Applicability of Section 194J for Retainership Fees Paid to M/s. Makani Creative Pvt. Ltd.:
The tribunal upheld the CIT(A)'s decision that the payments to M/s. Makani Creative Pvt. Ltd. were for professional services and thus liable for tax deduction under Section 194J. However, since the payee had paid the taxes, the assessee was not treated as being in default under Section 201(1). The tribunal dismissed the assessee's appeal on this ground but allowed the appeal regarding the levy of interest under Section 201(1A) for verification by the AO.

Conclusion:
The tribunal partly allowed the appeals of the assessee and dismissed the appeals of the revenue, upholding the CIT(A)'s decisions on most grounds while providing specific directions for re-adjudication and verification by the AO on certain issues.