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2019 (12) TMI 500 - AT - Income TaxDefault in Deduction of Tax at source - payment of license fee - non-allowable deduction - reimbursement of expenses - escapement of income - HELD THAT - This issue is covered in favour of the assessee by the decision of the Pune Bench of the Tribunal in assessee own case JOHN DEERE INDIA PVT. LIMITED VERSUS THE DY. DIRECTOR OF INCOME TAX, (INTERNATIONAL TAXATION) -1, PUNE. 2019 (8) TMI 1437 - ITAT PUNE where it was held that lease line charges are at best reimbursement of expenses and hence, not liable for deduction of tax at source. The Ld. DR could not bring any material or relevant documents on records to demonstrate that the order of the Tribunal in assessee‟s own case has been set aside or stayed by the Higher Judicial Forum. The Revenue has not pointed out any distinguishing feature in the facts of the case with that of the assessee‟s own case in earlier year - following the findings in the earlier year and for similar reasons, it can be held that the assessee has not defaulted in deduction of TDS on the impugned payments made - the order of the Ld. CIT(Appeals) set aside. Appeal allowed - decided in favor of assessee.
Issues involved:
1. Non-deduction of tax at source on payments made to Associated Enterprise (AE) - reimbursement of expenses. 2. Taxability of payments made for IT support services, software use, service access, and lease line charges. 3. Applicability of Section 40(a)(ia) of the Income Tax Act, 1961 for non-deduction of TDS. 4. Interpretation of Double Taxation Avoidance Agreement (DTAA) between India and the USA regarding royalties and fees for technical services. 5. Assessment of payments made for web-based training fees and expats salaries. Detailed Analysis: 1. The issue revolved around the non-deduction of tax at source on payments made to the Associated Enterprise (AE) under the guise of reimbursement of expenses. The Assessing Officer contended that the payments made without TDS deduction were taxable as fees for technical services under Section 9(I)(vii) of the Act. The Ld. CIT(Appeals) upheld the AO's decision invoking Section 40(a)(ia) for non-deduction of TDS, leading to the initiation of proceedings under section 147 of the Act. 2. The payments made for IT support services, software use, service access, and lease line charges were deemed as technical services and taxable as fees for technical services under Section 9(I)(vi) & 9(I)(vii) of the Act and Article 12 of the DTAA. The AO added the amount to the total income of the assessee due to non-deduction of taxes before remitting the money to non-residents. 3. The Tribunal, in a previous case for A.Ys. 2007-08 and 2008-09, held that the assessee was not liable to deduct TDS on payments made to the AE. The Tribunal emphasized that the purchase of software and certain other charges did not fall under the definition of royalty or fees for technical services, thereby canceling the demand created under section 201(1) and interest charged under section 201(1A) of the Act. 4. The interpretation of the DTAA between India and the USA was crucial in determining the taxability of payments made for technical or consultancy services. The Tribunal held that in the absence of transfer of technology, certain payments, such as web-based training fees, were not covered under the definition of fees for technical services, absolving the assessee from defaulting in TDS deduction. 5. The issue of payments made for web-based training fees and expats salaries was also addressed, following a similar line of reasoning as in the previous case. The Tribunal held that in the absence of transfer of technology, the payments were not covered under fees for technical services, leading to the allowance of the appeal by the assessee in both cases. In conclusion, the Tribunal allowed the appeals of the assessee in both ITA Nos. 1255/PUN/2017 and 1257/PUN/2017, emphasizing the non-default in TDS deduction based on the interpretations of the Act and the DTAA, along with the absence of transfer of technology in certain payments.
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