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2021 (9) TMI 852 - AT - Income TaxTDS u/s 195 - Consideration for advertisement is paid to the overseas bank account of Non-resident - DTAA entered between India and Ireland, the AO held that the above said payments are taxable in India primarily as 'royalty' and alternatively as FTS/FIS - demand u/s. 201(1) @ 20% of the payments and also charged interest u/s. 201(1A) - HELD THAT - The facts prevailing in the instant cases are identical with the facts of M/s. Urban Ladder 2021 (8) TMI 927 - ITAT BANGALORE with regard to the payments made to M/s. Facebook, Ireland towards advertisement charges. Accordingly, following above said decision, we hold that the payments made by the assessee the non-resident company M/s. Facebook, Ireland cannot be considered ad royalty payments and hence they do not give rise any income chargeable in India under Indian Income tax Act in all the three years under consideration. There is no requirement to deduct tax at source from those payments u/s. 195 - Hence the assessee herein cannot be considered as an assessee in default u/s. 201(1) of the Act. Accordingly, we set aside the orders passed by Ld. CIT(A) for the years under consideration and direct the AO to delete the demand raised u/s. 201(1) of the Act and also the consequential interest charged u/s. 201(1A) of the Act - Decided in favour of assessee.
Issues Involved:
1. Whether the payments made by the assessee to M/s. Facebook Ireland towards advertisement charges are taxable as 'royalty' under the Income Tax Act and DTAA. 2. Whether the assessee is liable to deduct tax at source under section 195 of the Income Tax Act on these payments. 3. Whether the assessee can be treated as 'assessee in default' under section 201(1) of the Income Tax Act for non-deduction of tax at source. 4. Whether the interest charged under section 201(1A) of the Income Tax Act is justified. Detailed Analysis: 1. Taxability of Payments as 'Royalty': The primary issue was whether the payments made to M/s. Facebook Ireland for advertisement services should be classified as 'royalty' under the Income Tax Act and the Double Taxation Avoidance Agreement (DTAA) between India and Ireland. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that these payments were taxable in India as 'royalty' under section 9(1)(vi) of the Income Tax Act and the DTAA. The AO explained that the advertisement services provided by Facebook involved complex technology, design, and process, which allowed advertisers to target specific groups and monitor the effectiveness of their campaigns. This was considered an advanced form of online advertising, and the AO concluded that the payments were for the use of Facebook's technology and processes, thus classifying them as 'royalty'. However, the Tribunal referred to the Supreme Court's decision in the case of Engineering Analysis Centre of Excellence Pvt. Ltd., which clarified that payments for software and related services do not constitute 'royalty' under the DTAA. The Tribunal found that the agreements with Facebook did not transfer any copyright or provide the right to use any intellectual property. The payments were for the use of Facebook's platform to place advertisements, which did not amount to 'royalty'. 2. Liability to Deduct Tax at Source: The Tribunal examined whether the assessee was required to deduct tax at source under section 195 of the Income Tax Act. The AO had raised a demand under section 201(1) for non-deduction of tax at source, treating the assessee as 'assessee in default'. The Tribunal relied on the Supreme Court's ruling in the Engineering Analysis case, which held that payments for software and related services are not 'royalty' and do not require tax deduction at source under section 195, as they do not create any interest or right in the copyright. The Tribunal concluded that the payments made to Facebook Ireland for advertisement services did not constitute 'royalty' under the DTAA and, therefore, were not subject to tax deduction at source under section 195. 3. Assessee in Default: Since the payments were not taxable as 'royalty' and no tax deduction at source was required, the Tribunal held that the assessee could not be treated as 'assessee in default' under section 201(1) of the Income Tax Act. Consequently, the demand raised by the AO under section 201(1) was set aside. 4. Interest under Section 201(1A): Given that the assessee was not liable to deduct tax at source, the consequential interest charged under section 201(1A) of the Income Tax Act was also not justified. The Tribunal directed the AO to delete the interest charged under section 201(1A) for all the assessment years under consideration. Conclusion: The Tribunal allowed the appeals of the assessee, setting aside the orders of the CIT(A) and directing the AO to delete the demands raised under section 201(1) and the interest charged under section 201(1A) for the assessment years 2012-13 to 2015-16. The payments made to Facebook Ireland for advertisement services were not considered 'royalty' and were not subject to tax deduction at source under section 195.
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