2022 (4) TMI 175 - AT - Income Tax

TDS u/s 195 - non-deduction of TPS on payments to non-residents to different service providers - payments were in the case of Apple iOS, Google and LinkedIn.com - HELD THAT - Contention of the assessee is that it was not liable to deduct tax as the payments were in the case of Apple iOS, the App was used by customers through Apple iOS interface and the fee was first collected by Apple Ireland Ltd. and paid to the appellant after deduction of commission/fee by Apple Ireland ltd. Similarly, in the case of Google also, the mobile app of the appellant was also available to Android users through Google. In this case also Google collected the payments from the Android users. It also charged collection charges/ fee for collection of payment and remitting the same to the appellant - in the case of LinkedIn, the payment was made to LinkedIn for job posting only, which is in the nature of advertisement. It is further contended that there was no technical consultancy or managerial service being provided by Google or Apple to the appellant, and such payments were not chargeable to tax in India under any provision of the Act. And in the case of LinkedIn the payment was purely advertisement income in the hands of non-resident. The issue whether any tax would be deductible u/s 195 of the Act, depends upon the nature of payment a person makes. In the case in hand it is the case of the assessee that in respect of the transactions in question, provisions of Section 195 of the Act do not apply. Authorities below have not adverted to this core objection of the assessee. Therefore, the impugned order is set aside on the issue of deductibility of tax qua the payments made to non-residents in relation to the aforementioned transactions in question. Ground allowed for statistical purposes. Disallowance of PF ESI contribution, deposited by the assessee late as stipulated under the respective Acts - HELD THAT - This issue is covered in favour of the assessee by the judgment CIT Vs. AIMIL Ltd. 2009 (12) TMI 38 - DELHI HIGH COURT as also the judgment in the case M/s Pro Interactive Services (India) Pvt. Ltd. 2018 (9) TMI 2009 - DELHI HIGH COURT wherei held hat the amount paid is allowed as an expenditure only when payment is actually made. We do not think that the legislative intent and objective is to treat belated payment of employee's provident fund (EPD) and employee s State Insurance Scheme (ESI) as deemed income of employer under section 2(24)(x) - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of ?17,83,947/- on account of payment made to parties without deduction of tax u/s 195 of the Act.
2. Addition of ?3,42,631/- on account of late deposit of PF and ESI.
3. Addition of ?37,868/- alleging the same to be prior period expenses.

Detailed Analysis:

Issue 1: Addition of ?17,83,947/- on account of payment made to parties without deduction of tax u/s 195 of the Act

The primary contention revolves around whether the payments made to Apple iOS, Google, and LinkedIn required tax deduction under Section 195 of the Income-tax Act. The assessee argued that the payments were not chargeable to tax in India as they were for services that did not constitute technical, consultancy, or managerial services. Apple and Google acted as online marketplaces, collecting fees from users and deducting their commission before remitting the balance to the assessee. LinkedIn’s payments were for job postings, considered advertisement income, and hence not subject to TDS.

The Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) [CIT(A)] did not accept the assessee's explanation and upheld the addition, citing the failure to deduct tax as required under Section 195. However, the Tribunal found that the authorities below did not adequately address the core objection regarding the applicability of Section 195. Consequently, the Tribunal set aside the impugned order and remanded the issue back to the AO for verification and determination, directing the AO to provide a speaking order and afford the assessee adequate opportunity to present their case.

Issue 2: Addition of ?3,42,631/- on account of late deposit of PF and ESI

The assessee contended that the Provident Fund (PF) and Employees' State Insurance (ESI) contributions were deposited before the due date of filing the income tax return, even though they were delayed as per the respective Acts. The Tribunal noted that this issue is covered in favor of the assessee by the judgments of the Hon’ble Delhi High Court in CIT v. AIMIL Ltd. and Pr. CIT v. Pro Interactive Service (India) (P.) Ltd., which held that such contributions are allowable if paid before the filing of the return. Consequently, the Tribunal deleted the addition, allowing the assessee's appeal on this ground.

Issue 3: Addition of ?37,868/- alleging the same to be prior period expenses

The assessee chose not to press this ground during the hearing. Therefore, the Tribunal dismissed this ground as not pressed.

Conclusion:

The Tribunal allowed the appeal partly for statistical purposes, remanding the issue of tax deduction under Section 195 back to the AO for fresh determination while deleting the addition related to the late deposit of PF and ESI contributions. The ground related to prior period expenses was dismissed as not pressed.