2024 (6) TMI 145 - AT - Income Tax

TDS u/s 195 - Disallowance u/s. 40(a)(i) by holding payments made by the assessee to MCICS and MCII as Royalty u/s 9(1)(vi) - HELD THAT - In the instant case while making the addition on account of disallowance u/s. 40(a)(i) by holding payment made by the assessee to VBSNI as Royalty under section 9(1)(vi) of the Act the AO simply stated that similar payments were made by the assessee company to MCI Communication Service in earlier years and disallowances u/s 40(a)(i) of the Act were made. When the AO himself equated the payments made to VBSNI as similar to payments made to MCI Communication Service which were considered as Royalty and held as liable for deduction of tax as per provisions of sec. 195 then certainly this issue gets covered by the decision of the Hon ble ITAT Delhi D Bench in appellant s own case for the AYrs. 2010-11 to 2015-16 wherein the Hon ble ITAT Delhi D Bench clearly held that such payments do not fall within the ambit of royalty within the relevant Article of DTAA and the assessee company is not required to deduct TDS on such payments. Respectfully following the above decision of the Hon ble Delhi ITAT D Bench which now stands confirmed by the Hon ble Delhi High Court 2023 (12) TMI 347 - DELHI HIGH COURT as held that the AO was not justified in making addition on account of disallowance u/s. 40(a)(i) of the Act by holding payments made by the assessee to VBSNI as Royalty under section 9(1)(vi) of the Act the AO is directed to delete the same. The grounds of appeal raised by the appellant regarding this issue are allowed - Appeal of revenue dismissed.

Summary

Issues:
1. Whether the payments made by the assessee to associated enterprises are in the nature of royalty and subject to TDS under section 195 of the Income Tax Act.
2. Whether the payments made for business support services to a fellow subsidiary qualify as royalty and are liable for TDS under section 195 of the Act.

Analysis:
1. The appeal by the Revenue challenged the order of the Commissioner of Income Tax (Appeals) regarding payments made by the assessee to its associated enterprises located outside India. The Assessing Officer (AO) held that the payments were in the nature of royalty and required TDS deduction under section 195 of the Act. The assessee contended that the payments did not qualify as royalty and cited judicial precedents to support its case. The CIT(A) agreed with the assessee, noting that the issue had been previously decided in favor of the assessee by the ITAT Delhi Bench. The CIT(A) directed the deletion of the disallowance made by the AO under section 40(a)(i) of the Act. The Delhi High Court confirmed the Tribunal's decision, dismissing the Revenue's appeal. The Tribunal upheld the CIT(A)'s decision, stating that the issues were settled in favor of the assessee, and dismissed the Revenue's appeal.

2. Regarding the payments made for business support services to a fellow subsidiary, the AO disallowed the amount under section 40(a)(i) of the Act for not withholding taxes, equating them to royalty payments. The assessee argued that the services provided were different from telecom services and did not qualify as royalty. The CIT(A) agreed with the assessee, referencing the ITAT Delhi Bench's decision in the assessee's own case for previous assessment years. The CIT(A) directed the deletion of the disallowance made by the AO, and the Delhi High Court upheld the Tribunal's order. The Tribunal affirmed the CIT(A)'s decision, stating that the issues were settled in favor of the assessee, and dismissed the Revenue's appeal.

In conclusion, the Tribunal upheld the decisions of the CIT(A) in both issues, confirming that the payments made by the assessee to its associated enterprises and the fellow subsidiary were not in the nature of royalty and were not liable for TDS under section 195 of the Income Tax Act. The Tribunal dismissed the Revenue's appeal, as the substantive grounds raised had no merit in light of the settled decisions in favor of the assessee.