2016 (2) TMI 235 - AT - Income Tax

TDS u/s 195 - carrier payments made to M/s. Clikatel, South Africa without deduction of tax at source - Held that - The nature of services rendered by non-resident i.e. M/s. Clickatel is only to transmit bulk SMS. The nature of service provided by Clickatel requires no technical knowledge and what was rendered was just transmission of data which requires no technical skill. The finding of the Commissioner of Income Tax (Appeals) that carrier which is a medium for sending bulk SMS and as such cannot be considered to be rendering any technical services. The Commissioner of Income Tax (Appeals) held that Clickatel which is a nonresident carrier rendered services outside India and no part of the payment made to Clickatel is chargeable to tax in India. The Commissioner of Income Tax (Appeals) also followed the decision of Hon ble Supreme Court in the case of CIT Vs.Bharti Cellular Ltd. (2010 (8) TMI 332 - Supreme Court of India) on the issue. The Hon ble Delhi High Court the case of CIT Vs. Bharti Cellular Ltd. (2008 (10) TMI 321 - DELHI HIGH COURT ) held that these services do not involve human intervention and these services cannot be regarded as fee for technical services. No good reason to interfere with the decision of the Commissioner of Income Tax (Appeals) in holding that payment made by the assessee to Clickatel is not fees for technical services and no TDS is required to be made - Decided against revenue Addition on income accrued not offered to tax - CIT(A) deleted the addition - Held that - As decided in assessee s own case since the appellant maintains books on accrual system, income shall be recognized only when it accrues. In the given case, the income accrues only when the appellant sends the required no. of SMS. Therefore, the service charges received in advance for the service to be rendered in future years are not liable to tax in the year of receipt. Only on completion of the service, the appellant has right over the amount that was received in advance. .In view of the above, the action of the AO is not justified in making the above disallowance and hence directed to be deleted. - Decided against revenue

Summary

Issues:
1. Condonation of delay in filing cross-objection.
2. Disallowance under section 40(a)(i) for carrier payments.
3. Addition of income accrued but not offered to tax.

Condonation of Delay in Filing Cross-objection:
The Tribunal addressed a 19-day delay in filing the cross-objection, considering the reasons provided by the assessee regarding the unavailability of the authorized person to sign necessary documents. After reviewing the affidavit, the Tribunal found sufficient reasons for the delay and thus condoned it, allowing the cross-objection for adjudication.

Disallowance under Section 40(a)(i) for Carrier Payments:
The primary issue in the Revenue's appeal was the deletion of disallowance under section 40(a)(i) for carrier payments made to a company in South Africa without tax deduction at source. The Tribunal referred to a previous case involving the same assessee for the assessment year 2009-10, where a similar issue was discussed. The Tribunal upheld the findings of the Commissioner of Income Tax (Appeals) that the nature of services provided by the non-resident carrier did not constitute technical services, as it involved no technical knowledge and was merely the transmission of data. Citing relevant legal provisions and court decisions, the Tribunal concluded that the payment made to the non-resident carrier was not chargeable to tax in India, leading to the dismissal of the Revenue's appeal on this ground.

Addition of Income Accrued but Not Offered to Tax:
Another issue raised in the Revenue's appeal was the addition of income amounting to Rs. 1.02 crores by the Assessing Officer, representing income accrued but not offered to tax. The Tribunal referenced a previous case for the same assessee in the assessment year 2009-10, where it was established that income accrues only when services are provided, and advances received for future services are not taxable in the year of receipt. Following the precedent and the Commissioner of Income Tax (Appeals) decision, the Tribunal rejected the Revenue's appeal on this issue, confirming that the addition made by the Assessing Officer was unjustified.

In conclusion, both the appeal of the Revenue and the cross objection of the assessee were dismissed based on the detailed analysis and findings provided by the Tribunal. The judgment was pronounced on January 6, 2016, in Chennai.