2018 (12) TMI 600 - AT - Income Tax

TDS u/s 195 - Disallowance u/s. 40(a)(i) - non deduction of tds on payment as Royalty covered u/s. 9(1)(vi) read with Explanation 2 (iva) and Explanation 5 - assessee failed to withhold tax on the payment made to Amazon - DTAA - Held that - As decided in assessee s own case 2018 (10) TMI 1434 - ITAT PUNE Explanation 5 has been inserted to section 9(1)(vi) by the Finance Act, 2012 with retrospective effect on 01-06-1976 and since the payment had already been made before the insertion of the provision, no deduction of tax at source could have been made. The Tribunal further observed that there was no amendment in the DTAA between the two countries analogous to the Explanation 5 to section 9(1) of the Act and accordingly Amazon was not chargeable to tax in respect of Web hosting charges received from the assessee in India. The Tribunal still further held that the amount paid to Amazon, at the first instance, was not in the nature of royalty itself. DR fairly admitted that the facts and circumstances prevailing in the instant year are mutatis mutandis similar to those of preceding years. Respectfully following the precedent, I overturn the impugned order on this score and order for the deletion of addition of made and confirmed by the authorities below. - Decided in favour of assessee.

Summary

Issues: Disallowance of payment under section 40(a)(i) of the Income-tax Act, 1961 for failure to withhold tax on Web hosting charges paid to Amazon.

Analysis:
The appeal before the ITAT Pune concerned the disallowance of a payment made by the assessee to Amazon for Web hosting charges under section 40(a)(i) of the Income-tax Act, 1961. The assessee, a Private Limited Company engaged in the distribution of recharge pens of DTH providers, claimed a deduction for the amount paid to Amazon. The Assessing Officer (AO) treated the payment as 'Royalty' under section 9(1)(vi) and disallowed the amount for non-withholding of tax at source. The CIT(A) upheld the disallowance.

Upon review, the ITAT noted that similar disallowances were made in preceding assessment years, which were subsequently overturned by the Tribunal. The Tribunal highlighted that Explanation 5 to section 9(1)(vi) was inserted with retrospective effect, and since the payment was made before this provision, no tax deduction at source was required. Additionally, it was observed that there was no corresponding amendment in the Double Tax Avoidance Agreement (DTAA) between the countries involved. The Tribunal concluded that Amazon was not liable to tax in India for the Web hosting charges. The Tribunal also determined that the payment was not in the nature of royalty itself.

In light of the preceding judgments and the similarity of facts, the ITAT overturned the impugned order and directed the deletion of the disallowed amount. Consequently, the appeal was allowed, and the addition of &8377; 46,28,457/- was set aside. The order was pronounced in open court on 5th December 2018.