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TMI Blog2022 (3) TMI 1434X X X X Extracts X X X X X X X X Extracts X X X X ..... g the advertisement platform is under the control of Facebook, Ireland. It is an admitted fact that the assessee company makes use of standard facility which is provided for displaying advertisement on the website of Facebook, Ireland which was also provided to its other global customers in the like manner. In the present case, the assessee was very well aware that Facebook, Ireland is a non-resident and the advertisement payment made to Facebook, Ireland will not come under the purview of TDS and, therefore, has chosen not to deduct tax at source. It is pertinent to note that the assessee has given specific task of advertisement banner to the Facebook Ireland. The element of fees for technical services is determined if there is any technical aspect involved by providing services by the company from whom the services are rendered. As per letter dated 19.01.2015, Facebook Ireland stated that no servers that host the Facebook.com product are located in India. In the present case, the assessee has demonstrated before us that the assessee is taking the privilege of platform of Facebook, Ireland which is not either in the nature of royalty or technical services. The payment terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made to Facebook, Ireland ( Facebook ) towards banner advertisement expenses amounting to INR 10,46,35,355 are in the nature of Fees for Technical Services ( FTS ) which are rendered in India and hence within the meaning of Section 9(1)(vii) of the Act and thereby, erred in disallowing the aforesaid sum in view of the provision of Section 40(a)(ia) of the Act. 2.1 On the facts and circumstances of the case and in law, the learned CIT(A) has legally erred in stating that the payments made to Facebook towards banner advertisement expenses amounting to INR 10,46,35,355 should be disallowed under Section 40(a)(ia) read with Section 9(1)(vii) and 195 of the Act on account of non-withholding of taxes, without appreciating the fact that the payments were clearly in the nature of business profits and not FTS , as held by several tribunal decisions. 2.2 On the facts and circumstances of the case, the learned CIT(A) has factually erred in holding that the Appellant has not filed the terms and conditions agreed between the Appellant and Facebook.com, without acknowledging the fact that the Appellant has not entered into any such agreement and moreover, the Appellant has filed the Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiate that the payments for advertisement expenses were to Facebook, Ireland were made under the said agreement. 2.7 On the facts and circumstances of the case, the learned CIT(A) has factually erred in stating that the Appellant has been unable to substantiate that Appellant does not have any contract with Facebook Inc, USA, without verifying the role of Facebook Inc. merely on his own conjectures and surmises. 2.8 On the facts and circumstances of the case, the learned CIT(A) has factually erred in alleging that the advertising services are canvassed through Indian subsidiary of Facebook.com viz. Facebook India Online Services Private Limited, located in Hyderabad, by stating the same as a dependent agent of Facebook.com. Further, the learned CIT(A) alleged that Appellant was liable to withholding of taxes under Section 195 of the Act stating that these advertising revenues of the Indian subsidiary would be taxable in India. The above allegation of learned CIT(A) is without conducting any inquiries and verifications and thereby, passing the order on the basis of mere suspicion and own surmises and conjectures. 2.9 On the facts and circumstances of the case, the learned C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in stating that all the cases cited by the Appellant discussed whether advertisement charges constituted Royalty or not and not whether these payments constitute FTS without appreciating the fact that such judicial precedents have also discussed the taxability under Section 9(1)(vii) of the Act for payments toward advertisements expenses. The learned CIT(A) has further failed to distinguish judicial precedents relied upon the Appellant. 2.15 On the facts and circumstances of the case and in law, the learned CIT(A) legally erred in holding that payment to Facebook, Ireland was in nature of FTS and hence liable for withholding of taxes without considering the recommendation of the High-Powered Committee constituted by the Central Board of Direct Taxes vide Notification No. F No 500/ 122/99 dated December 16, 1999, which suggests that payment for banner advertisement is not in the nature of FTS. 3. Ground 3 Erred in disallowing Travelling Expenses 3.1 On the facts and circumstances of the case and in law, the learned CIT(A) has legally erred in disallowing the Travelling Expenses amounting to INR 24,20,753 on an adhoc basis on account of failure of furnishing relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A). The CIT(A) partly allowed the appeal of the assessee thereby sustaining the addition related to disallowance u/s 40(a)(ia). 5. The Ld. AR submitted that the assessee has not rendered any technical services from the company Facebook. In fact, the payments made to the Facebook cannot come under the purview of Section 9 of the Act as all the payments to non-resident are not liable to withhold taxes u/s 195 of the Act. The payments made to Facebook, Ireland towards banner advertisement expenses are not in the nature of fees for technical services which was rendered in India and therefore could not come within the meaning of section 9(1) of the Act and therefore disallowance u/s 40(a)(ia) is not valid disallowance. The Ld. AR submitted that the payments were clearly in the nature of business profits and not that of fees for technical services as held by several Tribunal decisions. The Ld. AR further relied upon the decision of Hon ble Supreme Court in the case of G.E. India Technology Centre Pvt. Ltd. 193 Taxman 234 wherein it is held that the provisions relating to tax deducted at source applies only to those sums which are chargeable to tax under the Income Tax Act, 1961. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 40(a)(i) of the Act. 6. The Ld. DR submitted that the cross-objection should be allowed and the delay should be condoned as during the proceedings, the Revenue has rectified its original order and corrected the mistake of giving proper section i.e. 40(a)(i) of the Act which deals with royalty and deduction to that extent. The Ld. DR relied upon the assessment order and the order of the Ld. CIT(A) as well. 7. We have heard both the parties and perused all the relevant material available on record. The assessee company is engaged in the business of providing a platform for online gaming, more particularly that of Rummy. The assessee company incurred advertisement expenses amounting to Rs.10,46,35,355/- for banner advertisement on the website of Facebook. It is pertinent to note that for the purpose of uploading the banner advertisement on Facebook the advertisement related information is put up at the interface provided by the Facebook, Ireland in the required format. Facebook, Ireland, after due verification of the advertisements, upload the advertisement on its server. While uploading the advertisement on Facebook it is an admitted position that the assessee company does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and manner to the Assessing Officer to determine in such a manner as may be a prescribed. The said application though in the present case has not been made by the assessee cannot be treated as a mandate because the Section clearly states that such person may make an application as may be prescribed. In the present case, the assessee was very well aware that Facebook, Ireland is a non-resident and the advertisement payment made to Facebook, Ireland will not come under the purview of TDS and, therefore, has chosen not to deduct tax at source. The assessee has relied upon the decision of Uraban Ladder Home Decor Solutions Pvt. Ltd. - ITA No.615 to 620/Bang/2020 - order dated 17.08.2021, Google India Pvt. Ltd. - 127 Taxmann.com 36 - Karnataka High Court, M/s. Inception Business Services - ITA No.2674/Chny/2016 - order dated 18.02.2019, Carat Lane Trading (P) Ltd., 89 Taxmann.com 434 as well as decision in the case of ITO vs. Right Florist Pvt. Ltd., 25 ITR (T) 639 (Kolkata Tribunal). All these decisions are though factually identical yet the observations made in these decisions are applicable in the present case. These decisions also highlight that advertisement expenses in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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